Savills
Annual Report 2017

Plain-text annual report

2017 Report and Accounts S a v i l l s p l c 2 0 1 7 R e p o r t a n d A c c o u n t s Our vision To advise private, institutional and corporate clients seeking to acquire, manage, lease, develop or realise the value of prime residential and commercial property in the world’s key locations. Contents Overview 01 Group highlights 02 Savills at a glance Strategic Report 04 Chairman’s statement 08 Our business explained 10 Market insights 14 Key performance indicators 16 Chief Executive review 22 Chief Financial Officer’s review 25 Risks and uncertainties facing the business 30 Corporate responsibility Governance Financial statements 38 Corporate Governance Statement 78 Independent auditor’s report 38 Chairman’s introduction 85 Consolidated income statement 40 Leadership 44 Board of Directors 46 Group Executive Board 47 Effectiveness 50 Accountability 51 Audit Committee report 56 Compliance with the UK Corporate Governance Code 58 Directors’ Remuneration report 86 Consolidated statement of comprehensive income 87 Consolidated and Company statements of financial position 88 Consolidated statement of changes in equity 89 Company statement of changes in equity 90 Consolidated and Company statements of cash flows 74 Directors’ report 91 Notes to the financial statements 76 Directors’ responsibilities 151 Shareholder information Savills plc Report and Accounts 2017 Overview Strategic report Governance Financial statements Group highlights Revenue £1,600.0m (2016: £1,445.9m) Breadth of service (non-transactional) 53% (2016: 54%) Underlying profit* Underlying profit margin* £140.5m (2016: £135.8m) 8.8% (2016: 9.4%) Underlying earnings per share* 75.8p (2016: 72.5p) Operating cash generation £111.7m (2016: £93.3m) Statutory pre-tax profit margin 7.0% (2016: 6.9%) Property under management (sq ft) 1.9bn (2016: 1.8bn) Statutory profit after tax £81.1m (2016: £67.7m) Assets under management €16.5bn (2016: €16.2bn) Statutory earnings per share 58.8p (2016: 48.8p) Geographical spread (% non-UK) 61% (2016: 60%) * Underlying profit is calculated by adjusting reported pre-tax profit for profit/loss on disposals, share-based payment adjustment, impairments, amortisation of acquired intangible assets (excluding software), restructuring costs and acquisition-related costs refer to Note 2.2 to the financial statements for further explanation of underlying profit measures). Savills plc Report and Accounts 2017 01 Savills at a glance Savills is a global real estate services provider listed on the London Stock Exchange. We have an international network of over 600 offices and associates and over 34,000 staff throughout the Americas, the UK, Continental Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world. UK Revenue £627.1m (2016: £578.3m) Offices 124 (2016: 130) Employees 5,554 (2016: 5,136) See page 11 Continental Europe Revenue £182.4m (2016: £170.6m) Offices 45 (2016: 35) Employees 1,206 (2016: 1,103) See page 10 North America Revenue £224.8m (2016: £211.1m) Offices 30 (2016: 30) Employees 775 (2016: 676) See page 12 02 Savills plc Report and Accounts 2017 Overview Strategic report Our services Transaction Advisory The Transaction Advisory business stream comprises commercial, residential, leisure and agricultural leasing, tenant representation and investment advice on purchases and sales. See page 18 Consultancy Provision of a wide range of professional property services including valuation, building and housing consultancy, environmental consultancy, landlord and tenant, rating, development, planning, strategic projects, corporate services and research. See page 20 Property and Facilities Management Management of commercial, residential, leisure and agricultural property for owners. Provision of a comprehensive range of services to occupiers of property, ranging from strategic advice through project management to all services relating to a property. See page 20 Investment Management Investment management of commercial and residential property portfolios for institutional, corporate or private investors, on a pooled or segregated account basis. See page 21 Savills plc Report and Accounts 2017 03 Continental Europe Revenue £182.4m (2016: £170.6m) Offices 45 (2016: 35) Employees 1,206 (2016: 1,103) Asia Pacific Revenue £565.7m (2016: £485.9m) Offices 67 (2016: 60) Employees 26,894 (2016: 25,446) See page 12 Financial statementsGovernance Chairman’s statement “ The resilience and breadth of our operations across the globe, with continuing growth in key market shares, delivered a further strong performance in 2017.” Nicholas Ferguson CBE, Chairman 1866 Panic of 1866 (Europe) 1929 Wall Street Crash 1973 The OPEC Oil Price Shock 1875 1855 Savill & Son is founded by Alfred Savill 1900 1925 1950 1975 1980 1985 1990 1995 2000 1929–1939 The Great Depression 1855 – Savills first trades as a business Over 150 years of resilience… 04 Savills plc Report and Accounts 2017 Total dividend 30.2p (2016: 29.0p) Underlying profit £140.5m (2016: £135.8m) Statutory profit before tax £112.4m (2016: £99.8m) Results The Group’s underlying profit for the year increased by 3.5% to £140.5m (2016: £135.8m), on revenue which improved by 11% to £1.6bn (2016: £1.45bn). The Group’s statutory profit before tax increased by 13% to £112.4m (2016: £99.8m). Overview Savills delivered a further strong performance in 2017. In addition to substantial commercial transaction volumes in both the UK and a number of Asian and European markets, the relative resilience of Savills UK Residential transaction business, which achieved year-on-year revenue growth in challenging markets, was of particular note. This again demonstrated the importance of Savills strengths in prime markets of many of the world’s key cities where we increased market share. Currency movements also had a positive effect on the Group contributing approximately £3.9m in underlying profit and £2.8m in statutory profit before tax on translation. Our Transaction Advisory revenue grew by 13%, our Consultancy business revenue by 14% and our Property Management revenue by 9%, including the full year effect of the 2016 UK acquisition of GBR Phoenix Beard. Against the uncertain backdrop of world markets, Savills Commercial Transaction business grew revenue by 15% with strong performances in many markets including the UK and significant growth in the Asia Pacific region, in particular, Hong Kong, China, Japan and Australia. Our Residential businesses withstood challenging conditions achieving revenue growth of over 6%. Finally, Savills Investment Management Assets under Management (‘AUM’) increased to £14.6bn (2016: £13.9bn). Investment Management revenue declined as anticipated, reflecting the reduced level of disposal transactions from the liquidating SEB German Open Ended Funds we inherited as part of the acquisition of SEB Asset Management in 2015. The reduction in transaction fees in the Investment Management business, together with a decline in the volume of larger complex transactions in the US and the costs of expansion in a number of markets restricted the underlying profit margin to 8.8% (2016: 9.4%). The statutory pre-tax profit margin remained stable at 7.0% (2016: 6.9%), with lower acquisition-related costs and profits on disposal of investments offsetting the aforementioned expansion costs and decline in the US business. 1875 1900 1925 1950 1975 1980 1985 1990 1995 2000 1988 Savills listed on the London Stock Exchange 2000 Acquired FPD Savills (Asia) 1987 Black Monday 1997 The Asian Crisis 1997 First link with Asia …during a history of financial crisis Savills plc Report and Accounts 2017 05 Financial statementsGovernance Strategic reportOverviewChairman’s statement continued Business development Savills strategy is to be a leading advisor in the key markets in which we operate. Our global strategy is delivered locally by our experts on the ground with flexibility to adapt quickly to changes in circumstances and opportunities. They are supported by our regional and cross-border investment and occupier services specialists. Over the last few years we have acquired a number of complementary businesses and added teams and individual hires to our strong core business. During 2017, we continued to build our US presence with the acquisition of Cresa Orange County, a tenant representation business in California and the hire of a significant new capital markets team in New York. In Asia Pacific, we made some significant hires in investment sales teams in Beijing and Shanghai. In Continental Europe, the acquisitions of Aguirre Newman in Spain, Larry Smith in Italy and SB management in the Czech Republic and the recruitment of Industrial teams in Amsterdam and Warsaw further strengthened our presence across the continent. In the UK, we completed a number of team hires across our business lines together with the acquisitions of a residential lettings business (Granville Residential Ltd – Marlow) and a commercially focused business in Guernsey (Montagu Evans Channel Islands Ltd). Emerging technology continues to be a focal area in the real estate industry and also for our business. We have continued to invest in our own technology platform in order both to deliver innovative solutions to our clients through data analysis and insight and to drive internal efficiencies. One example is the formation of Workthere.com, Savills innovative response to the changing requirements of occupiers seeking serviced office/co-working space in global cities. In addition, we have reviewed a significant number of investment opportunities in the field of emerging technology and our proprietary investment arm, Grosvenor Hill Ventures (“GHV”), has made a number of investments in promising technology opportunities. GHV comprises a small technology team led by the Group CFO with a remit to support external technology- based businesses with the capability of significantly enhancing or disrupting traditional business models in real estate services. Our largest investment to date is in YOPA, the digital hybrid residential UK estate agent. During the last 12 months it has grown to become the 10th largest agent in the UK. We have also invested in Proportunity, an Artificial Intelligence (“AI”) based start-up focused on real estate valuation. Finally, in December we invested in VuCity, the first digital “smart Cities” platform which is focused on making planning applications faster and easier for sponsors and Local Authorities to progress. Board The Board of Savills announced in January that Jeremy Helsby will retire as Group Chief Executive at the end of 2018 after a 39 year career at Savills, 11 of them as Group Chief Executive. Jeremy will be succeeded by Mark Ridley, currently CEO of Savills UK and Europe, with effect from 1 January 2019. Mark will join the Board of Savills plc as Deputy Group Chief Executive on 1 May 2018. Dividends An initial interim dividend of 4.65p per share (2016: 4.4p) amounting to £6.3m was paid on 4 October 2017, and a final ordinary dividend of 10.45p (2016: 10.1p) is recommended, making the ordinary dividend 15.1p for the year (2016: 14.5p). In addition, a supplemental interim dividend of 15.1p (2016: 14.5p) was declared, based upon the underlying performance of our Transaction Advisory business. Taken together, the ordinary and supplemental dividends comprise an aggregate distribution for the year of 30.2p per share, representing an increase of 4% on the 2016 aggregate dividend of 29.0p. The final ordinary dividend of 10.45p per ordinary share will, subject to shareholders’ approval at the Annual General Meeting on 8 May 2018, be paid alongside the supplemental interim dividend of 15.1p per share on 14 May 2018 to shareholders on the register at 13 April 2018. 2005 Savills 150th Anniversary & Rebrand 2015 Savills acquired Smiths Gore and SEB 2009 Eurozone crisis 2005 2010 2015 2007–2008 The Financial Crisis 2013 New Global HQ 2014 Studley rebrands as Savills Studley 06 Savills plc Report and Accounts 2017 People I would like to express my thanks to all our staff worldwide for their hard work, commitment and continued focus on client service, enabling the Group to deliver this record performance in 2017. Outlook We have made a solid start to 2018 with a pipeline of business carried over from last year in many markets, although this is against the backdrop of heightened market uncertainty, geopolitical risks and rising interest rates. We anticipate some tempering of the strong transaction volumes of recent times in some markets. However, at this early stage in the year our expectations for 2018 currently remain unchanged. Nicholas Ferguson CBE Chairman Case Study Stratford, London Savills acted on behalf of Blackstone and Catalyst Capital on the disposal of The Stratford Centre in London. Prior to sale, the investment team provided long-term, strategic advice to the vendor. At the point of the sale the 206,000 sq ft (28,428 sq m) asset was fully let to retailers including Sainsbury’s, Lidl, New Look and Boots and benefitted from planning consent for 587 residential units. Savills was able to seamlessly combine residential and retail market capabilities to fully promote the asset management and development potential of the scheme. The highly targeted marketing campaign resulted in a sale for £141.5m, a significant premium to the asking terms and reflecting a sub 5% NIY. 2017 Listed on the London Stock Exchange International network of 600+ offices and associates 34,000+ employees worldwide The UK’s leading agency group Group revenue of £1.6bn 2017 Acquired Aguirre Newman Savills plc Report and Accounts 2017 07 Financial statementsGovernance Strategic reportOverviewOur resources and relationships Our business model Our business explained Our business model illustrates in simple terms how we create shareholder value through improving the strength of our premium brand, and through the delivery of profits and dividends to shareholders. We treat every client as an individual and take time to understand what they need and how we can best service them. We have built our brand and reputation on the quality of our people, relationships, resources and processes. Savills has a strong and well embedded culture, founded on an entrepreneurial approach and underpinned by our values and operational standards. All that we do is underpinned by strong governance, a disciplined approach to risk management and high standards of responsibility, which supports the sustainable development of our business. More detail of our governance structure, policies and practices can be found later in this Annual Report on pages 38 to 59. We are committed to delivering a high quality service and creating long-term relationships with our clients. Because of our personal approach to business, our people are fundamental to our business and we encourage an open and supportive culture in which every individual is respected. We strive to provide an environment in which our people can flourish and succeed. This allows us to recruit, motivate and retain talented people and build on our status as an employer of choice. We work hard to ensure that our people enjoy working at Savills’ promoting their personal and professional development. We encourage them to develop their careers within the Group, nurturing the entrepreneurs and leaders of the future to share in the success of the business. We firmly believe that our people are key to delivering excellent service to our clients and achieving our objectives; they give us a unique perspective of the markets in which we operate and connect our clients with real estate opportunities and market intelligence. To be the real estate adviser of choice in our markets, and deliver superior financial performance, we aim to employ people of the highest quality supporting the delivery of the highest standards of client service. By choosing Savills, our clients have access to over 34,000 staff with a broad range of experience, skills and local knowledge, based in offices in key real estate locations across the globe and benefit from our extensive market research material. Our value creation 08 Savills plc Report and Accounts 2017 Outstanding people Long-term client relationships Intellectual property Financial Local knowledge Entrepreneurial approach Client care programmes High quality servicer Market intelligence Brand and reputation Prudent capital structure Strong cash generation Defensive, scale business Cyclical high-margin businesses Property and facilities management 32% Consultancy 17% Investment management 4% Revenue by business Commercial transactions 36% Residential transactions 11% Our values Governance Underpinned by Pride in everything we do Board oversight Take an entrepreneurial approach to business High standards of governance Help our people fulfil their true potential Always act with integrity Disciplined approach to risk Risk mitigation to limit exposure to any one market or economy Business and geography diversification Shareholders Clients People Community Dividends 30.2p Underlying profit Underlying earnings per share 75.8p £140.5m High quality service Client care Client relationship management team Training and development Restructured training programme Employee engagement Achieved One Star status Diversity UK Diversity Group Reducing environmental impact Carbon emission reduction Community investment Community engagement programmes Savills plc Report and Accounts 2017 09 Financial statementsGovernance Strategic reportOverviewCase Study Gibson Hotel, Ireland Savills completed the sale of The Gibson Hotel, Dublin for approximately €87m to Deka Immobilien Market insights Spotlight on Europe The European economy enjoyed the strongest period of economic growth in more than a decade, despite lingering political uncertainty. Business expansion continued to drive office demand, often driven by the tech sector and by M&A activity. Consumer confidence was improving with demand for prime high streets driven by Fashion, Sports, Beauty and Technology brands, opening large inspirational flagship/lifestyle stores, as well as by the expanding presence of F&B. Additionally big box retailers were experimenting with smaller stores in tight, fast growing urban locations, with the additional benefit of easier pick-up and delivery services for online orders. Demand for logistics space has been rising across Europe, driven by improved economic conditions, rising trade volumes, and expanding e-commerce. Last mile logistics strengthened demand for mid-sized distribution centres, while the need for large-scale distribution centres in traditional logistics hubs continued to grow. In 2017 the total investment volume across our markets totalled €234bn, a 7% increase year on year thanks to strong investment growth in the second half of the year. Cross border investment accounted for over 50% of the total (compared to 44% the previous year), with Asian investors overtaking the US to become the largest overseas investors in Europe. Offices continue to be the asset class of choice accounting for 46% of the total investment volume. However, lack of stock and competitive pricing was driving investors to other asset classes. Of particular note, the industrial sector saw the biggest increase in investor demand accounting for 15% of the total investment volume, up from 11% in 2016 and 9% in 2015. UK Case Study – Property Management Royal Exchange, Internal Courtyard We act on behalf of the Landlord in managing The Royal Exchange located adjacent to Bank Station in the heart of the City of London. Opened in 1844 by Queen Victoria, this iconic and historic Grade I listed mixed-use scheme comprises over 30 contemporary retailers as well as four restaurants and cafés at ground and mezzanine levels comprising approximately 40,000 sq ft. The Royal Exchange is a luxury destination where the City converges to meet, eat and shop. It offers an unrivalled collection of boutique shopping and dining, specially curated for the Square Mile. Occupiers include Hermès, Smythson, Watches of Switzerland, Boodles and Tiffany & Co. amongst others. The impressive central courtyard is used for numerous large scale events including weddings and also serves as backdrop for television filming. Savills have been involved with The Royal Exchange since 2014 providing management and building consultancy services. 10 Savills plc Report and Accounts 2017 Overview Strategic report Governance Financial statements Spotlight on UK The commercial property investment market in the UK surprised on the upside in 2017, with turnover for the full year of just under £66bn against our forecast at the start of 2017 of £55bn. This meant that 2017 was the second best year on record, a surprising result given the negativity around Brexit that was rife at the start of last year. Just under half of last year’s acquisitions were by non-domestic investors, with this proportion rising to 80% in the Greater London market. The single most active source of capital was Asia Pacific, whose investors put over £13bn into the UK market, much of which went to London. However, both European and American investors also invested more in the UK in 2017 than they had in 2016. While the office market remained the most active of the three main sectors last year, the biggest growth in activity was in the industrial sector where the global appetite for income security combined with an enthusiasm for the growth prospects for distribution property. Other income-producing asset classes also saw a sharp increase in investor demand last year. Occupational demand improved year on year in the office markets both inside and outside London, with steady take-up and low supply remaining the theme in the industrial sector. Retail markets remained challenged by cautious tenant demand. Price growth across the UK’s residential markets slowed in 2017. Buyer sentiment was affected by underlying political and economic uncertainty and the prospect of gradual increases to the cost of debt over the medium term. The focus of residential investment continued to shift away from private individuals toward institutions as the build to rent sector continued to gather momentum, while the fiscal and regulatory environment for buy to let investors became less hospitable. On the flip side, the residential development sector benefitted from continued Government support and a strong political focus on increasing housing delivery. The prime housing markets continued to remain price sensitive, not least because of greater exposure to transactional and other capital taxes, particularly for overseas buyers. Values in the prime central London market fell by a further 4.0% over the course of the year, meaning that they sat 15.9% below their 2014 peak at the end of 2017. Elsewhere price adjustments have been much less significant, though prices for high value homes fell marginally across the commuter zone. However, transaction levels over £1m remained relatively robust, particularly in the markets outside of London. Case Study Kensington House, Phillimore Gardens Beautifully presented freehold detached house on Phillimore Gardens backing onto Holland Park was sold by Savills Kensington in January 2017. The house featured an incredible indoor swimming pool and wonderful garden. Savills plc Report and Accounts 2017 11 Case Study Signature Tower, Seoul Transaction Advisory Savills represented one of South Korea’s largest single office property deals in the last decade, which was also the biggest amongst the transactions Savills Asia Pacific advised on in 2017. Shinhan BNP Paribas, has successfully sold Signature Towers Seoul, a 17-storey premium class office asset which extends to 99,991 sq m, located in Seoul’s CBD for approximately USD640 million (KRW726 billion). Case Study W.W. Norton Savills Studley advised publisher W.W. Norton on a short-term lease extension and expansion while conducting a thorough search for alternative locations. With viable options in hand, the team then helped W.W. Norton secure a long-term lease renewal for 95,000 sq ft in its prime Midtown Manhattan location at an aggressive rent, including a substantial work allowance to cover a staged renovation. Market insights continued Spotlight on Asia Across both developed and emerging Asia a broadly positive economic environment alongside a stable political landscape saw markets continue to perform well during 2017 as low interest rates and ample liquidity proved to be broadly supportive of both transactions volumes and asset prices. Despite concerns over debt levels in China and slowing growth, as well as a greater propensity for protectionism in some regional markets, no single risk factor succeeded in undermining investor confidence in local real estate. The appetite for land in Asia’s rapidly changing cities remained undimmed and sales of development sites hit record levels in 2017 led by China. Hong Kong also saw a notable growth in land sales (+78% YoY) supported by buyers from the mainland. Sales of income producing assets surged during the year despite exceptionally low yields and a scarcity of good quality stock. We note that investors are also beginning to explore a broader realm of asset classes beyond simply office and retail. In Japan, Asia’s second largest market, investors took a greater interest in second tier cities such as Osaka and Yokohama, driven partly by heavily compressed yields in Tokyo. The appeal of Australia endured for the security of its more mature commercial markets but scarcity and historically low yields had a negative impact on volumes. Cross border activity remained a feature of the Asia-Pacific markets in 2017 and while activity from European and North American investors slowed, Asian investors took up the slack. Both Hong Kong and Singapore have remained important financial intermediaries for global real estate capital flowing into and out of the region. Spotlight on North America A strengthening US economy, particularly in tech and industrial sectors, compensated for slowing international investment. US economic growth in 2017 outpaced the previous year significantly, with real GDP rising by 2.3%, versus 1.5% in 2016. Overall commercial leasing activity slowed slightly in 2017 in major US markets such as Chicago, Los Angeles, New York, San Francisco/Silicon Valley and Washington, DC. Demand for office space, however, increased in the energy-dependent markets of Houston and Denver, as well as in the Sunbelt markets of Atlanta, Austin and Dallas. Asking rent remained relatively stable in most major markets in 2017. The exception to this was in several significant tech markets (Austin, Boston, San Francisco/Silicon Valley) which all experienced 5% or higher growth in asking rent. Investment sales activity declined for the second straight year. However the tech markets (Boston, San Francisco/Silicon Valley and Seattle) continued to be strong and there was increased investment activity in secondary markets (Charlotte, Raleigh/Durham, Nashville, Pittsburgh and Portland). Investor interest in the industrial sector remained high — it was the only asset class to see sales volumes increase in 2017. 12 Savills plc Report and Accounts 2017 Overview Strategic report Governance Financial statements Case Study IKEA, Sweden Investment Management 2017 saw the launch of Nordic Fund III – Retail, a closed ended fund targeting Core+ retail in capital and regional cities across Sweden, Finland, Denmark and Norway. It targets dominant/under-managed assets including retail warehouse parks, local food anchored shopping centres and high street stores. It is a follow on fund to Nordic Fund I – Retail, which outperformed its benchmark by 2.6% over 5 years, and is led by a local team of 15 investment professionals. The Fund has thus far raised £129m and has made its first acquisitions, purchasing retail parks from IKEA in Sweden. Spotlight on Investment Management 168 private equity real estate funds raised total capital of $93bn in 2017, a drop from the $117bn raised in 2016. However, the average amount raised in final closings by private closed ended funds rose from $496m in 2016 to $533m. The fall in number of closed ended private funds was the fifth straight year of declines, from a high of 339 funds closing in 2013. However, this fall in number of closed funds is not matched by a fall in private equity dry powder, with Preqin reporting that there was $249bn dry powder available versus $238bn 12 months prior. However, 47% of funds closed in 2017 did not meet their fund raising targets – a five year high. The weight of money and continued improvement of occupier market fundamentals continued to see capital values increase while yields decrease. PERE noted that the trend for more opportunistic and value added funds fell in 2017, from 63% to 60% of investors strategies. Increase in debt funds grew substantially, from 18% in 2016 to 29% in 2017. Investors continued to look to North America for investments, with 41% of funds for the continent. Europe was the second biggest focus, with 24% of all funds European focused, continuing an increase in interest in the continent. From 2011–13, Europe accounted for 19% of capital. From 2014–17, this has risen to 27%. The largest funds continued to gain in market share, with the six largest funds in the market accounting for nearly half of capital sought by the top 20. Number of closed- ended real estate funds closed in 2016: Average amount of capital raised by private equity real estate funds in 2016: 168 $533m (down from 183 in 2016) (up from $496m in 2016) Total capital raised in 2016: Total capital available to fund managers: $93bn $249bn (down from $117bn in 2016) (up from $238bn in 2016) Savills plc Report and Accounts 2017 13 Key Performance Indicators Financial KPIs Revenue £1,600.0m Cash generation £111.7m Underlying profit £140.5m 2017 2016 2015 2014 2013 £1,600.0m 2017 £1,445.9m £1,283.5m £1,078.2m £904.8m 2016 2015 2014 2013 £111.7m £93.3m £122.0m £96.1m £70.8m 2017 2016 2015 2014 2013 £140.5m £135.8m £121.4m £100.5m £75.2m The measure The measure The measure Revenue growth is the increase/ decrease in revenue year-on- year. The amount of cash the business has generated from operating activities. Underlying profit growth is the increase/decrease in underlying profit year-on-year. The target The target The target To deliver growth in revenue from expansion both geographically and by business segment. To maintain strong cash generation to fund working capital requirements, shareholder dividends and strategic initiatives of the Group. To deliver sustainable growth in underlying profit. Non-Financial KPIs Breadth of service offering 53.3% non-transactional income Geographical spread 61.0% non-UK Property under management 1,945.2 million sq ft 2017 2016 2015 2014 2013 53.3% 54.3% 51.9% 54.1% 60.4% 2017 2016 2015 2014 2013 61.0% 60.0% 56.3% 53.5% 48.9% 2017 2016 2015 2014 2013 1,945.2m sq ft 1,757.8m sq ft 2,043.1m sq ft 2,090.0m sq ft 2,031.7m sq ft The measure The measure The measure Revenue by type of business. The target To maintain a healthy balance of transactional and less or non-transactional business revenues. Geographical diversity is measured by the spread of revenues by region. The target To progressively balance the Group’s geographical exposure through expansion in our chosen geographic markets. Total square footage property under management. The target To progressively increase the global square footage under management. 14 Savills plc Report and Accounts 2017 Underlying profit margin 8.8% Underlying earnings per share 75.8p Statutory profit after tax £81.1m Statutory earnings per share 58.8p 2017 2016 2015 2014 2013 8.8% 9.4% 9.5% 9.3% 8.3% 2017 2016 2015 2014 2013 75.8p 72.5p 63.2p 55.2p 43.1p 2017 2016 2015 2014 2013 £81.1m £67.7m £64.9m £62.7m £51.4m 2017 2016 2015 2014 2013 58.8p 48.8p 47.0p 46.8p 39.8p The measure The measure The measure The measure Profitability after all operating costs but before the impact of exceptional costs and taxation. The target To deliver growth in operating margin by improving the efficiency with which services are offered. Earnings per share (‘EPS’) is the measure of profit generation. Underlying EPS is calculated by dividing underlying profit by the weighted average number of shares in issue. The target To deliver growth in underlying EPS to enhance shareholder value. Statutory profit after tax growth is the increase/decrease in statutory profit after tax year-on-year and over a longer term. The target To deliver sustainable long-term growth in statutory profit after tax. Statutory EPS is the measure of statutory profit generation and is calculated by dividing statutory profit after tax by the weighted average number of shares in issue. The target To deliver growth long-term growth in statutory EPS to enhance shareholder value. Assets under management €16.5bn 2017 2016 2015 2014 2013 €7.2bn €5.1bn €16.5bn €16.2bn €17.1bn The measure Growth in assets under management of our investment management business, Savills Investment Management. The target To increase the value of investment portfolios through portfolio management, new mandates and the launch of new funds. Savills plc Report and Accounts 2017 15 Financial statementsGovernance Strategic reportOverviewChief Executive’s review “ Profit growth in Asia Pacific and the UK, alongside the continued development of our operations in Continental Europe, enabled Savills to deliver strong results in 2017.” Jeremy Helsby, Group Chief Executive Our strategy Our strategy is to deliver value as a leading real estate advisor to private, institutional and corporate clients seeking to occupy, acquire, manage, lease, develop or realise the value of prime residential and commercial property in the world’s key locations. The key components of our business strategy are as follows: #1 Commitment to clients – we aim to deliver the highest standards of client service through professional, motivated and high calibre people 16 Savills plc Report and Accounts 2017 6 31 (17) (59) 6 3 2 7 20 (24) 6 3 Key operating highlights Strength in key commercial markets, geographical diversity and the resilience of our residential businesses drove an improved performance for Savills in 2017. UK Asia Pacific Continental Europe • Transaction Advisory revenues up 13%. Strong performances in the UK and Asia Pacific including Hong Kong, China, Australia and Japan. North America Unallocated Total Revenue £m Underlying profit/(loss) £m 2016 % growth 2017 2016 % growth 626.0 565.7 182.4 224.8 1.1 578.3 485.9 170.6 211.1 – 1,600.0 1,445.9 8 16 7 6 n/a 11 2017 76.5 55.6 11.2 7.8 72.1 42.6 13.5 18.9 (10.6) (11.3) 140.5 135.8 • Growth in revenues in Continental Europe with profits impacted by start-up costs in the Czech Republic and recruitment there and in the Netherlands. On a constant currency* basis Group revenue grew by 7% to £1,551.6m, underlying profit grew by 1% to £136.6m and statutory profit before tax grew by 10% to £109.6m. Our Asia Pacific business represented 35% of Group revenue (2016: 34%) and our overseas businesses as a whole represented 61% of Group revenue (2016: 60%). Our performance by service line is set out below: • Savills Studley’s revenue up 6% but profitability impacted by investment in a new capital markets team in New York. • Further growth from our less- transactional services with Consultancy revenue up 14% and Property Management revenue up 9%. • Savills Investment Management performed ahead of our expectations, with AUM up 5% to £14.6bn. Overall the Group increased underlying profit by 3.5% to £140.5m (2015: £135.8m). On a statutory basis, profit before tax increased 13% to £112.4m (2016: £99.8m). Savills geographic and business diversity were key to achieving the year’s result. Our performance analysed by region was as follows: * Revenue and underlying profit for the year are translated at the prior year exchange rates to provide a constant currency comparison. Revenue £m Underlying profit/(loss) £m 2016 % growth 2017 2016 % growth Transaction Advisory 746.2 660.8 Property and Facilities Management Consultancy Investment Management Unallocated Total 513.1 273.1 66.5 1.1 472.8 240.3 72.0 – 1,600.0 1,445.9 13 9 14 (8) n/a 11 2017 81.5 25.3 31.0 13.3 80.0 23.6 25.9 17.6 (10.6) (11.3) 140.5 135.8 Overall, our Commercial and Residential Transaction Advisory business revenues together represented 47% of Group revenue (2016: 46%). Of this, the Residential Transaction Advisory business represented 11% of Group revenue (2016: 11%). Our Property and Facilities Management businesses continued to perform well, growing overall revenue by 9% and represented 32% of Group revenue (2016: 33%). Our Consultancy businesses represented 17% of revenue (2016: 17%) where improved performances within the UK were supported by an increase in valuation work in our international operations. There was a reduction of revenues in the Investment Management business of 8%, which had been anticipated due to the exceptionally high level of disposals in 2016 from the SEB German Open Ended funds, which are in liquidation. Investment Management revenue represented 4% of Group revenue in the year (2016: 5%). People The UK business won a number of national awards including Residential Advisor of the Year at the 2017 Estates Gazette Awards, Commercial Agent of the Year at the 2017 Props Award, Industrial Agency Team of the Year at the Property Week Awards 2017, Times Graduate Employer of Choice in property for the eleventh year and No.1 Real Estate Super brand for the ninth consecutive year. Savills were also awarded European Broker of the Year at the Property Investor Europe (PIE) awards, and in Hong Kong won Best Deal of the Year for the sale of the West and East Towers of One Harbour Gate at the RICS Hong Kong Awards, an international award honouring outstanding achievement for the real estate industry in Hong Kong. Savills Investment Management was also recognised with three funds winning best performer awards from MSCI/IPF and Property Investor Europe during the year. These awards are a testament to the strength of our people and I thank them all for their continued commitment, loyalty and hard work. #2 #3 #4 #5 Business diversification Geographical diversification Maintenance of our financial strength Strength in both residential and commercial property Savills plc Report and Accounts 2017 17 Financial statementsGovernance Strategic reportOverviewChief Executive’s review continued The Savills Group advises on commercial, rural, residential and leisure property. We also provide corporate finance advice, investment management and a range of property-related financial services. Operations are conducted internationally through four business streams: Transaction Advisory 2017 clearly demonstrated both the importance of having a breadth of transactional business around the world, and our strong market position in the main real estate transactional markets/sectors. In the UK the commercial leasing and investment markets performed better than expected in 2017, as both occupiers and investors adopted a more realistic view of how and where Brexit-related risks might fall. Of particular note was the very strong performance of our commercial teams in Asia Pacific, in particular in Hong Kong, China, Australia and Japan. The Savills Global Residential business also proved highly resilient in challenging markets, contributing to the increase in revenue and profit delivered by our Transaction Advisory business as a whole. Revenue grew by 13% to £746.2m (2016: £660.8m) and underlying profit increased by 2% to £81.5m (2016: £80.0m). The effect of significant business development costs in the US, including the recruitment of a New York capital markets team, reduced the underlying profit margin of the Transaction Advisory business as a whole to 10.9% (2016: 12.1%). UK Residential Our UK Residential business revenue grew by 4% to £128.9m (2016: £124.4m). In the second-hand estate agency business, revenues benefited from a growth in the average sales value, which was 6.9% higher than in 2016, along with a slightly higher average fee charged, offsetting a fall in the number of exchanges, (down 3% on 2016). In the “Core” London market, the number of exchanges grew by 4%, helped by a fall in average values, whereas outside the capital, which represents 55% of second hand agency residential revenue, the opposite trend occurred with the number of exchanges down 5%, as a result of higher property prices. In both regions revenues increased approximately 4% on 2016. In the new homes business, revenue grew by 2%, reflecting a growth in average transaction value of 3%, despite a 7% reduction in the number of exchanges. Whilst there was muted activity in the UK farmland market, pending clarification on trade and subsidies post-Brexit, there was continued demand for amenity estates, especially across the South and South West of England. Our Residential Capital Markets team saw significant institutional investor appetite in student housing and private rented sector markets. This resulted in revenue growth of almost 25%, although planning delays and construction market challenges represent significant supply side constraints in these markets. As a result of the above factors, the UK Residential Transaction Advisory business recorded a 7% increase in underlying profits to £18.7m (2016: £17.5m). Asia Pacific Residential The Residential Transaction Advisory business in Asia is focused primarily on new development, secondary sales and leasing of prime properties in selected markets. It excludes mixed use developments, which are accounted for within the Commercial Transaction Advisory business. Overall, the Asia Pacific Residential business increased revenues by 16% to £44.3m (2016: £38.1m) which represented an 11% increase in constant currency. This was principally driven by a number of high end residential sales in Hong Kong and an increase in project sales in Singapore where the residential market began to show signs of recovery following government relaxation of Revenue £746.2m 2017 2016 2015 2014 2013 Underlying profit £81.5m Contribution to Group revenue (%) £746.2m £660.8m £618.0m 2017 2016 2015 2014 2013 £494.6m £358.2m £81.5m £80.0m £76.9m £67.8m 53% 47% £47.2m +13% YOY change +2% YOY change 18 Transaction Advisory Rest of Group Savills plc Report and Accounts 2017certain cooling measures. Our residential business in Australia was restructured during the year resulting in reduced revenues but improved profitability. In China, the Government continues to impose restrictions on second home ownership, impacting negatively both sales and profitability. The net effect of all these factors resulted in a 94% increase in underlying profit to £6.4m (2016: £3.3m), 88% in constant currency. Asia Pacific Commercial The Asia Pacific Commercial business performed strongly in 2017, driven by improved revenue and profitability in Hong Kong, Japan, Australia and Mainland China. The Hong Kong market continued to be attractive to Mainland Chinese investors and our market share remained strong at approximately 40%. In Japan, transactional revenue increased by 75% following the completion of several significant transactions. In Australia the impact of previous investment in new talent coupled with the restructuring under the new leadership team resulted in an increase in market share, improving both revenue and profitability. Over the past 18 months, we have invested significantly into our investment sales team in Mainland China, particularly in Shanghai and Beijing, the benefit of which came through in 2017 as both transaction volumes and market share increased. The Singapore performance was negatively impacted by a reduction in investment volumes and commercial leasing fees. Reported revenue rose by 30% to £168.4m (2016: £129.7m) which represented a 24% increase in constant currency. The positive effect of higher volumes offset business development and service expansion costs in the region, leading the Asia Pacific Commercial Transaction Advisory business to record a 31% increase in underlying profit to £26.9m (2016: £20.6m). This represented a 25% increase in constant currency. UK Commercial Revenue from UK commercial transactions increased 18% to £101.6m (2016: £86.0m). Most commercial leasing and investment markets performed better than anticipated in 2017, as both occupiers and investors adopted a more realistic view of how and where Brexit-related risks might fall. The overall investment volume into UK commercial property in 2017 was just under £66bn, a 27% increase on the year before. The importance of non-domestic investors was significant, with £31bn invested in the UK last year by non-domestic investors (the second highest volume historically). In the London office market the proportion was even higher, with 80% of investment coming from non-domestic investors and £8.4bn from Asia Pacific alone. Savills was the leading adviser in London for the second year in succession, with a market share of 30%. A number of cities and regions such as Southern California, San Francisco, and Philadelphia enjoyed strong performances during the year. The performance of these offices helped offset the effect of deferrals which particularly affected the Washington DC region in respect of Government- related transactions. Generally, investors remained heavily biased towards asset classes that offer comparative income security, and this meant that logistics and alternative asset classes rose in popularity offsetting a decline in activity in retail, particularly shopping centres. The occupational markets also performed well, with office leasing activity in central London 24% up year-on-year. Furthermore, the total office take-up in the top six regional cities in the UK reached its highest ever level in 2017, due to a combination of a natural ripple effect outwards from London and the South East, and a degree of insulation against the potential Brexit risk. The logistics sector was many investors’ sector of choice in 2017, although occupational take-up was at its long-term average level. Availability of prime logistics space remains tight across the UK, and this will support both rents and land prices going forward. Retail remained a fairly binary sector in 2017, with tourist-focused markets like London and Edinburgh performing well due to the effects of the weak pound, while the rest of the UK remained flat in the face of falling real earnings growth for UK consumers. These factors, together with the significant investment made in assembling and supporting our new New York Capital markets team and the lag effect of team lifts in California and Denver, led to a decrease in North American underlying profit of 59% to £7.8m (2016: £18.9m), a 60% decline in constant currency. Continental Europe The Continental European Commercial Transaction Advisory business grew revenue by 9% to £78.2m (2016: £71.5m). This was driven by the continued strength of our Irish business across both Investment and Leasing/Tenant Rep and strong performances from Germany, the Netherlands, Spain and Italy. The performance was also set against developing Logistics expertise in the Netherlands and Poland as well as significant investment in opening an office in Czech Republic, building Investment and Leasing capabilities through team lifts there. During the year we continued to build on our Continental European platform with the acquisitions of Larry Smith in Italy and on the 29 December 2017, the acquisition of Aguirre Newman in Spain. The strength of our national Commercial transaction business, supported by our strong international network, led to a 17% increase in underlying profit to £17.2m (2016: £14.7m). As a result of these additional costs, the Continental European Transaction Advisory business recorded an underlying profit of £4.5m (2016: £5.0m), 10% lower than in 2016, 22% on a constant currency basis. North America During the year, we continued to build on our North American tenant representation platform, Savills Studley, through both recruitment and bolt-on acquisitions. Our North American revenue grew by 6% to £224.8m (2016: £211.1m). In constant currency this equated to a year-on-year increase of 2%. Savills Studley executed transaction volumes 24% higher than the previous year, which largely offset a significant reduction in the large complex transactions for which this business is noted. Much of this is deferral through uncertainty rather than cancellation and the pipeline of activity for 2018 is robust. Savills plc Report and Accounts 2017 19 Financial statementsGovernance Strategic reportOverviewChief Executive’s review continued Property and Facilities Management Consultancy Global Consultancy revenue increased by 14% to £273.1m (2016: £240.3m), 12% in constant currency, and underlying profit grew by 20% to £31.0m (2016: £25.9m), 12% in constant currency. UK Consultancy service revenue in the UK was up 12% at £204.9m (2016: £183.1m). There were strong performances in the planning and development teams, along with revenue growth in building and project consultancy, hotels and leisure and lease consultancy. Following completion of the integration of the business of Smiths Gore, approximately £14.0m of revenue and £1.2m of underlying profit, which had hitherto been recognised in the rural property management business, was reallocated to the Consultancy business segments. Overall underlying profit from the UK Consultancy business increased by 8% to £23.9m (2016: £22.2m). Asia Pacific Revenue in the Asia Pacific Consultancy business increased by 21% to £45.7m (2016: £37.9m), 14% in constant currency. There was significant growth in Hong Kong and also in China, where revenues were well ahead of 2016 in both the valuation and research consultancy teams. There were also improving trends in Australia, South Korea, Singapore and Vietnam. Consequently, underlying profit increased by 113% to £5.1m (2016: £2.4m), 104% up on a constant currency basis. Continental Europe Our Continental European Consultancy business, which principally comprises valuation and underwriting advisory services, increased revenue by 17% (9% in constant currency) to £22.5m (2016: £19.3m). In particular, there were stronger performances in Germany, France, the Netherlands and Spain. Underlying profit increased by 54% (38% in constant currency) to £2.0m (2016: £1.3m). Our Property and Facilities Management businesses continued to perform well, growing revenue by 9% (5% in constant currency) to £513.1m (2016: £472.8m). Underlying profit increased by 7% to £25.3m (2016: £23.6m), 5% in constant currency. Asia Pacific The Asia Pacific region grew revenue by 10% (5% in constant currency) to £300.9m (2016: £273.8m). The Property and Facilities Management business is a significant strength in the region, representing 53% of Savills Asia Pacific revenue and complementing our Transaction Advisory businesses. The total square footage under management in the region was up 5% to approximately 1.49bn sq ft (2016: approximately 1.41bn sq ft), primarily due to new contracts in Mainland China and Hong Kong. In Hong Kong, which represented approximately 55% of Asia Pacific Property and Facilities Management revenue, the business grew revenue by 7% in local currency. Overall the underlying profit of the Asia Pacific Property Management business grew 6% (2% in constant currency) to £15.4m (2016: £14.5m). UK Overall, our UK Property Management teams, comprising Commercial, Residential and Rural, grew reported revenue by 4% to £165.8m (2016: £158.9m). Following completion of the integration of the business of Smiths Gore, approximately £20.0m of revenue and £1.6m of underlying profit, which had hitherto been recognised in the rural property management business, was reallocated to the other business segments; adjusting for this, like-for-like revenue growth was approximately 17%. The Residential management business and the UK Commercial business together grew area under management by 22% to approximately 353m sq ft (2016: 289m sq ft). Our Residential Property Management businesses, including Lettings, increased revenue by 8%. Underlying profit for the UK Property Management business grew 4% to £11.7m (2016: £11.3m). Continental Europe In Continental Europe revenue grew by 16% (8% in constant currency) to £46.4m (2016: £40.1m) with growth particularly in Ireland, France, the Netherlands and Poland offsetting lower revenues in Sweden. In addition, the Larry Smith acquisition in Italy contributed revenues of £1.9m. By the year end the total area under management had increased by 94% to 106.9m sq ft, with Larry Smith contributing 5m sq ft and Aguirre Newman, in Spain, which completed on 29 December 2017, adding a further 38m sq ft. The net effect of these factors was an improvement in the underlying loss for the year to £1.8m (2016: loss £2.2m). Revenue £513.1m 2017 2016 2015 2014 2013 +9% YOY change Underlying profit £25.3m 2017 2016 2015 2014 2013 +7% YOY change £513.1m £472.8m £390.7m £338.6m £329.0m £25.3m £23.6m £21.1m £18.6m £17.6m Contribution to Group revenue (%) 69% 32% Property and Facilities Management Rest of Group 20 Savills plc Report and Accounts 2016 Revenue £273.1m 2017 2016 2015 2014 2013 +14% YOY change Underlying profit £31.0m 2017 2016 2015 2014 2013 +20% YOY change £273.1m £240.3m £230.3m £217.0m £191.6m £31.0m £25.9m £24.7m £23.4m £17.6m Investment Management Following Savills Investment Management’s record result in 2016, the expected decrease in disposal activity from the liquidating SEB German Open Ended Funds caused revenue to decrease by 8% (11% in constant currency) to £66.5m (2016: £72.0m). This generated an underlying profit of £13.3m (2016: £17.6m). Assets under management (‘AUM’) increased to £14.6bn (2016: £13.9bn), as the £1.9bn of new capital raised in the year outweighed the effect of liquidation distributions to unit holders of the former SEB German Open Ended Funds. Transactions of approximately £4.8bn (2016: £4.4bn) were executed on behalf of fund investors, a record annual volume. This included £2.58bn of disposals and £2.23bn of acquisitions. Investment performance continued strongly with the majority of our Fund products continuing to exceed their benchmarks over a five year term. Indeed this performance was recognised publicly when three funds won significant awards during the year: The Charities Property Fund was named Core Fund of the year by Property Investor Europe; The Diageo Core Fund was the best performing segregated Pension Fund (above £350m) at the MSCI/IPF Awards; and The Boccaccio Fund was the best performing Italian Specialist Fund at the MSCI European Property Investment Awards. Revenue £66.5m 2017 2016 2015 2014 2013 £66.5m £72.0m £44.5m £28.0m £26.0m -8% YOY change Underlying profit £13.3m 2017 2016 2015 2014 2013 £4.4m £2.9m -24% YOY change £13.3m £17.6m £10.9m Contribution to Group revenue (%) Jeremy Helsby Group Chief Executive Contribution to Group revenue (%) 83% 17% 96% 4% Consultancy Rest of Group Investment Management Rest of Group 21 Savills plc Report and Accounts 2017Financial statementsGovernance Strategic reportOverviewChief Financial Officer’s review “ A combination of resilience and growth across our businesses contributed to a strong performance which supports an improved distribution to shareholders for 2017” Simon Shaw, Group Chief Financial Officer Financial highlights 22 Savills plc Report and Accounts 2017 Group revenue up 11% to £1.6bn (£1.55bn in constant currency, 2016: £1.45bn) Underlying profit up 3.5% to £140.5m (£136.6m in constant currency, 2016: £135.8m) Underlying profit margin Underlying profit margin decreased to 8.8% (2016: 9.4%), reflecting a decline in substantial transaction activity in the US, the anticipated reduction in Investment Management profits following the reduced level of disposal transactions from the SEB German Open Ended Funds and the costs of expansion in a number of regions. Taxation The tax charge for the year reduced to £31.3m (2016: £32.1m), reflecting an effective tax rate on statutory profit before tax of 27.8% (2016: 32.1%). The improvement in the 2017 effective tax rate is primarily due to the reduction in non- deductible acquisition costs, with the final consideration for the Studley acquisition paid in May 2017. In both years, the Group’s effective reported tax rate is higher than the UK effective rate of tax of 19.25% (2016: 20.0%), reflecting the effect of these non-deductible acquisition costs and the geographic diversity of the Group’s profits. The underlying effective tax rate at 25.8% (2016: 26.1%) was lower primarily because of the reduction in the rate of UK tax. Restructuring, acquisition- related costs and goodwill During the year the Group recognised a total of £29.0m in restructuring and acquisition-related costs (2016: £34.5m). These comprised an aggregate restructuring charge of £7.7m primarily in relation to the integration of the GBR Phoenix Beard, Smiths Gore and SEB acquisitions (2016: £5.8m) and acquisition- related costs of £21.3m (2016: £28.7m). These costs consist of £2.1m (2016: £1.5m) of transaction related costs and £1.4m in respect of Savills Investment Management’s 2014 acquisition of Merchant Capital (2016: £3.9m). In addition, there was a £17.8m (2016: £23.3m) charge for future consideration payments which are contingent on the continuity of recipients’ employment in the future. The majority of this charge relates to the 2014 acquisition of Studley. This principally reflected higher acquisition activity in the year, in particular the final payment of $67.4m to former partners of Studley and the initial payment of €54.3m for the acquisition of Aguirre Newman on 29 December 2017 (consisting of €42.0m of the initial purchase price, with the excess being working capital adjustments). At the year end, an impairment review established that a charge of £2.3m (2016: nil) was recognised relating to the goodwill on the Group’s Swedish property management business. The residual value of goodwill relating to the Swedish business is not considered material. These charges have been excluded from the calculation of underlying profit in line with Group policy. Earnings per share Basic earnings per share increased 20% to 58.8p (2016: 48.8p), reflecting a 20% increase in statutory profit after tax. Adjusted on a consistent basis for exceptional restructuring, acquisition- related costs, impairment charges, profits and losses on disposals, certain share- based payment adjustments and amortisation of acquired intangible assets (excluding software), underlying basic earnings per share increased by 5% to 75.8p (2016: 72.5p). Fully diluted earnings per share increased by 21% to 57.5p (2016: 47.7p). The underlying fully diluted earnings per share increased by 4% to 74.1p (2016: 71.0p). Cash resources, borrowings and liquidity Year end gross cash and cash equivalents decreased 7% to £208.8m (2016: £223.6m). Gross borrowings at year end increased to £110.2m (2016: £35.8m). These principally comprise £106.0m drawn under the Group’s multi-currency revolving credit facility (‘RCF’). Cash is typically retained in a number of subsidiaries in order to meet the requirements of commercial contracts or capital adequacy. In addition, cash in certain territories is retained to meet future growth requirements where to remit it would result in the Group suffering withholding taxes. The Group’s net inflow of cash is typically greater in the second half of the year. This is as a result of seasonality in trading and the major cash outflows associated with dividends, profit related remuneration payments and related payroll taxes in the first half. The Group cash inflow for the year from operating activities was £111.7m (2016: £93.3m) reflecting the Group’s increased operating profits. As much of the Group’s revenue is transactional in nature, the Board’s strategy is to maintain low levels of gearing, but retain sufficient credit facilities to enable it to meet cash requirements during the year and finance the majority of business development opportunities as they arise. The Group has a RCF of £300.0m, with an accordion facility of a further £60.0m, which expires on 15 December 2020. Statutory profit before tax up 13% to £112.4m (£109.6m in constant currency, 2016: £99.8m) Underlying basic EPS grew 5% to 75.8p (2016: 72.5p) Statutory basic EPS grew 20% to 58.8p (2016: 48.8p) Final ordinary and supplementary dividends total 25.55p per share (2016: 24.6p) taking the total dividend for the year up 4% to 30.2p per share (2016: 29.0p) Savills plc Report and Accounts 2017 23 Financial statementsGovernance Strategic reportOverview Chief Financial Officer’s Review continued Foreign currency The Group operates internationally and is exposed to foreign exchange risks. As both revenue and costs in each location are generally denominated in the same currency, transaction related risks are relatively low and generally associated with intra group activities. Consequently, the overriding foreign currency risk relates to the translation of overseas profits and losses into sterling on consolidation. The Group does not actively seek to hedge risks arising from foreign currency translations due to their non-cash nature. In a period when sterling weakened against all major currencies, the net impact of foreign exchange rate movements represented a £48.4m increase in revenue (2016: £90.6m increase) and an increase of £3.9m in underlying profit (2016: £9.0m increase). Refer to Note 3.2 to the financial statements for further information on foreign exchange risk. Simon Shaw Group Chief Financial Officer Treasury policies and objectives The Group Treasury policy is designed to reduce the financial risks faced by the Group, which primarily relate to funding and liquidity, interest rate exposure and currency rate exposures. The Group does not engage in trades of a speculative nature and only uses derivative financial instruments to hedge certain risk exposures. The Group’s financial instruments comprise borrowings, cash and liquid resources and various other items such as trade receivables and trade payables that arise directly from its operations. Surplus cash balances are generally held with A rated banks or better. Interest rate risk The Group finances its operations through a mixture of retained profits and bank borrowings, at both fixed and floating interest rates. Borrowings issued at variable rates expose the Group cash flow to interest rate risk, which is partially offset by cash held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group policy is to maintain at least 70% of its borrowings in fixed rate instruments. Liquidity risk The Group prepares an annual funding plan which is approved by the Board and sets out the Group’s expected financing requirements for the next 12 months. These requirements are ordinarily expected to be met through existing cash balances, loan facilities and expected cash flows for the year. Capital and shareholders’ interests During the year 0.2m shares (2016: nil) were issued to participants under the Performance Share Plan. 1.9m (2016: 1.9m) new shares were issued in the final instalment of deferred consideration for the acquisition of Studley. The total number of ordinary shares in issue at 31 December 2017 was 141.9m (2016: 139.8m). Savills Pension Scheme The funding level of the Savills Pension Scheme in the UK, which is closed to future service-based accrual, improved during the year as a result of an increase in the value of the plan assets and contributions made during the year. The plan deficit at the year end amounted to £19.5m (2016: £40.8m). Net assets Net assets as at 31 December 2017 were £441.7m (2016: £407.0m). This movement reflected increased tangible assets and receivables derived from the Group’s trading performance and the effect of acquisitions, primarily Aguirre Newman. Key performance indicators (‘KPIs’) The Group uses a number of KPIs to measure its performance and review the impact of management strategies. These KPIs are detailed under the Key Performance Indicators section on pages 14 and 15. The Group continues to review the mix of KPIs to ensure that these best measure its performance against its strategic objectives, in both financial and non-financial areas. Financial policies and risk management The Group has financial risk management policies which cover financial risks considered material to the Group’s operations and results. These policies are subject to continuous review in light of developing regulation, accounting standards and practice. Compliance with these policies is mandatory for all Group companies and is reviewed regularly by the Board. Refer to Note 3 to the financial statements for further information on financial risk management. 24 Savills plc Report and Accounts 2017 Risks and uncertainties facing the business The Board is responsible for the Group’s system of risk management and internal control. Risk management is recognised as an integral part of the Group’s activities. Identifying and managing our risks The Board determines the Group’s appetite for risk in pursuit of strategic objectives, and the level of risk that can be taken by the Group and its operating companies. Savills businesses worldwide are responsible for executing their activities in accordance with the risk appetite set by the Board, complemented by the Code of Conduct, Group policies and delegated authority limits. Risk is assessed across the Group using a systematic risk management model covering both external and internal factors and the potential impact and likelihood of those risks occurring. Risk assessments are incorporated into risk registers at Group and business level, which evolve to reflect the reduction/increase in identified risks and the emergence of new risks. Where it is considered that a risk can be mitigated further to the benefit of the business, responsibilities are assigned and action plans are agreed. The Group Director of Risk & Assurance facilitates the risk assessment and evaluation process with Group and regional /business unit management on behalf of the Board and challenges risk findings and the internal control framework to ensure that these are effective. Group policies and delegated authority levels set by the Board provide the basis against which risks are reviewed and escalated to the appropriate level within the Group, up to and including the Board, for review and confirmation. We have a clear framework for identifying and managing risk, both at an operational and strategic level. Our risk identification and mitigation processes have been designed to be appropriate to the ever-changing environments in which we operate. The following chart summarises our business risk management structure. PLC BOARD PLC AUDIT COMMITTEE GROUP EXECUTIVE BOARD GROUP RISK COMMITTEE EXECUTIVE COMMITTEES GROUP RISK HEADS OF GROUP FUNCTIONS HEADS OF OPERATING COMPANIES Key risks: Key risks: Heads of Group functions identify the key risks and develop mitigation actions Heads of operating companies create a register of their top risks and mitigation actions Review and confirmation Review and confirmation by the Board Process Risks and mitigation reviewed by Audit Committee after validation by the Group Risk Committee and Executive Boards/Committees Ongoing review and control There is ongoing review of the risks and the controls in place to mitigate these risks Review and assessment Group Director of Risk & Assurance consolidates the operating companies functional and Group risks to compile the Group’s key risks. Any significant programme/ project risks are also considered. 25 Savills plc Report and Accounts 2017Financial statementsGovernance Strategic reportOverviewRisks and uncertainties facing the business continued Roles and responsibilities The Board continuously reviews the Group’s key risks and is supported in the discharge of this responsibility by various committees, specifically the Audit Committee and the Group Risk Committee. The risk management roles and responsibilities of the Board, its Committees, and business management are set out below, and all of these responsibilities have been met during the year. 1. Board Responsibilities • Approve the Group’s strategy • Determine Group appetite for risk in achieving its strategic objectives • Establish the Group’s systems of risk management and internal control The Audit Committee supports the Board by monitoring risk and reviewing the effectiveness of internal controls, including systems to identify, assess, manage and monitor risks. Actions • Receive regular reports on Internal and External Audit and other assurance activities • Receive regular risk updates from the businesses • Determine the nature and extent of the principal Group risks and assess the effectiveness of mitigating actions • Annually review the effectiveness of risk management and internal control systems • Approve the Group risk management policy 2. Group Executive Board Responsibilities • Strategic leadership of the Group’s operations • Ensure that the Group’s risk management and other policies are implemented and embedded • Monitor that appropriate actions are Actions taken to manage strategic risks and key risks arising within the risk appetite of the Board • Consider emerging risks in the context of the Group’s strategic objectives • Approve Group Policies • Monthly/quarterly finance and performance reviews Group Risk Committee • Monitor the application of risk appetite and the effectiveness of risk management processes. The Group Risk Committee and Board also consider the Group’s overall risk appetite in the context of the negative impact that the Group can sustain before it risks the Group’s continued ability to trade Actions • Review of risk management and assurance activities and processes 3. Subsidiary Executive Committees’ Responsibilities Responsibilities • Responsible for risk management and internal control systems within their regions/businesses Monitoring the discharge of their responsibilities by operating companies. Actions • Review key risks and mitigation plans • Review results of assurance activities • Regularly review operational, project, functional and strategic risks • Review mitigation plans • Plan, execute and report on assurance activities as required by region or Group The Group’s overall risk management framework is further enhanced by the contributions of specialist committees, for example, I.T. Security. Savills regularly reviews and enhances its risk management process and seeks advice from independent advisers where applicable. Principal risks The Directors have carried out a robust assessment of the principal risks facing the Company – including those that would threaten its business model, future performance, solvency or liquidity. Our consideration of the key risks and uncertainties relating to the Group’s operations, along with their potential impact and the mitigations in place, is set out below. There may be other risks and uncertainties besides those listed below which may also adversely affect the Group and its performance. More detail can be found in the Audit Committee Report on pages 51 to 55. In summary, our principal risks are: 1. Economic/country risks, particularly the impact of a global economic downturn 2. Achieving the right market positioning in response to the needs of our clients • Escalate key risks to Group management 3. Recruitment and retention of high- and Group Executive or plc Boards calibre staff 4. Heads of the Group functions and operating companies Responsibilities • Maintain an effective system of risk management and internal control within their function/operating company 4. Reputational and brand risk 5. Legal risk 6. Failure or significant interruption to IT systems causing disruption to client service 7. Business conduct 8. Changes in the regulatory environment 9. Acquisition/integration risk 26 Savills plc Report and Accounts 2017 Risk Description Mitigation 1 Economic/country risks, particularly the impact of a global economic downturn Change from 2016 Increase Strategic objective: Geographic diversification/ Financial strength Global market conditions are currently volatile, with economic uncertainty in some sectors and markets, particularly the UK after the Brexit vote, the threat by the US to impose tariffs and the perceived increased risk of the US/North Korea tensions escalating with consequential economic impact. Group earnings and/ or our financial condition could be adversely affected by these and other macro-economic uncertainties. Savills operates in a number of countries where the transactional business is the largest component and thereby increases the level of economic risk. There is a currency risk from operating in a large number of countries. 2 Achieving the right market positioning in response to the needs of our clients The markets in which we operate are highly competitive. Competition could lead to a reduction in market share and/or a decline in revenue. Our focus is on retaining existing clients as well as engaging with new clients. Our service offering continuously evolves and improves to meet the changing needs of our clients. Change from 2016 No change Strategic objective: Business diversification/Strength in Residential and Commercial markets/Geographical diversification/ Commitment to clients The strength of Savills business and brand and the focus on client service. Our strategy of diversifying our service offering and geographic spread mitigates the impact on the business of economic downturns and weak market conditions in specific geographies, but these factors cannot entirely mitigate the overall risk to earnings. To manage these risks, we continually focus on our cost base and seek to improve operational efficiencies. Contingency plans are in place to enable us to respond quickly to market information and economic trends. Continual monitoring of market conditions and market changes against our Group strategy, supported by the reforecasting and reporting in all of our businesses, are key to our ability to respond rapidly to changes in our operating environment. The actual impacts of Brexit are still unclear, but we are monitoring developments closely. Our exposure to countries with economies which are currently weak is balanced by our business in more stable markets. When considering new market entry we undertake due diligence including the impact assessment of political and economic issues in that particular country. We manage currency risk in local operations through natural hedging and matching revenue and costs in the same currency. To remain competitive in all markets, we continue to promote and differentiate our strengths whilst focusing on providing the quality of service that our clients require. We continue to invest in the development of client relationships globally and associated systems/digital technology to support our client service offering. 3 Recruitment and retention of high-calibre staff We recognise that the future success of our business is dependent on attracting, developing, motivating and retaining people of the highest quality. We continue to invest in the development of our people and our training and development programmes across the businesses. Our partnership style culture and profit-sharing approach to remuneration is combined with selective use of share-based and other rewards to incentivise and retain our best people for the long-term benefit of the Group. Change from 2016 No change Strategic objective: Financial strength/Commitment to clients 4 Reputational and brand risk Change from 2016 No change Strategic objective: Strength in Residential and Commercial markets/Commitment to clients Savills is a strong brand with an excellent reputation in the markets in which we operate. The Group’s reputation could be damaged as a result of negative media coverage. We recognise the need to maintain this reputation by ensuring the quality of the service we provide. We recognise that our brand strength is vital to maintaining market share in established and new markets. A brand management programme is in place to ensure the brand’s positioning and identity is clearly and consistently promoted. Our social media policy is supported by guidance and training as well as ongoing monitoring. All external statements have to be appropriately approved. We recognise that the quality of the service we offer is vital to maintaining the brand. We have in place policies, controls and processes to monitor the quality of our client service to support our programme of continuous improvement. The Group has well established corporate social responsibility programmes. Savills plc Report and Accounts 2017 27 Financial statementsGovernance Strategic reportOverviewRisks and uncertainties facing the business continued Risk Description Mitigation Legal risk 5 Change from 2016 No change Strategic objective: Financial strength/Commitment to clients 6 7 Failure or significant interruption to our IT systems causing disruption to client service Change from 2016 Increase Strategic objective: Financial strength/Commitment to clients Business conduct Change from 2016 No change Strategic objective: Business diversification/Geographical diversification/Commitment to clients The Group has a range of policies in place including client acceptance, legal and regulatory compliance, procurement, contractor management and valuation. We have Best Practice groups, policies, procedures and training which are designed to deliver the relevant contractual obligations and thereby mitigate against the risk of such actions/claims being made and where such claims occur, to limit liability, particularly in relation to consultancy services such as valuations. Such policies are regularly reviewed. The Group maintains professional indemnity insurance to respond to and mitigate the Group’s financial exposure to such claims. As described below, our strong emphasis on appropriate business conduct by all our employees, contractors and associates further mitigates this risk. Specific back-up and resilience requirements are built into our systems. Our critical infrastructure is set up so far as is reasonably practical to prevent unauthorised access and reduce the likelihood and impact of a successful attack. Our data centres are accredited to international information security standards. Business continuity and disaster recovery plans are in place to cover the residual risks that cannot be mitigated. We are continuously reviewing our resilience to cyber security attacks due to the constant threat. We have programmes to promote compliance with our Code of Conduct, particularly in areas of higher risk such as procurement. We have a zero tolerance approach to breaches of our Code of Conduct. Failure to fulfil our legal or contractual obligations to clients could subject the Group to action and/or claims from clients. The adverse outcome of such actions/ claims could negatively impact our reputation, financial condition and/or the results of our businesses. For example: • in accepting client engagements, Group companies may be subject to duty of care obligations. Failure to satisfy these obligations could result in claims being made against the relevant operating Company; • in our Property Management business, we may be responsible for appointing third party contractors that provide construction and engineering services. Failure to discharge these responsibilities in accordance with our obligations could result in claims being made against the operating companies; • in our valuation consultancy businesses, we can be subject to claims alleging the over-valuation of properties. Major failures in our IT systems may result in client service being interrupted or data being lost/corrupted causing damage to our reputation and consequential client and/or revenue loss. There is a risk that an attack on our infrastructure by a malicious individual or group could be successful and impact the availability of critical systems. We operate in international markets that may present business conduct-related risks involving, for example, fraud, bribery or corruption. Failure by the Group and its employees to observe the highest standards of integrity and conduct in dealing with clients, suppliers and other stakeholders could result in civil and/ or criminal penalties, regulatory sanction, debarring and/or reputational damage. 28 Savills plc Report and Accounts 2017 Risk Description Mitigation We are required to meet a broad range of regulatory compliance requirements in each of the markets in which we operate. For example: • some of our operations have regulatory licences; • in the UK, the Financial Conduct Authority (‘FCA’) regulates the conduct of Savills Capital Advisors and, both generally and in relation to the Alternative Investment Fund Managers Directive, Savills Investment Management, and the insurance intermediary services provided to clients by Savills UK; our businesses are regulated by The Royal Institution of Chartered Surveyors (‘RICS’); • Savills Investment Management entities are variously regulated by the Bank of Italy, FCA in Japan, BaFin in Germany and CSSF in Luxembourg; • various countries, corporate entities and individuals are subject to financial sanctions, which require continuous monitoring in response to global events. Failure to satisfy regulatory compliance requirements may result in fines being imposed, adverse publicity, brand/reputation damage and ultimately the withdrawal of regulatory approvals. We also have a number of key statutory obligations including the protection of the health, safety and welfare of our staff and others affected by our activities. Environmental reporting requirements place data-gathering responsibilities on our business in common with other listed companies. Our current priorities are on achieving readiness for the General Data Protection Regulation. The structuring and integration of acquisitions is critical to realising the benefits sought. People, systems and processes are key components Our Group Policy Framework, which sets out our standards for professional, regulatory, statutory compliance and business conduct, is reviewed regularly. To support this Framework each business has its own regulatory and statutory compliance resources who monitor regulatory developments and maintain the internal processes and controls required to fulfil our compliance obligations. Our compliance environment, at all levels, is subject to regular review by internal audit and external assurance providers. We apply the Group acquisitions policy and procedures and use professional advisers in the due diligence process, and allocate responsibility and accountability to individuals for integration. Post- acquisition reporting keeps the Board aware of progress against plan. 8 Changes in the regulatory environment Change from 2016 Increase Strategic objective: Commitment to clients 9 Acquisition/ integration risk Change from 2016 No change Strategic objective: Business diversification/Geographical diversification/Strength in Residential and Commercial markets/Financial strength Viability Statement The UK Corporate Governance Code (the ‘Code’) requires the Company to issue a viability statement stating whether the Board believes that the Group is able to continue to operate and meet its liabilities, taking into account its current position and principal risks. In accordance with the Code, the Directors have assessed the viability of the Group over a three-year period to 31 December 2020, taking account of the Group’s current position and the potential impact of the principal risks documented in the Strategic Report on pages 2 to 35. This longer-term assessment supports the Board’s statements on both viability, as set out below, and going concern as set out on page 50. The Directors have concluded that the three-year period is appropriate for this assessment being consistent with the period covered by the Group’s strategic plan and the cyclical nature of property markets. In assessing viability the Directors considered a number of factors including the resilience of the Group, taking account of its current position and prospects, the Group’s strategic plan, the principal risks and uncertainties facing the business and the Board’s risk appetite as detailed in the Strategic Report on pages 2 to 35. The strategy and associated principal risks which underpin the Group’s three-year plan, are reviewed by the Directors at least annually. The Directors also satisfied themselves that they have the evidence necessary to support the statement in terms of the effectiveness of the internal control environment in place to mitigate risk. Sensitivity analysis was undertaken on the three year plan, including financing projections, to flex the financial forecasts under a variety of scenarios, which involve applying different assumptions to the underlying forecast both individually and in aggregate, including assessing the potential impact of a severe economic downturn analogous to that experienced during the Global Financial Crisis in 2008/09. The results of this sensitivity analysis showed that the Group would be able to withstand the impact of such scenarios over the period of the financial forecast. Performance against the three year plan is monitored on an ongoing basis, including regular Board briefings provided by the Heads of the Principal Businesses on the progress made by those businesses. These reviews consider both the market opportunity and the associated risks. These risks are considered within the Board’s risk appetite framework. Based on the results of this review, the Directors confirm that they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period ending 31 December 2020. The Directors also considered it appropriate to prepare the financial statements on the going concern basis as explained in Note 2.1 to the accounts. Savills plc Report and Accounts 2017 29 Financial statementsGovernance Strategic reportOverviewthe most difference: People, Clients, Environment and Community. Through a localised approach and by focusing on these key areas we give our businesses the freedom to adapt quickly and to respond at a local level to new opportunities in the markets in which they operate. The Board receives annual and ad hoc updates on CR activities and progress. To ensure that we can readily identify emerging issues and respond to them on a timely basis, we continue to include the consideration of CR-related issues in our Key Risk Registers. Corporate Responsibility Savills is committed to being a good corporate citizen in all aspects of its operations and activities. The Company, therefore, holds itself accountable for its social, environmental and economic impacts on the people and places where it does business. All of our businesses are required to comply with local legal standards as an absolute minimum. We endeavour to manage our impact in a responsible and sustainable manner. To fulfil this aim the Group actively embraces a range of policies and practices that aim to foster a positive approach towards corporate responsibility as an integral part of our day-to-day activities. We focus on those key areas where we believe we can make a difference and our localised approach provides the flexibility required to have meaning and impact at a local level. At Savills, we learn through experience and we actively encourage our businesses to share their experiences and develop best practice to ensure that we continue to improve as an organisation. Responsibility for our CR programme sits with the Group Chief Executive and the Board. CR strategy is co-ordinated by our CR Steering Group, comprising senior representatives from a range of businesses and central teams. The strategy is implemented and delivered at country level focusing on four aspects of CR which we believe are key to the success of our business and where we believe we can make Our Business Principles Pride in Everything We Do We • Take great pride in delivering the highest quality service. • Go the extra mile. • Seek to employ only the best people. • Enjoy what we do. Take an Entrepreneurial Approach to Business We • Seek out new markets and opportunities for clients. • Take a creative and entrepreneurial approach to delivering value. • Are forward-thinking, and always aim to build long-term client relationships. • Aim to be a leader in every market we enter. Help our People Fulfil Their True Potential We • Encourage an open and supportive culture in which every individual is respected. • Help our people to excel through appropriate training and development. • Share success and reward achievement. • Recognise that our people’s diverse strengths combined with good teamwork produce the best results. • Believe that a rewarding workplace inspires and motivates. • Strive to provide an environment in which our people can flourish and succeed – this allows us to recruit, motivate and retain talented people and build on our status as an employer of choice. • Engage with our people to communicate our vision and strategy through well-established internal channels. Always Act With Integrity We • Behave responsibly. • Act with honesty and respect for other people. • Adhere to the highest standards of professional ethics. 30 Savills plc Report and Accounts 2017Our People It is our vision to be the real estate advisor of choice in our selected markets and deliver superior financial performance and this can only be achieved through the dedication, commitment and excellence of our people. Our people strategy remains focused on supporting delivery of the highest standards of client service through motivated and engaged people. We believe that a positive culture is essential to high quality client service. This positive culture is encapsulated in our business philosophy and our values. Our reputation has been built on our people and we believe that staff whose behaviours reflect in our business philosophy deliver the excellent client service that we strive to provide. Our business philosophy also captures our commitment to ethical, professional and responsible conduct and our entrepreneurial, value-enhancing approach. Our people strategy highlights are set out below. Employee engagement We continue to focus on employee engagement through a number of areas of focus. For example, in the UK we are improving the capability of our leaders and managers through our key programmes Empower, Engage and Inspire. We have improved the clarity of our reward and benefits through the use of a new Total Reward Statement, so that all our employees clearly see the full reward package. We take employee wellbeing seriously and have introduced a wellbeing programme, which includes Savills focused events and committing to the Time to Change pledge, for increased recognition of mental health in the workplace, on World Mental Health Day. Developing our people for the long term We want people to grow their careers at Savills and develop the skills and talent needed to grow our business. We firmly believe in the value of developing future talent from within the Group and the wider business community and we are working hard to help nurture the entrepreneurs and leaders of the future. We continue to invest significantly in the development of all our people, for whom we recognise that career development and progression is very important. We deliver training and development in all areas including management and leadership, client and business skills and professional and technical skills. We recognise that personal development occurs in many ways and we encourage all our staff to attend conferences, internal events, and participate in projects to supplement their Continuous Professional Development (‘CPD’). For example, in the UK, the format of our training varies from one-hour masterclasses, webinars, and video content, to two-day pitching courses and management and leadership workshops. We encourage and support all our staff to complete their CPD and all our internal courses/programmes have CPD points associated with them. All of this is supported by a dedicated training team, who offer individual career development advice and a dedicated page on the Company intranet which pulls together all the information our people need to plan their personal development. In order to manage individual development and ongoing learning, we have launched a Learning Management System (LMS) in the UK. The LMS is mobile compatible, allows individuals to track and manage their development, watch video podcasts and download course materials. In Asia, we are progressively extending our CPD programme, tailoring it as appropriate to best meet local requirements. We have also extended our CPD programme across the US. Our graduates are our future leaders. They are given responsibility from the day they join the business, in teams which highly value their contribution, allowing them to be involved in some of the world’s most high-profile transactions and developments. Graduates are surrounded by experienced professionals and team members from whom they can seek advice and learn. Individual achievement is rewarded and Savills looks for graduates with entrepreneurial flair and diverse skills. In the UK, Savills were proud to be named The Times Graduate Employer of choice for Property for the 11th year in a row and we continue to see a record number of applicants for this and our student summer scheme and work placement programmes. In 2017 Savills was also ranked 83 (up 11 places) in the Times Top 100 Graduate Employers and number 1 on “Rate my Placement” for our summer scheme programme. We continue to work with some of our UK industry peers, the Changing the Face of Property (‘CTFOP’ group), on initiatives such as an apprenticeship programme to offer jobs to school leavers. In the US, Savills we implemented a Young Leaders Programme and our Savills Studley Academy, a multi-year business mentorship programme aimed at harnessing the talent of the rising stars, is now in it’s second year. In 2017, in Asia Pacific, we ran four Inspire courses in Greater China, North Asia, South East Asia and Australia; a two-year course for emerging leaders of the business who will be assigned a lifetime mentor and schooled in the art of business leadership. In 2018 we are launching the Inspire Programme for the next generation of leaders in the business. 31 Savills plc Report and Accounts 2017Financial statementsGovernance Strategic reportOverviewCorporate Responsibility continued Our People continued A diverse and inclusive culture We look to create an inclusive culture in which difference is accepted and valued. We believe that our inclusive approach gives us a competitive advantage and underpins the success of our business by giving us the ability to select our people from the highest quality individuals in the widest available pool of talent. The UK Government has introduced legislation that will require employers with 250 or more UK employees to disclose information on their gender pay gap. The gender pay picture for Savills UK, calculated in accordance with the published requirements has been published on the Savills UK’s website. As an organisation committed to diversity in its workforce, we will continue to strengthen our policies, processes and practices to develop our diversity and inclusion plans within the Group’s markets and geographies, in alignment with our corporate goals. We will continue to endeavour to improve the representation of women at Board and senior levels within the organisation and to sustain an inclusive culture in which all talent can thrive. UK – Savills Diversity Group One of our initiatives was to launch a Diversity Group in the UK which is now in its third year. The objective is to highlight the diversity of our business and ensure that we are communicating clearly and effectively about our people and our clients. This year has seen a number of significant activities for our Diversity group. We have launched “unconscious bias” training led by the UK Executive Committee, which is now part of all development programmes including Company induction. Wellbeing and mental health have also been key areas of focus. Other Initiatives which the Diversity Group continue to be involved in include: 1. Savills with schools Our current graduates attend a local state secondary school to deliver presentations about careers in property. This highlights the variety of roles in real estate as well as opportunities for students to engage on an individual basis. 2. Careers in property Savills Graduate team collate a guide to the real estate industry, looking at careers in the industry from governing bodies, educational institutions and employers to provide candidates with a comprehensive guide to joining the industry. This is currently shared with all UK university careers services in the UK. We also support the Property Needs You and Urban Plan campaigns in schools. 3. Apprenticeships Savills Surveying Apprentices join teams across the UK. After six years in the business they will gain their BSc in Real Estate and their full MRICS status. 4.Changing the Face of Property (CTFOP) We continue to be a member of the CTFOP group, a collaboration of employers, governing bodies and education providers who work together to raise awareness of the industry, and drive equality. We attend the Skills London as well as a number of career fairs, and supported the Trailblazer Apprenticeship scheme with RICS. We also ran a number of internal diversity events for our Gender and LGBT groups. We also participated in the London Pride March with the rest of the CTFOP companies. Our people come from a wide range of backgrounds and have a diverse range of skills and experience. We believe that we have created a culture in which those skills, experience and perspectives are nurtured and encouraged. As an example of our commitment to diversity, in the UK we are focused on increasing the diversity of our business in order to reflect the needs of our clients and have achieved the RICS Equality Mark. We are fully engaged in a diversity programme ‘Changing the Face of Property’ which focuses on improving diversity across social and economic background, disability, LBGT, age and gender. We have also improved our maternity policy, introduced mentoring and coaching for women and held a number of events with clients and keynote speakers. In addition, we proactively review our promotions to ensure that the numbers going forward for promotion, by gender, are in line with the make-up of the division. For the LBGT network, we have held a number of events, participated in the London Pride March and we are now listed on the Stonewall Diversity Index. We believe that creating an inclusive and diverse culture supports the attraction and retention of talented people and supports effective performance. We respect our people for who they are, their knowledge, skills and experience as individuals and as valued members of the Savills team. We work together to bring out the best in each other and to sustain the strong working relationship ethic that has nurtured our ‘can do’ attitude. As at 31 December 2017 our total global workforce of 35,398 colleagues comprised 19,327 males and 16,071 females. Of these, 184 were senior executives (163 males, 21 females) comprising members of the Group Executive Board and Board members of the corporate entities whose financial information is incorporated in the Group’s 2017 consolidated accounts in this Annual Report. The Company’s Board of Directors comprised seven members – six males and one female. 32 Savills plc Report and Accounts 2017Our Clients Excellent client service is at the core of our business. We strive to develop strong, long-term partnerships with our clients and to deliver an exceptional and personal client experience which is tailored to our clients’ requirements and needs. We do this by ensuring we have specialist teams who can deliver the best quality advice throughout the property life cycle. We work hard to ensure that in managing our client relationships we are solutions-oriented, pro-active and focused on excellent client communication. Gaining a deep understanding of our clients’ businesses through an ongoing dialogue is fundamental to delivering a service which meets their needs. Client review meetings are a vital part of our approach to client care. We invest in an independent client review programme to understand how well we plan and execute the services we provide, how well we communicate and what additional value we give our clients. This provides an important independent rating of the standard of our client service which is reviewed regularly and used to refine the Savills client experience. In the UK, for example, Savills top clients have a dedicated client relationship lead (client advocate) whose core responsibility is to act as a focal point for client servicing enquiries, and, in particular, to allow any service issues on current instructions to be quickly identified and addressed. These client advocates also play a key role in reviewing our performance with our clients, in tandem with the client review programme, ensuring we understand where we have met or exceeded expectations and those areas in which we can do better. Ultimately this approach provides a complete insight into our clients’ priorities so that we can make the appropriate skills, expertise and resources available. We recognise that there are clients that benefit from a full Savills service offering. To deliver the best value to these clients we have a client management programme in place with a dedicated Client Relationship Management (‘CRM’) team. Each of these clients has a tailored client care plan which includes a review of the current year, key client priorities, client communications and interactions, financials and importantly, agreed actions and responsibilities. Our client teams are further supported by a central client management system which consolidates client data into readily accessible client intelligence reports, ensuring we are providing the joined up approach our clients expect. We are progressively extending this approach globally, tailored to meet local requirements. Our Responsibility to the Environment Across our global business Savills is committed to reducing the impact that our operations have on the natural environment and to minimising the risk of injury and ill health staff and others who are affected by our businesses by providing safe and healthy working environments. Safe working practices form an integral part of our day-to-day business and we aim to find practical solutions to health and safety risks. To this end, our safety strategy is focused on priorities such as reducing occupational exposure to workplace hazards, maintaining regulatory compliance and seeking to continuously develop and strengthen our health and safety arrangements. Environmental impact Across our global business, Savills is committed to reducing the impact that our operations have on the natural environment. By actively seeking to reduce our environmental impact, we are able to achieve increased operational efficiencies and savings, both internally and for our clients. As one of the leading real estate advisors, Savills acknowledges the importance of demonstrating leadership in this area. This includes measuring, and being accountable for, our global environmental impact. For example, in Australia, we engage proactively with several key industry and not-for-profit environmental groups, including Property Council Australia, The Green Building Council and Sydney’s Better Building Partnership. As part of this continuing drive to mitigate our impacts, and as a hallmark of quality, our offices continue to work to secure ISO14001 2004 status: the international standard for environmental management systems. 255 Savills teams in the UK have now achieved this accreditation. During 2018 the accreditations in place will transition to the revised 2015 edition of the 140001 international standard. In Hong Kong, Savills continues to participate in various environmental protection activities, such as Chinese New Year Waste Electrical and Electronic Equipment Recycling Collection Services (awards were obtained by 25 our managed buildings), Wood Recycling and Tree Conservation Scheme and a scheme on Source Separation of Commercial and Industrial Waste. In the UK, Savills has worked to improve the environmental performance of its own office estate through a series of waste and energy management initiatives. During 2017, Savills moved to a national contract for the disposal of non-hazardous waste streams, the new contract currently covers 75% of some 127 offices. Moving to a national contract has enabled the introduction of enhanced recycling facilities at a local level, as well as additional control over the final destination of our waste, avoiding landfill disposal wherever possible. Greenhouse gas emissions Our Greenhouse Gas Emissions Statement includes all emission sources required under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 for the financial year to 31 December 2017, compared against our baseline year to 31 December 2013. For comparative purposes, data is also shown for our previous reporting year, 2016. Scope We continue to expand the scope of our data collection regularly. In consequence, we are now reporting on GHG emissions at a more granular level from our UK, Europe, US, Canada, Australia, New Zealand, Hong Kong, Japan, Singapore, and key Chinese operations. In subsequent years, we will continue to strive to add to this list where emission activities are found to be material and where reliable activity data is available. 33 Savills plc Report and Accounts 2017Financial statementsGovernance Strategic reportOverviewCorporate Responsibility continued Our Responsibility to the Environment continued Methodology To coordinate the collection of GHG data worldwide, a network of Environmental Reporting Nominees (ERN) has been established, reporting to the Group Legal Director & Company Secretary. Specialist third party verified environmental reporting software has been adopted by this network to ease data collection, ensure data quality, disseminate results effectively, and complete emission calculations more efficiently. The adopted reporting methodology is the GHG Protocol Corporate Accounting and Reporting Standard. Through the ERN network we have attempted to calculate greenhouse gas emissions using actual activity data for the reporting period, wherever possible. In the instances where activity data was not found to be wholly reliable or readily available, we have determined the relevant emissions by using a range of standard carbon accounting measures, including extrapolating data and use of indicator based estimation (floor area and head count). To allow easier comparison between reporting locations and year on year results, a standardised per capita intensity ratio (based on the number of full-time equivalent employees) has been utilised. We consider that this is the most effective means of reflecting our wide range of activities in a quantifiable common factor. As evident in the table below, our total emissions decreased by approximately 4.49% in 2017. Total Global GHG Emissions1 GHG Emissions Scope 1 (Direct) GHG Emissions Scope 2 (Indirect) Total Gross Emissions (Scope 1 + 2) Total Employees (FTE yr. av.) GHG FTE Intensity Ratio3 Notes: 2017 tCO2e 2,479 6,050 8,530 8,243 1.03 2016 tCO2e 2,518 6,450 8,968 7,998 1.12 2013 base-line2 tCO2e 1,292 5,132 6,424 4,508 1.42 1 Emissions factors based on Defra/DECC Guidelines 2011 and other globally recognised methodologies. 2 Total global emissions for Carbon Reporting 2013: UK, Rest of Europe, Australia/New Zealand and Hong Kong only. 3 Total gross emissions, divide by total full-time equivalent employees (FTE) year average. The corresponding figures for our per capita intensity ratio show a 7.7% reduction compared to the previous year, which is particularly pleasing given our global FTE numbers increased by more than 3% during the reporting period. When measured against our base year of 2013, this now represents an improvement of more than 20%. This substantial reduction has been achieved through progressive initiatives to improve the environmental efficiency of our offices, including more energy efficient lighting, better climate control and IT upgrades. These measures are complemented by broader sustainability strategies at the corporate level and include the application of green building principles during the selection/refurbishment of our occupied spaces, space consolidation, and the continued focus on improving energy metering/monitoring. Environmental Objective Group Executive Board Commitment Savills is confident in making continued steady reductions to our corporate environmental footprint in the coming years. To that end, the Group Executive Board, in October 2017, resolved to adopt a global objective of a 5% total global reduction target over a 3 year period, calculated against the 2016 reported GHG emissions figures, normalised by utilising the Full Time Equivalent (FTE) year average employee numbers. Our Responsibility to our Community Our offices and our people are actively involved in their communities through our support of charitable causes and other social and business organisations, including making financial, in kind and time contributions. We believe that the community engagement programmes that we have developed have a positive impact on the areas where our people live and ensure that Savills is firmly engaged with the communities we serve. We are a membership of FTSE4Good*, evidencing our commitment to meeting globally recognised corporate responsibility standards. * The FTSE Group confirms that Savills plc has been independently assessed according to the FTSE4Good criteria, and has satisfied the requirements to remain a constituent of the FTSE4Good Index Series. Created by the global index company FTSE Group, FTSE4Good is an equity index series that is designed to facilitate investment in companies that meet globally recognised corporate responsibility standards. Companies in the FTSE4Good Index Series have met stringent environmental, social and governance criteria, and are positioned to capitalise on the benefits of responsible business practice. 34 Savills plc Report and Accounts 2017Spotlight on Community Fundraising in the US Project WeCan in Asia Savills Studley is dedicated to promoting leadership, volunteerism and support of charitable organisations. Our employee- led initiatives focus on children’s health, wellness and education, cancer research and community-based projects that better the local environment. One of our signature CR initiatives is the JDRF Real Estate Games which is a day-long Olympics-style event in which commercial real estate firms in the Washington, DC region compete to raise funds for T1D diabetes research. The event has grown to become our industry’s premier fundraiser. It now includes more than 130 companies and 2,500 participants with plans to expand to New York, Chicago and Los Angeles. It was Savills first year as part of the Project WeCan which aims to empower local secondary schools. This year, we sponsored Pui Ying Secondary School in Aberdeen. Savills has participated a number of events associated with this project, including inspiring talks by our management at the sponsored school hall, and attended the signature event, the Young Innovators Bazaar. We believe our support and advice for the students will enhance their skills including leadership, entrepreneurship, communication and project management. Supporting the charity YoungMinds Savills Graduate Charity Committee have been supporting the charity YoungMinds which works to improve the wellbeing and mental health of children and young people. The charity helps young people, their parents, the professionals who work with them and the policy makers in the government to improve mental health for children and young people in the UK. As part of its commitment to the charity, Savills held fundraising events as part of YoungMinds #HelloYellow week, championing the wellbeing and mental health of young people. Caring Company 10 consecutive years In recognition of Savills Guardian’s efforts in support of charitable causes, Savills Guardian continues to hold the ‘Caring Company 10 consecutive years’ logo as acknowledgement of Savills Guardian’s participation in the Caring Company Scheme. 35 Savills plc Report and Accounts 2017Financial statementsGovernance Strategic reportOverviewGovernance 38 Corporate Governance Statement 38 Chairman’s introduction 40 Leadership 44 Board of Directors 46 Group Executive Board 47 Effectiveness 50 Accountability 51 Audit Committee report 56 Compliance with the UK Corporate Governance Code 58 Directors’ Remuneration report 74 Directors’ report 76 Directors’ responsibilities 36 Savills plc Report and Accounts 2017 Overview Strategic report Governance Financial statements Savills plc Report and Accounts 2017 37 Chairman’s introduction “ On behalf of the Board, I am pleased to introduce our 2017 Corporate Governance Report. Governance best practice continues to evolve and in this year’s report we describe the Group’s compliance with the 2016 UK Corporate Governance Code (the ‘Code’) and explain how the Board and its Committees have operated in 2017.” The Main Principles of the Code provide the framework for the reporting model which we continue to use. Our approach to: • Leadership is set out on pages 40 to 46 • Effectiveness is described on pages 47 to 49; • Relations with Shareholders and Other Stakeholders is described on page 50; and • Accountability is described on pages 50 to 55. The Board is committed to maintaining the highest standards of corporate governance, which are fundamental to discharging our responsibilities. As Chairman, it is my role to ensure the highest standards of governance are promoted by the Board and to ensure that the Group is governed and managed in the best interests of shareholders and wider stakeholders. This includes encouraging open discussion and constructive challenge. In this report, we set out our governance framework and explain how robust and effective corporate governance practices enable the Group to deliver its strategy and create long-term shareholder value. Further information on our strategy and business model can be found on pages 2 to 35. To support the Board, in 2017 we extended the remit of the Nomination Governance Committee to include the monitoring of the Company’s compliance with applicable codes and other requirements of corporate governance and the Committee was renamed the Nomination & Governance Committee. We continue to work hard to maintain a culture where ‘doing the right thing’ is at the core of how we do business. As custodian of Savills culture the Board demands openness and transparency to maintain an environment in which honesty, integrity and fairness are valued and practised by our people every day. The Board’s behaviour and the values it demonstrates set the tone to guide our people’s behaviour and ensure that we live by and demonstrate the right values which in turn enable entrepreneurial and prudent management to deliver long-term success for the Group and its stakeholders. Overview Leadership • The Group’s current corporate governance structure Effectiveness • The Board’s composition and independence Accountability • Internal controls and risk management • The role of the Board and its • Board induction and development • Going concern Committees • Board and Committee performance • Dialogue with Shareholders • How the Board operates evaluation • Board activities during the year • Nomination & Governance Committee report • Audit Committee report 38 Savills plc Report and Accounts 2017 It is important in my role as Chairman to ensure that the Board has the right blend of skills and experience. As an international business, we benefit from our Non- Executive Directors’ knowledge of and involvement with other businesses in Hong Kong and China, Europe and the US. At least half of the Board members throughout the year were Independent Non-Executive Directors (excluding me, as Chairman). The details of their skills and experience are, along with those of the other Board members, set out on pages 44 and 45. In accordance with the Code, each Director will stand for re-election at the 2018 AGM on 8 May 2018. The Board also reviews Non-Executive Director independence on an annual basis and takes into account the individual’s experience, their behaviour at Board meetings and their contribution to unbiased and independent debate. The Board considers that all of the Non- Executive Directors bring considerable management expertise and strong independent oversight. All of the Non- Executive Directors are considered by the Board to be independent, including Charles McVeigh, notwithstanding his long service. The Board is committed to a culture that attracts and retains talented people to deliver outstanding performance and further enhance the success of the Group. The Board recognises the benefits of having diversity across all areas of the Group. We are committed to eliminating discrimination and encouraging diversity amongst our people. Our aims are that our business will be truly representative of all sections of society and that each employee feels respected and able to give their best. The Company’s policy on diversity applies across all levels of the Group and further details of the policy can be found in the Corporate Responsibility (‘CR’) section on pages 30 to 35. In line with the requirements of the Code we continue to test the Board’s effectiveness and performance annually through a formal evaluation. This is facilitated by an independent external consultant at least once every three years. JCA Consultants externally facilitated the review in 2016, so this year’s evaluation was conducted in-house, led by the Chairman and facilitated by the Group legal director & Company Secretary. The process, key conclusions and areas of focus for 2018 are set out on page 49. Following this review, I am satisfied that the Board continues to perform effectively and in particular I am confident that the Board has the right balance of skills, experience and diversity of personality to continue to encourage open, transparent debate and challenge. The Board recognises the recommended term for Non-Executive Directors within the UK Corporate Governance Code and it is mindful of the need for suitable succession. In 2018 we have started the process of recruiting a further Non-Executive Director. On 16 January 2018 we announced that, after 11 years in the role, Jeremy Helsby intended to retire as Group Chief Executive Officer at the end of the 2018 financial year. During 2017 the Board, through the Nomination & Governance Committee, completed the process to recruit his successor. Following a comprehensive review, it was agreed that Mark Ridley, currently CEO of Savills UK and Europe, should be offered the role of Group Chief Executive Officer with effect from 1 January 2019, and to join the Board as an additional Executive Director and Deputy Group Chief Executive Officer effective from 1 May 2018. During the year, the Audit Committee reviewed the FRC’s Guidance on Audit Committees. The Audit Committee was satisfied that the Company complies with the 2016 Code, and has considered the Guidance on Audit Committees. At our AGM in 2017, we received support for our Directors’ Remuneration Report and Policy from 99% of Shareholders voting. The 2017 Remuneration Report (pages 58 to 73) provides a summary of the Policy approved by shareholders at the 2017 AGM and a detailed review of the Remuneration Committee’s activities, and bonus and share scheme performance, in 2017. We believe that engaging with our Shareholders and encouraging an open, meaningful dialogue between Shareholders and the Company is vital to ensuring mutual understanding. We are in regular contact with our major Shareholders and potential Shareholders through a regular, scheduled programme of meetings as part of our continuing commitment to this open and transparent dialogue. You can read more about Shareholder engagement on page 50 and in the meantime, my fellow Directors and I look forward to continued dialogue and meeting with Shareholders at our AGM in May where I will be happy to answer any further questions. Overall I remain happy with the Board’s activity across our governance agenda. However, we will continue to challenge ourselves and the business and to consider and to learn from our decisions to ensure that we build upon the existing strength of our governance structure. Nicholas Ferguson CBE Chairman of Savills plc 14 March 2018 Remuneration • Statement by Remuneration Committee Chair • Remuneration Committee Report UK Corporate Governance Code (April 2016) The UK Corporate Governance Code 2016 (the “Code”) is the standard against which we measured ourselves in 2017. A copy of the Code is available from the Financial Reporting Council’s website at www.frc.org.uk. We are pleased to confirm that we complied with all of the provisions set out in the Code for the period under review. Further information about how the Board complies with the Main Principles is set out on pages 56 to 57 of this Annual Report. Savills plc Report and Accounts 2017 39 Financial statementsGovernance Strategic reportOverviewLeadership Our governance framework Board (Chairman, two Executive Directors and four Non-Executive Directors) Audit Committee • Has primary responsibility for providing entrepreneurial leadership • Oversees the overall strategic development of the Group • Sets the Group’s values and standards • Ensures that the Group’s businesses act ethically and that obligations to Shareholders are understood and met • Delegates the management of the day-to-day operation of the business to the Group Chief Executive, supported by the Group Executive Board subject to appropriate risk parameters. Matters reserved to the Board • The Board has adopted a formal schedule of matters specifically reserved to it for decision-making. A full schedule of matters reserved for the Board’s decision along with the Terms of Reference of the Board’s principal Committees can be found on the Company’s website at www.savills.com/en/company-information/corporate-governance.aspx • Responsible for assisting the Board in fulfilling its financial and risk responsibilities, and in particular for ensuring that the financial statements are fair, balanced and understandable • Oversees financial reporting, internal control, risk management and reviews the work of the Internal and External Auditors • Advises the Board on the appointment of the External Auditors. Chair: Liz Hewitt Number of meetings in the year: 4 See pages 51 to 55 Remuneration Committee • Responsible for the broad policy governing senior staff pay and remuneration • Sets the actual levels of all elements of the remuneration of the Executive Directors • Reviews the remuneration of Group Executive Board members. Chair: Rupert Robson Number of meetings in the year: 4 See pages 58 to 73 CR Steering Group • Coordinate Corporate Responsibility (‘CR’) activity to deliver Savills agreed goals • Oversees Savills CR Strategy for the Group globally and recommending changes to it when appropriate • Monitors Group-wide CR progress and performance and identifying to the Group Executive Board areas where action needs to be taken • Ensures that key CR responsibilities and achievements are communicated to all staff globally and externally to interested parties • Gathers and records information about all existing CR programmes and initiatives taking place within the Group • Helps to determine indicators and measures that will be used to ascertain performance against prioritised CR impact areas • Helps to identify on any external indices, initiatives, codes and standards for Savills to use or adopt to help validate CR performance • Responsible for overseeing preparation of the CR section of the Annual Report. 40 Savills plc Report and Accounts 2017 Nomination & Governance Committee Executive Committees • Responsible for size, structure and composition of the Board • Reviewing and progressing appointments to the Board • Responsible for succession planning to ensure that the Board is refreshed progressively such that the balance of skills and experience available to the Board remains appropriate to the needs of the business • Makes recommendations to the Board on the membership of the principal Committees of the Board. • Monitoring of the Company’s compliance with applicable codes and other requirements of Corporate Governance. Chair: Nicholas Ferguson Number of meetings in the year: 3 See pages 47 to 49 Lead each Principal Business • Responsible for the day-to-day management of the relevant Principal Business • Oversees the development and implementation of strategy, capital expenditure, and investment budgets for the ongoing review and control of Group risks, reporting on these areas to the Group Executive Board and, as necessary, the Board for approval • Implements Group policy • Monitors financial and operational performance of the relevant Principal Business and other specific matters delegated to it by the Group Executive Board. Group Chief Executive • Responsible for the day-to-day management of the Group Group Executive Board Group Risk Committee • Key executive management committee of the Group • Responsible for the day-to-day management of the Group • Oversees the development and implementation of strategy, capital expenditure, and investment budgets, for the ongoing review and control of Group risks, reporting on these areas to the Board for approval • Implements Group policy • Monitors financial and operational performance of the Group and other specific matters delegated to it by the Board. Chair: Group Chief Executive Composition: Group Chief Financial Officer, the Heads of the Principal Businesses and the Group Legal Director & Company Secretary • Identifies and evaluates Group level risks • Reviews and challenges risks reported by subsidiaries • Champions the ongoing Group- wide development of risk management and the internal controls framework • Monitors internal audit and other sources of assurance on the effectiveness of internal controls. Savills plc Report and Accounts 2017 41 Financial statementsGovernance Strategic reportOverviewLeadership continued Attendance at Board and Committee meetings The Board met formally eight times during the year. Attendance at all Board and Committee meetings by Directors is as shown in the table below. Non-Executive Directors Nicholas Ferguson1 Tim Freshwater Liz Hewitt Rupert Robson Charles McVeigh Executive Directors Jeremy Helsby3 Simon Shaw3 Board meetings attended Meetings eligible to attend Audit Committee meetings attended Meetings eligible to attend Nomination & Governance Committee meetings attended Meetings eligible to attend Remuneration Committee meetings attended Meetings eligible to attend 8 8 8 8 8 8 8 8 8 8 8 8 8 8 – 1 4 4 4 – – 4 – 5 – 1 4 4 4 – – 4 – 5 3 3 3 3 – 3 3 3 3 3 – 3 – 2 4 4 4 – – 2 4 4 4 – 1 The Chairman attended two Audit Committee meetings by invitation 2 The Chairman attended four Remuneration Committee meetings by invitation 3 Members of the Group Executive Board 4 The Group Chief Executive attended four Audit Committee meetings by invitation 5 The Group Chief Financial Officer attendees four Audit Committee meetings by invitation How the Board Operates The Board has formally adopted a schedule of matters reserved to it for decision. A full schedule of matters reserved for the Board’s decision along with the Terms of Reference of the Board’s principal Committees can be found on the Company’s website at www.savills.com/en/ company-information/corporate-governance.aspx. The Board and Committee meetings are structured to allow open discussion. To enable the Board to discharge its duties, each Director receives appropriate and timely information. Board papers are circulated electronically via a secure portal, giving Directors sufficient time to consider and digest their contents. When unable to be present in person, Directors may attend by audio or video conference. When Directors are unable to attend a Board or Committee meeting, their views on the key items of business to be considered at that meeting are relayed in advance to the Chairman of that meeting in order that these can be presented at the meeting and be considered in the debate. Regular attendance at Board meetings by the Heads of Principal Businesses on matters of significance ensures that the Board has the opportunity to discuss business risks and opportunities with leaders from across the Group. The Group Legal Director & Company Secretary provides the Board with updates and reports covering legal developments and regulatory changes. The Chairman, together with the Group Legal Director & Company Secretary, ensures that the Directors receive management information, including financial, operating and strategic reports, in advance of Board meetings. At its meetings during the year, the Board discharged its responsibilities and received updates on the Group’s financial performance, key management changes, material new projects, investment proposals, financial plans, and legal and regulatory updates. 42 Savills plc Report and Accounts 2017 Board activity in 2017 The diagram below shows the key areas of Board activity during the year. One of the Board’s meetings during the year was specifically devoted to the review and reconfirmation of the Group’s strategy. This meeting benefited from presentations and discussions with a number of the Heads of the Principal Businesses. The delivery of strategic plans continues to be monitored and reviewed by the Board and periodic updates on progress and market developments will be presented by the Heads of the Principal Businesses as part of this continuous review process. y g e t a r t S F i n a n G o vernance a n d I n R t i e s r k n a M l a C n o Five Key Areas of Board activity during the year n t r o l a g e m e n t c i a l P erformance h i p a n d People s r L e a d e Leadership and people • Agreed the appointment of Mark Ridley as Group Chief Executive Officer (effective 1 January 2019) as successor to Jeremy Helsby and Mark Ridley’s appointment to the Board as an additional Executive Director and Deputy Group Chief Executive Officer effective from 1 May 2018 • Reviewed senior management succession plans • Considered long term incentive arrangements for the US, and introduced a new long term incentive plan (based on the models successfully implemented elsewhere in the Group) to incentivise and further motivate fee earners and to better align US fee earners and shareholders interests • Reviewed the composition of the Board and its Committees Strategy • Reconfirmed the Group’s strategy, in particular an in-depth review of Savills US future growth plans • Reviewed the Group’s target delivery and achievement of goals • Evaluated the performance of acquisitions completed in 2016 against expectations, including GBR Phoenix Beard in the UK, and acquisitions made by Savills Studley in the US • Considered and approved significant acquisitions completed during the year, including the acquisitions of Aguirre Newman in Spain and Larry Smith in Italy • Reviewed the Group’s Technology Strategy, including cyber strategy, and approved investments in two technology start-ups which are focussed on developing software which would enhance the Group’s client offering • Considered and approved the Group’s Going Concern and Viability Statements Internal control and risk management • Reviewed and confirmed the principal risks facing the Group which are described in detail in pages 25 to 29 • Reviewed the Group’s risk register and the effectiveness of the systems of internal control and risk management • Received updates on the risk and internal control environments within the Group’s Asia Pacific, European and UK businesses and the Group’s Tax & Treasury functions Governance • Noted developments in legal and regulatory matters globally, and the revisions to the Group’s established processes to reflect such developments, in particular the introduction of new anti-money laundering regulations across Europe and in China and the implementation of the UK regulations prohibiting the facilitation of tax evasion • Considered the output from the 2017 formal Board evaluation and effectiveness review and agreed improvement opportunities Financial performance • Considered the financial performance of the Group • Reviewed the half yearly and annual financial statements and approved the Annual Report • Considered the capital allocation, financing and funding of the Group • Considered and approved the 2017 interim and supplemental dividends, and recommended the final dividend to shareholders Savills plc Report and Accounts 2017 43 Financial statementsGovernance Strategic reportOverview Leadership continued Board of Directors Nicholas Ferguson CBE Chairman of Savills plc and Chairman of the Nomination & Governance Committee Jeremy Helsby Group Chief Executive Simon Shaw Charles McVeigh Group Chief Financial Officer Independent Non-Executive Director Appointment to the Board Appointment to the Board Appointment to the Board Nicholas was appointed to the Board as a Non-Executive Director on 26 January 2016 and became Chairman in May 2016. Jeremy joined Savills in 1980 and was appointed to the Board in 1999. Simon joined Savills as Group Chief Financial Officer in March 2009. Appointment to the Board Charles was appointed to the Board as a Non-Executive Director on 1 August 2000. Background and relevant experience Background and relevant experience Background and relevant experience Background and relevant experience Nicholas has held a number of leadership roles in the private equity and investment sectors. He was co-founder of Schroder Ventures (the private equity group which later became Permira) of which he served as Chairman from 1984 to 2001. He later served as Chairman of SVG Capital plc, a publicly quoted private equity group, from April 2005 to November 2012. He was Chairman and Chief Executive Officer of Savills Commercial and Savills Europe for seven years until he was appointed as Group Chief Executive on 7 May 2008. Simon is a Chartered Accountant. He was formerly Chief Financial Officer of Gyrus Group PLC, a position he held for five years until its sale to the Olympus Corporation. Simon was Chief Operating Officer of Profile Therapeutics plc for five years and also worked as a corporate financier, latterly at Hambros Bank Limited. Formerly, he was Co-Chairman of Citigroup’s European Investment Bank and served on the Boards of Witan Investment Company plc, Clearstream, the London Stock Exchange, LIFFE, British American Business Inc and was a member of both the Development Board and Advisory Council of the Prince’s Trust, he was also a Non-Executive Director of Petropavlovsk plc until mid 2015. He was appointed by the Bank of England to serve on the City Capital Markets Committee and the Legal Risk Review Committee and was a member of the Fulbright Commission. Charles has recently become Chairman of Rubicon Fund Management, a successful London based hedge fund. He is Vice Chairman of the European Advisory Board as well as senior Advisor to the private bank of Citigroup. Other appointments Other appointments Other appointments Other appointments Nicholas was Chairman of Sky Plc from April 2012 to May 2016, having been appointed to the board as a Non- Executive Director in June 2004 and having previously served as Deputy Chairman and Senior Independent Non-Executive Director. Chairman of African Logistical Properties; and Chairman and founder of The Kilfinan Group, which provides mentoring by Chairmen and CEOs to heads of charities. None Non-Executive Chairman of Synairgen plc. A Senior Adviser at Citigroup, Charles is a Trustee of the Landmark Trust and the Natural History Museum Development Board, he is on the Board of the Countryside Alliance and is a former Board member of EFG-Hermes. Committee Membership Committee Membership Committee Membership Committee Membership Remuneration and Nomination & Governance Committees. Nomination & Governance Committee. None None 44 Savills plc Report and Accounts 2017 Tim Freshwater Liz Hewitt Rupert Robson Independent Non-Executive Director Senior Independent Director Independent Non-Executive Director and Chair of the Audit Committee Independent Non-Executive Director and Chair of the Remuneration Committee Appointment to the Board Tim was appointed to the Board as a Non-Executive Director on 1 January 2012. Appointment to the Board Appointment to the Board Liz was appointed to the Board as a Non-Executive Director on 24 June 2014. Rupert was appointed to the Board as a Non-Executive Director on 23 June 2015. Background and relevant experience Background and relevant experience Background and relevant experience Tim is Chairman of Goldman Sachs Asia Bank Limited and was formerly Chairman of Corporate Finance for Goldman Sachs (Asia). He was also Chairman of Grosvenor Asia Pacific Limited until 2013. Before joining Goldman Sachs, Tim worked at Jardine Fleming, becoming Group Chairman in 1999, and was a partner at Slaughter and May from 1975 to 1996. Liz previously held senior executive roles at Smith & Nephew plc and 3i Group plc having spent her early career with Gartmore, CVC and 3i as a private equity investor. She qualified as a Chartered Accountant with Arthur Andersen. Rupert has held a number of senior roles in financial institutions, most recently Chairman of Charles Taylor plc and Non-Executive Director of London Metal Exchange Holdings Limited, Tenet Group Limited and OJSC Nomos Bank. Prior to that he was Global Head, Financial Institutions Group, Corporate Investment Banking and Markets at HSBC and Head of European Insurance, Investment Banking at Citigroup Global Markets. Other appointments Other appointments Other appointments Non-Executive Director of Swire Pacific Limited, Corney & Barrow Group Limited, Chelsfield Asia Limited (former name: Dymon Asia Real Estate Limited) and Hong Kong Exchanges and Clearing Limited. Non-Executive Director of Melrose Industries PLC and Novo Nordisk A/S. External member of the House of Lords Commission. Chairman of TP ICAP plc, Sanne Group plc, EMF Capital Partners & Governor of Sherborne School. Committee Membership Committee Membership Committee Membership Audit, Remuneration and Nomination & Governance Committees. Audit, Remuneration and Nomination & Governance Committees. Audit, Remuneration and Nomination & Governance Committees. Savills plc Report and Accounts 2017 45 Financial statementsGovernance Strategic reportOverviewLeadership continued Group Executive Board Jeremy Helsby Simon Shaw Group Chief Executive (See Board of Directors on pages 44 and 45 for photograph and full biography). Group Chief Financial Officer (See Board of Directors on pages 44 and 45 for photograph and full biography). Chris Lee Group Legal Director & Company Secretary Mark Ridley Chief Executive – Savills UK and Europe Raymond Lee Chief Executive – Hong Kong, Macau and Greater China Simon Hope Global Head of Capital Markets Appointment to the Group Executive Board Appointment to the Group Executive Board Appointment to the Group Executive Board Appointment to the Group Executive Board Chris joined Savills in June 2008 and was appointed to the Group Executive Board in August 2008. He has ultimate responsibility for legal, regulatory and compliance issues globally. Background and relevant experience He held equivalent roles with Alfred McAlpine plc, Courts plc and Scholl plc between 1997 and 2008, prior to which he was Deputy Group Secretary of Delta plc from 1990 to 1997. Mark was appointed to the Group Executive Board when it was formed in February 2008. Raymond was appointed to the Group Executive Board in January 2011. Simon was appointed to the Group Executive Board when it was formed in February 2008. Background and relevant experience He became Chief Executive of Savills UK and Europe in October 2014, previously holding the position of Chief Executive for Savills UK following the merger of the Commercial and L&P businesses in January 2013. He previously served as Chairman and Chief Executive of Savills Commercial Limited from January 2008 and prior to this was Head of the Manchester office which he opened for Savills from the time he joined in July 1996. Background and relevant experience He joined Savills in 1989. In 2003, Raymond became the Managing Director in Hong Kong and Macau and in 2010 was appointed CEO of Greater China. Raymond is a Fellow member of the Hong Kong Institute of Directors and holds an honorary fellowship at the Quangxi Academy of Social Science. Raymond is also an Honorary Doctor of Management at Lincoln University and holds a Fellowship at the Asian College of Knowledge Management (ACKM). He became a fellow member of the Royal Institute of Chartered Surveyors (RICS) in 2016. Background and relevant experience He joined Savills in September 1986 and he is Head of our Global Capital Markets business. He is also a member of the Board of the Charities Property Fund, Chairman of Tilstone LLP and co-founder and non-executive of the Warehouse REIT. Justin O’Connor Chief Executive Officer – Savills Investment Management Mitch Steir (alternate member with Michael Colacino) Chairman & CEO – Savills Studley Michael Colacino (alternate member with Mitch Steir) President – Savills Studley Christian Mancini Chief Executive Officer – Asia Pacific (ex Greater China) Appointment to the Group Executive Board Justin was appointed to the Group Executive Board in September 2010. Background and relevant experience He joined Savills Investment Management in January 2004 as Head of Business Development. He was subsequently appointed Chief Executive in January 2006. Justin previously held a number of senior positions at Henderson Global Investors, Lend Lease and the AMP Society. 46 Savills plc Report and Accounts 2017 Appointment to the Group Executive Board Mitch was appointed to the Group Executive Board when Studley, Inc. joined Savills in May 2014. Appointment to the Group Executive Board Michael was appointed to the Group Executive Board when Studley, Inc. joined Savills in May 2014. Appointment to the Group Executive Board Christian was appointed to the Group Executive Board on 1 July 2016. Background and relevant experience Christian was made CEO of Savills Japan in 2007 and appointed CEO of Savills Northeast Asia in 2012. Background and relevant experience He joined Studley, Inc. in October 1991 and became president in 2002. Other appointments Other appointments Michael serves on the Real Estate Board of New York’s Board of Governors and the Advisory Board of the Zell-Lurie Real Estate Center at Wharton and is on the Harvard Alumni Real Estate Board. Christian also serves as non-executive director in Savills Asset Advisory, the wholly-owned asset management subsidiary of Savills Japan Co, Ltd created in May 2012 Background and relevant experience He joined Studley, Inc. in 1988 after beginning his commercial real estate career at Huberth & Peters in New York. Other appointments Mitch serves on the Boards of The Museum of the City of New York, the Film Society of Lincoln Center, The Realty Foundation of New York, The Avenue of Americas Association, The Mount Sinai Hospital Surgery advisory board and the Citizens Budget Commission. Effectiveness Nomination & Governance Committee Report The Nomination & Governance Committee (“Committee”) has an important role to play in ensuring that the Board and its principal Committees have the right mix of skills, experience and diversity to deliver Group strategy and to create value. The Committee keeps under review and evaluates the composition of the Board and its Committees to maintain the appropriate balance of skills, knowledge and independence to be able to function effectively. Committee Members • Nicholas Ferguson (Chair*) • Tim Freshwater • Liz Hewitt • Rupert Robson • Jeremy Helsby (Executive Director) * save in circumstances where the Chairman’s succession is considered Key Objectives The primary objectives of the Committee are • to review the size and composition of the Board and its key Committees and to plan for the Board’s progressive refreshing, with regard to balance and structure. • to monitor of the Company’s compliance with applicable codes and other requirements of Corporate Governance Key responsibilities • responsible for size, structure and composition of the Board • reviewing and progressing appointments to the Board • responsible for succession planning to ensure that the Board is refreshed progressively such that the balance of skills and experience available to the Board remains appropriate to the needs of the business • makes recommendations to the Board on the membership of the principal Committees of the Board. • to keep under review the Company’s compliance with applicable Codes and other requirements of Corporate Governance More detailed information on the role and responsibilities of the Committee can be found in the Committee’s Terms of Reference which can be accessed on the Company’s website at www.savills.com. Committee meetings The Committee met three times during 2017 and each meeting had full attendance. Members of the Committee also attend the Company’s AGM at which there is an opportunity to meet with Shareholders. Any other Director, the Group Legal Director & Company Secretary or an external advisor may be invited by the Committee to attend the meetings from time to time, as appropriate. Committee Terms of Reference During the year the remit of the Committee was extended to include the monitoring of the Company’s compliance with applicable Codes and other requirements of Corporate Governance and the Committee was renamed the Nomination & Governance Committee. The revised Terms of Reference for the Committee to this effect were submitted to the Board for formal approval and adopted on 15 June 2017. Board composition and balance Balance of Non-Executive Directors and Executive Directors Non-Executive Chairman – 1 Non-Executive Directors – 4 Executive Directors – 2 Length of tenure of Non-Executive Directors 0–4 years – 3   5–9 years – 1   10+ years – 1 At all times during the year at least half of the Board members, excluding the Chairman, were Independent Non-Executive Directors. Chairman and Chief Executive The roles of Chairman and Group Chief Executive are distinct and separate and their roles and responsibilities are clearly established. The Chairman leads the Board and has particular responsibility for the effectiveness of the Group’s governance. In promoting a culture of openness he ensures the effective engagement and contribution of all Executive and Non-Executive Directors. To help ensure a proper dialogue with all Directors, the Chairman meets periodically with the Directors individually and the Non-Executive Directors as a group (and without the Executive Directors). The Group Chief Executive has responsibility for all Group businesses and acts in accordance with the authority delegated by the Board. There are a number of areas where the Board has delegated specific responsibility to management, including responsibility for the operational management of the Group’s businesses as well as reviewing strategic issues and risk matters in advance of these being considered by the Board and/or its Committees. The Board considers that throughout the year the Company was in full compliance with the Code. Assessment of the Independence of Non-Executive Directors The Chairman is committed to ensuring the Board comprises a majority of Independent Non-Executive Directors who objectively challenge management, balanced against the need to ensure continuity in the Board. On an annual basis, the Board reviews the independence of its Non-Executive Directors, particularly those with long service. The Non-Executive Directors are responsible for bringing independent and objective judgement and scrutiny to matters before the Board and its Committees. The Board considers that all of the Non-Executive Directors bring considerable expertise, strong independent oversight and continue to and are Independent Non-Executive Directors, being independent of management and having no business or other relationship which could interfere materially with the exercise of their judgement. In particular, notwithstanding his long service on the Board, the Board continues to consider that Charles McVeigh remains entirely independent in character and judgement. His experience provides valuable insight, knowledge and continuity. The Board recognises the benefit of progressively refreshing its membership and therefore is commencing the search for a Non-Executive Director in 2018. Time commitment and conflicts The Board is satisfied that the Chairman and each of the Non- Executive Directors committed sufficient time during the year to enable them to fulfil their duties as Directors of the Company. Savills plc Report and Accounts 2017 47 Financial statementsGovernance Strategic reportOverview that the Board continues to best meet the needs of the Company and its Shareholders. The biographies of the Board members appear on pages 44 and 45. The Committee has sought to maintain a balance of skills and experience on the Board and its Committees. The Company adopts a formal, rigorous and transparent procedure for the appointment of new Directors and key senior executives and we continue to recruit based on merit with consideration given to diversity in its widest sense. Before making an appointment, the Committee assesses the balance of skills, knowledge, independence, experience and diversity of the Board and, in view of this assessment, will draw up a description of the role and competencies needed, with a view to appointing the best-placed individual for the role. In making a recommendation to the Board on a Non-Executive Director appointment, the Nomination & Governance Committee specifically considers the expected time commitment of the proposed Non-Executive Director and other commitments they may already have. The Company uses recruitment consultants to assist the Committee in delivering its objectives and responsibilities and the search firms are required to present a mix of suitable male and female candidates. No Director is involved in decisions regarding his or her own succession. The Committee is aware that the number of women on Boards remains a topic for debate for companies and regulators. We fully agree with the spirit and aspirations of the Davies Report to increase the number of women on company Boards. All appointments to the Board are made on merit and within this context, whilst having regard to the recommendations of the Davies Report, the Board continues to view diversity in the widest sense, with a view to appointing the best-placed individual for the role. Appointing the best people to the Board is critical to the success of the Company and our focus remains on attracting the right talent and skills irrespective of gender or diversity. Effectiveness continued The Companies Act 2006 places a duty on each Director to avoid a situation in which he or she has or can have a direct or indirect interest which conflicts or may conflict with the interests of the Company. A Director will not be in breach of that duty if the relevant matter has been authorised by the other Directors in accordance with the Articles. The Board has adopted a set of guiding principles on managing conflicts and approved a process for identifying current and future actual and potential conflicts of interest. The Nomination & Governance Committee review authorised conflicts at least annually or if and when a new potential conflict situation was identified or a potential conflict situation materialised. During 2017, actual and potential conflicts of interest that were identified by each Director were subsequently authorised by the Nomination & Governance Committee, subject to appropriate conditions in accordance with the guiding principles. Procedures adopted to deal with conflicts of interest continue to operate effectively and the Board’s authorisation powers continue to be exercised properly in accordance with the Company’s Articles of Association. Committee activities during the year The Committee has standing items that it considers regularly under its Terms of Reference; for example, the Committee considered and approved Directors’ potential conflicts of interest and reviewed its own Terms of Reference (which are reviewed at least annually or as required, eg to reflect changes to the Code or as a result of changes in regulations or best practice). Group Chief Executive Succession On 16 January 2018 we announced that, after 11 years in the role, Jeremy Helsby would retire as Group Chief Executive Officer at the end of the 2018 financial year. During the 2017 financial year the Board, through the Committee, commenced the process to identify and appoint a new Group Chief Executive Officer who would succeed Jeremy Helsby effective 1 January 2019. The process, which included evaluation of the merits of selecting an external candidate, was undertaken by the Committee and led by the Chairman. The Committee undertook a series of reviews to scope out the key skills, experience, characteristics and requirements for the role. The Committee agreed that, taking into account all relevant available information, Mark Ridley, currently Chief Executive of Savills UK and Europe,was the strongest candidate. A meeting of the Committee formally considered Mark Ridley’s suitability for the role. The Committee noted his considerable existing knowledge of the Group (as a member of the 48 Savills plc Report and Accounts 2017 Group Executive Board since its establishment in 2008) and its business and his proven track record as Chief Executive of Savills UK (since 2008) & Europe (since 2013). The Committee unanimously concluded that it should recommend that Mark Ridley be offered the role of Group Chief Executive Officer with effect from 1 January 2019, and that he should join the Board as an additional Executive Director and Deputy Group Chief Executive Officer effective from 1 May 2018. Further details on Mark Ridley’s skills and experience is set out on page 46. In addition, and specifically during the year, the Committee: • reviewed the Group’s senior level succession plans to ensure that these remained appropriate; • reviewed and approved the succession plan for senior management in the UK businesses to be implemented on Mark Ridley’s appointment to the Board as Deputy Group Chief Executive; • considered Board succession planning including the tenure, mix and diversity of skills and experience of the existing Board Members in the context of the Group’s strategy; • considered the proposed reappointment of the Non-Executive Directors, before making a recommendation to the Board that each Non-Executive be proposed to shareholders for re-election at the 2018 AGM; and • considered and authorised the Directors’ actual and potential conflict of interests. In consultation with the Chairmen of the Board Committees, the Nomination & Governance Committee will continue to monitor the needs of the Board and its Committees in the context of the delivery of the Group’s strategy, with the aim of ensuring that the Group’s succession planning policy evolves such that there is an identifiable supply of talent and experience available to the Board and its Committees from which to select successors. Board composition, succession planning and diversity Board succession is a key topic at Committee meetings and we recognise the importance of planning for the future and of having succession plans in place which introduce new skills and perspectives to the Board and which complement the experience of the existing Board members. The Committee continues to keep the Board’s composition under review and considers how that composition might be enhanced to ensure We have noted the recommendation in the Hampton Alexander Review published in 2016 that a target of 33% female Board representation be achieved by FTSE 350 companies by 2020, and also the recommendations of the Parker Review Committee published in October 2017 relating to ethnic diversity on Boards. In relation to the Non-Executive Directors, in 2018 we will commence the search for a further Non-Executive Director. In this search the Board is conscious of its objective of further strengthening diversity at Board level. Governance The Committee reviewed the Company’s compliance with the Code and was satisfied that the Company complied with the Code. The Committee would continue to receive updates on corporate governance developments and consider the impact of those developments on the Company Nicholas Ferguson CBE Committee Effectiveness Chairman of the Nomination & Governance Committee I am pleased to report that the recent Board performance evaluation concluded that the Nomination & Governance Committee continues to operate effectively. 14 March 2018 Board effectiveness review This year’s process The Board recognises that it continually needs to monitor and improve its performance. In line with the effective governance requirements of the Code, the Board reviews its own performance and that of the Directors and of its Committees annually. An externally facilitated Board evaluation was carried out in 2016 facilitated by Alice Perkins of JCA. This year’s annual review was facilitated by the Group Legal Director & Company Secretary. In relation to the 2017 evaluation, each Director and the Group Legal Director & Company Secretary completed a questionnaire and the Chairman collated and presented the responses of the evaluation for consideration by the Board. Conclusions from the 2017 review Areas of focus for 2018 The conclusion from this year’s evaluation was that the Board and its Committees continued to operate to a high standard and continued to provide effective leadership and exert the required levels of governance and control. The review had reconfirmed the need to ensure that effective succession plans were in place at Board, Group Executive Board and Business Executive Committee level. This will be a key focus in 2018. To ensure that the Board and Nomination & Governance Committee have good visibility over the business leaders at Business Executive Committee level, the Board will to meet with senior management at business level more regularly; To ensure that the Board maintains a good understanding of investor views, the Board will undertake formal six monthly reviews, facilitated by the Company’s brokers, of the investor feedback after the Full and Half Year Results and the AGM. The Chairman and Senior Independent Director to continue to offer themselves to investors to receive feedback in relation to performance or governance issues following the publication of the Group’s full year results and notice being given convening the AGM, in addition to being available as necessary to investors if concerns could not be addressed to the Executive Directors; The Board to continue to review its procedures, effectiveness and development and to seek to improve and evolve its standards of performance. As a result of the evaluation, the Board considers the performance of each Director to be effective and concluded that both the Board and its Committees continue to provide effective leadership and exert the required levels of governance and control. Shareholders would therefore be recommended to re-elect Board Members at the AGM in May. Board Development To ensure a full understanding of Savills and its businesses, following their appointment to the Board, each Director undergoes a comprehensive and tailored induction programme which introduces the Director to the Group’s businesses, its operations, strategic plans and key risks. New Directors are also provided with information on relevant share dealing policies, Directors’ duties, Company policies and governance. The induction also includes one to one briefings from the Heads of the Principal Businesses and an introduction to each Group business’s development strategy. The Group Legal Director & Company Secretary, whose appointment is a matter reserved for the Board, is responsible for advising and supporting the Chairman and the Board on company law and corporate governance matters and for ensuring that Board procedures are followed, as well as ensuring that there is a smooth flow of information to enable effective decision making. The Group Legal Director & Company Secretary is further responsible for ensuring that the Directors receive regular updates on developments in legal and regulatory matters. All the Directors have access to the advice and services of the Group Legal Director & Company Secretary and through him have access, if required, to independent professional advice in respect of their duties at the Company’s expense. Savills plc Report and Accounts 2017 49 Financial statementsGovernance Strategic reportOverviewThe AGM provides the Board with a valuable opportunity to communicate with private Shareholders and is generally attended by all of the Directors. Shareholders are given the opportunity to ask questions before and during the meeting and to meet Directors following the conclusion of the formal part of the meeting. In accordance with the Code, the level and manner of voting of proxies lodged on each resolution at the AGM is declared at the meeting and published on the Company’s website. The notice of the AGM is sent out at least 20 working days before the meeting and at least 14 working days notice is given before other general meetings in accordance with the Code. Details of the resolutions to be proposed at the 2018 AGM in May can be found in the AGM Notice which accompanies this Report and Accounts. In accordance with the Articles of Association, electronic and paper proxy appointments and voting instructions must be received not later than 48 hours before a general meeting. The Group’s website includes a specific investor relations section containing all RNS announcements, share price information and annual reports available for download. The Company has taken advantage of the provisions within the Companies Act 2006 which allow communications with Shareholders to be made electronically where Shareholders have not requested hard copy documentation. Details of the information available to Shareholders can be found on page 153. Accountability Internal control and risk management The principal risks and uncertainties faced by the Group and the associated mitigating actions for these are set out on pages 25 to 29. The Board has overall responsibility for the Group’s systems of risk management and internal control across the Group and for reviewing their effectiveness. This responsibility includes the determination of the nature and extent of the principal risks the Board is willing to take to achieve its strategic objectives and for ensuring that an appropriate culture has been embedded throughout the organisation. Risk management is implemented from the top down. The Board is supported by the Audit Committee in discharging its oversight duties with regard to internal control and risk management. Whilst the Board is responsible for ensuring that an appropriate culture has been embedded throughout the organisation and establishing and maintaining the Group’s system of risk management and internal control to safeguard Shareholders’ investments and the Group’s assets (and for reviewing the effectiveness of this system), such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives and can provide only reasonable and not absolute assurance against material misstatement or loss. The Board has established an ongoing process for identifying, evaluating and managing the Group’s principal risks. The Board’s attitude and appetite to risk is communicated to the Group’s businesses through the strategy planning processes. The Audit Committee monitors the ongoing status and progress of action plans against key risks on a regular basis and reports its findings to the Board. Going concern The Group’s business activities, together with the factors considered likely to affect its future development, performance and position are set out in the Strategic Report on pages 2 to 35. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described on page 23. In addition, Note 3 to the financial statements includes the Group’s objectives, policies and processes for managing its capital, its financial risk management objectives, details of its financial instruments and hedging activities, and its exposures to credit risk and liquidity risk. 50 Savills plc Report and Accounts 2017 The Group has considerable financial resources, including a £300m committed revolving credit facility (augmented by a £60m ‘accordion’ option which can be activated to increase the facility to £360m) that extends to December 2020. The Group has a broad geographic presence, service offering and extensive client spread ensuring that the Group is not over-dependent on one geography, service line or client. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully. After making appropriate enquiries, the Directors have a reasonable expectation that the Company and the Group have adequate resources to continue as a going concern for at least 12 months from the date of this Report. Accordingly, they continue to adopt the going concern basis in preparing the Report and Accounts. Dialogue with Shareholders In accordance with the Code, the Board recognises the importance of communication with its Shareholders and fully supports the principles encouraging dialogue between companies and their Shareholders in the Code. The Group Chief Executive and Group Chief Financial Officer have primary responsibility for investor relations and lead a regular programme of meetings and presentations with analysts and investors. This includes presentations following the publication of the Company’s full and half year results. This programme maintains a continuous two-way dialogue between the Company and Shareholders, and helps to ensure that the Board is aware of Shareholders’ views on a timely basis. The full Board is kept informed of any issues raised at these meetings and the views of Shareholders on a regular basis to ensure that they understand the views of Shareholders. The Board also normally receives feedback twice each year from its corporate brokers on investors’ and the market’s perceptions of the Company. The Chairman and the Senior Independent Director are also available to meet Shareholders if so required. The Company has enjoyed and is appreciative of the significant Shareholder support that it has had in recent years in relation to the Group’s Remuneration Policy and continues to welcome Shareholder views with regard to the Group’s Remuneration Policy. Audit Committee Report As Chair of the Audit Committee (the “Committee”), I am pleased to present the Audit Committee’s report for the financial year ended 31 December 2017. The aim of this report is to explain the work undertaken by the Committee during the year and how it has met the disclosure requirements as set out in the 2016 Corporate Governance Code (the ‘Code’) and what it has done to address continued regulatory change. The key matters considered in the year are set out on pages 53 and 54. The report provides an overview of the significant issues that the Audit Committee assessed and details the Committee’s major considerations and activities during the 2017 financial year in ensuring that the Company’s governance processes remain appropriate, robust, of a high standard and are rigorously applied. The Committee has a key role in ensuring the integrity of the Group’s financial statements, internal controls and the effectiveness of its risk management processes. The Committee also has a role in representing the interests of Shareholders by monitoring the activities and conduct of management and the auditors. During the year, the Committee focused on the effectiveness of the Group’s internal controls and reviewed the principal risks, to ensure the alignment of these with the Company’s strategic objectives. It monitored the effectiveness of the control environment through the review of reports from Internal Audit, management and the External Auditor and ensured the quality of the Company’s financial reporting by reviewing the 2016 Report and Accounts and the 2017 Half Year Financial Statements. The Audit Committee also reviewed the Company’s 2017 Annual Report. The Committee also considered the processes supporting the assessment of the Group’s longer-term solvency and liquidity in support of the viability statement. Looking ahead, the Committee will continue to monitor changes in regulation and continue to focus on the audit, assurance and risk processes within the Principal Businesses. The Committee considered its compliance with the Code and the FRC Guidance on Audit Committees. The Committee believes that it has addressed both the spirit and the requirements of both. The members of the Committee need to have the right balance of skills and experience to deliver its responsibilities. During the year, the Board carried out an internally facilitated evaluation of its performance and that of its Committees. The Board is satisfied that the Committee members possess relevant experience and appropriate levels of independence and that its members have the depth of financial and commercial experience across various industries which is essential for the effective working of the Committee. At the request of the Board, the Committee has reviewed the content of this year’s Annual Report and Accounts and has advised the Board that, in its opinion, the Report taken as a whole is fair, balanced and understandable and it provides the information necessary for Shareholders to assess the Group’s position, performance, business model and strategy. The Committee noted the unqualified opinion from the External Auditor on the 2017 Annual Report. Liz Hewitt Chair of the Audit Committee Savills plc Report and Accounts 2017 51 Financial statementsGovernance Strategic reportOverviewAudit Committee Report continued Role of the Committee The Committee is authorised to investigate any matter within its Terms of Reference (a copy of which can be found in the governance section of the Company’s website at www.savills.com/en/company- information/corporate-governance.aspx). The Terms of Reference were reviewed and updated in June 2017. The Committee has access to the services of the Group Legal Director & Company Secretary and, where necessary, the authority to obtain external legal or other independent professional advice to fulfil its duties. The Committee’s key role is to assist the Board in discharging its duties and responsibilities for financial reporting, internal control, the effectiveness of the risk management process and in making recommendations to the Board on the appointment of the External Auditor. The Committee is responsible for the scope and results of the External Audit work, its cost effectiveness and for ensuring the independence and objectivity of the External Auditor. The Committee is also responsible for reviewing the Group’s whistle-blowing arrangements as they relate to matters of financial integrity, including ensuring that appropriate arrangements are in place for employees to be able to raise, in confidence, matters of alleged financial improprieties and for ensuring that appropriate follow-up actions are taken. Composition The Committee is a fundamental element of the Company’s governance framework. The Committee is chaired by Liz Hewitt. Three Independent Non-Executive Directors, Liz Hewitt, Tim Freshwater and Rupert Robson are members of the Committee. Members of the Committee are appointed by the Board following recommendations by the Nomination & Governance Committee and membership is reviewed annually by the Nomination & Governance Committee as part of the annual Board performance evaluation. There were no changes to the membership of the Committee during the 2017 financial year. As at 31 December 2017 and up to the date of this Report, the Committee comprised entirely Independent Non-Executive Directors. The Committee members collectively have a broad range of financial and commercial experiences that enables them to provide oversight of both financial and risk matters, and to advise the Board accordingly. The Board considers that Liz Hewitt, as Chair of the Committee, possesses recent and relevant financial experience and that all Committee members have relevant financial experience as required by the Code. Biographical details of the Committee members are shown on pages 44 and 45. The Company provides an induction programme for new Committee members which includes an overview of the business, its financial dynamics and risks, and meetings with senior management. Committee members are expected to have an understanding of the principles of, and recent developments in, financial reporting and internal controls, risk management, and Internal and external audit roles and responsibilities. Engagement The Chair of the Committee meets informally, and is in regular contact with the Group Chief Financial Officer, Group Director of Risk Assurance and the Group Legal Director & Company Secretary and prior to each Committee meeting, meets with each of them and the External Auditor individually. In addition to its members, a standing invitation has been extended by the Committee to the Non-Executive Chairman and Group Chief Executive Officer to attend the Committee’s meetings. The Group Chief Financial Officer, Group Financial Controller, Group Director of Risk & Assurance, Group Legal Director & Company Secretary and the External Auditor attend each of the Committee’s meetings. Other senior executives from across the Group are invited to present reports to assist the Audit Committee in discharging its duties. At least once a year, the Committee meets with the External Auditor and the Group Director of Risk & Assurance without management being present. The Chair of the Committee also attends the AGM to respond to shareholder questions on its activities. The Committee met four times during the year and reports to the Board after each Committee meeting. Attendance at meetings during 2017 is shown in the table below: Committee member Liz Hewitt Tim Freshwater Rupert Robson Member since June 2014 January 2012 June 2015 Meetings attended Meetings eligible to attend % of eligible meetings attended 4 4 4 4 4 4 100% 100% 100% During the year, in addition to its established review processes, the Committee considered and reviewed a number of other areas. These included updates on the risk and internal control environments within the Group’s Asia Pacific, European and UK businesses as well as the effectiveness of the Tax & Treasury functions. In addition, with the increasing pace of technological change, the Committee considered and reviewed the Group’s IT strategy, complementing the Board’s review of the Group’s Technology Strategy, with particular focus on cyber security. The Committee specifically considered the processes and assessment of the Group’s prospects and viability made by management to support the viability statement which can be found at page 29. The Committee’s review included consideration of the time period adopted, the processes supporting the assessment of the Group’s longer-term solvency and liquidity which support the viability statement. The Committee considered and provided input into the determination of which of the Group’s principal risks might have an impact on the Group’s longer-term solvency and liquidity. It also reviewed the results of management’s scenario modelling, including severe downside modelling, and the stress testing of those financial models supporting the viability analysis and challenged management as to the appropriateness of the assumptions made. 52 Savills plc Report and Accounts 2017 Activities of the Committee To enable the Committee to carry out its duties and responsibilities effectively it works to a structured programme of activities and meetings aligned with the annual financial reporting cycle. This includes items that the Committee considers regularly in accordance with its Terms of Reference. In addition to its core work, the Committee undertakes additional work in response to the evolving audit and external reporting landscape. The Committee relies on information and support from management across the business, receiving reports and presentations from business management, the Heads of Key Group functions, Internal Audit and the External Auditor, which it challenges as appropriate. Following each meeting, the Committee Chair reports on the main discussion points and any actions arising from these to the Board. Responsibilities How the Committee discharged its responsibilities Mar June Financial Reporting Reviewed and discussed the key accounting considerations and judgements reflected in the Group’s results for the half year Dec Aug X Reviewed and discussed the key accounting considerations and judgements reflected in the Group’s results Reviewed going concern status and considered whether any asset impairments were required Reviewed the viability statement and considered the processes supporting the assessment of the longer-term solvency and liquidity External Audit Agreed the external audit strategy and scope Considered and, where appropriate, approved the instruction of the Group’s External Auditor on non-audit assignments Reviewed and considered the External Auditor Report, including the External Auditor observations on the Group’s internal control environment Discussed the External Auditor performance Met with the External Auditor without management present to discuss their remit and any concerns Discussed and agreed the External Auditor remuneration in respect of audit services provided Assessed the External Auditors’ independence and recommended their reappointment to the Board Reviewed the Group’s arrangements by which staff can, in confidence, raise concerns about possible improprieties in matters of financial reporting or other matters. The Committee also considers any reports made under these arrangements Considered and approved the remit of the Internal Audit function and the Internal Audit plan Received and considered reports from the Group’s Internal Audit team covering various aspects of the Group’s operations, controls and processes and monitored the progress made by management in addressing recommendations arising out of these reports Monitored and reviewed the effectiveness of the Group’s Internal Audit function in the context of the Group’s overall risk management arrangements Met with the Group Director of Risk & Assurance privately to discuss his remit and any concerns Reviewed the effectiveness of the Group’s risk management system and internal controls in place to manage the Group’s principal risks Reviewed and considered the Group’s risk register Reviewed risk management arrangements for the Group’s regional businesses by receiving presentations from the Chief Operating/ Financial Officers of the Principal Businesses Compliance, Whistleblowing and Fraud Internal Audit Internal Controls and Risk Management Systems X X X X X X X X X X X X Reviewed the Committee’s own performance, composition and Terms of Reference, and recommended any changes the Committee considers necessary for Board approval X X X X X X X X X X X X X X Savills plc Report and Accounts 2017 53 Financial statementsGovernance Strategic reportOverviewAccountability continued During the year the Financial Reporting Council’s Corporate Reporting Review Team (‘CRRT’) carried out a review of the Company’s Annual Report for the year ended 31 December 2016. The response by the Company to the request for information was discussed with the Chair of the Audit Committee prior to responding to the CRRT. Details of the enquiry raised by the CRRT and the Company’s response thereto were also considered by the Committee. The CRRT have closed their enquiries with no requirements to restate any disclosures. Undertakings were given to enhance certain disclosures in the future in response to the CRRT review. The Committee was satisfied that the enhancements proposed and agreed with the CRRT have been appropriately incorporated in the Company’s Annual Report for the year ended 31 December 2017. As part of its monitoring of the integrity of the financial statements, the Committee considers the appropriateness of the accounting policies proposed for adoption and whether management has made appropriate estimates and judgements. To support its decision-making, the Committee seeks support from the External Auditor in these areas. The key reporting judgements considered by the Committee and discussed with the External Auditor during the year were: Matter considered Action Impairment of goodwill Aguirre Newman acquisition Provisions for litigation Debtor recoverability Compliance with regulatory requirements The Committee received reports from management on the carrying value of the Group’s businesses, including goodwill. The Committee reviewed management’s recommendations, which were also considered by the External Auditor. After review, the Committee was satisfied with the assumptions and judgements applied by management and, with the support of the External Auditor, concluded that, other than the impairment charge of £2.3m recognised against Sweden, no further impairment of carrying values was required. The Committee considered the accounting treatment of the acquisition of Aguirre Newman by the Group on 29 December 2017 for a total acquisition consideration provisionally determined at £55.1m, with £48.2m settled in cash on completion and the remainder relating to the discounted value of deferred consideration of £6.9m payable in five equal annual instalments from December 2018. A further £15.5m is payable in five equal annual instalments from December 2018 subject to executive Shareholders remaining actively engaged in the business over a period of up to five years. With respect to management’s fair value exercise (which is provisional at 31 December 2017), following review, the Committee was satisfied with the recognition of the £3.4m of separate intangible assets. The Committee reviewed the provisions held in relation to significant legal matters and assessed the appropriateness of these as at 31 December 2017 taking into account the Group’s insurance cover and the advice received from external counsel to ensure that appropriate provision had been made. The Committee agreed with the position taken by management in respect of these matters. The Committee considered the recoverability of trader receivables and was satisfied that there were no issues arising During the year the Committee reviewed the Group’s policies and procedures around regulatory risks including but not limited to: Whistleblowing reports; and Anti-bribery and corruption. After review, the Committee was satisfied that no material regulatory fines or penalties had been incurred and that no significant issues had been identified in this area. Internal Audit During 2017, Internal Audit services were delivered by the Group’s Director of Internal Audit with support in delivery by EY. The Board’s responsibility for internal control and risk is detailed on page 43 and is incorporated into this Report by reference. The Committee approved the annual Group audit plan, and received progress against that plan during the year. The Committee ensured that Internal Audit was appropriately resourced with the skills and experience relevant to the operations of the Group and that information was made available to it to enable it to fulfil its mandate to the appropriate professional standards. The Committee monitors the status of internal audit recommendations and management’s responsiveness to their implementation and challenge both Internal Audit and management where appropriate to provide assurance that the control environment is robust and effective. In assessing the performance of Internal Audit, the Committee considered and monitored its effectiveness in the context of the Company’s risk management system and took into account management’s assessment of and responsiveness to the Internal Auditor’s findings and recommendations and reports from the External Auditor on any issues identified during the course of their work. The Committee reviewed Internal Audit reports on a regular basis and the Group Director of Risk & Assurance attended meetings and presented to the Committee. Internal Control and Risk Management The Committee, on behalf of the Board, undertook a robust review of the effectiveness of the system of risk management and internal control. 54 Savills plc Report and Accounts 2017 In performing its review of effectiveness, the Committee reviewed and assessed the following reports and activities: • Internal Audit reports on the review of the controls across the Group and its monitoring of management actions arising from these reviews; • management’s own assessment of risk and the performance of the system of risk management and internal control during 2017; • reports from the Group Director of Risk & Assurance including reports on Group-wide risk assessment activity and annual self-assessment findings; and • reports from the External Auditor on any issues identified during the course of their work. The Committee and the Board considered that the information received was sufficient to enable a review of the effectiveness of the Group’s internal controls in accordance with the FRC’s Guidance on Risk Management, Internal Control and Related Financial and Business Reporting. External Audit The Committee has primary responsibility for overseeing the relationship with the External Auditor, including assessing the External Auditor’s performance, independence and effectiveness, recommending the appointment, reappointment or removal of the External Auditor, and negotiating and agreeing the external audit fees. The Committee holds private meetings with the External Auditor at the March and August Committee meetings to provide additional opportunity for open dialogue and feedback to/from the Committee and the External Auditor without management being present. The Committee chair also meets with the external lead audit partner outside the formal Committee process throughout the year. The Committee monitored the performance of the External Auditor during the year and carried out a review of the effectiveness of the External Audit process and considered the reappointment of PricewaterhouseCoopers LLP (‘PwC’) and the appropriateness of its fees. The review covers a broad range of matters including amongst other matters, the quality of staff, its expertise, resources and the independence of the audit. The Committee considered the External Audit plan for the year and assessed how the External Auditor had performed. In deciding whether to recommend the reappointment of PwC, the Committee considered the robustness of their challenge and findings on areas which require judgement, the strength and depth of the lead partners and feedback from the Group’s management. The Committee formally concluded the assessment of the performance of the External Auditor at the December Committee meeting and made a corresponding recommendation on the appointment of PwC for the forthcoming financial year to the Board. Shareholders formally appoint the External Auditor at the AGM in May. There were no significant findings arising from the evaluation this year and the Committee concluded that both the audit and the audit process were effective. The Committee considered the appropriateness of the reappointment of PwC as the Group’s External Auditor and it was satisfied that it should recommend to the Board their reappointment as the Group’s External Auditor. In light of the assessment and review undertaken during the year, the Board endorsed the Committee’s recommendation that PwC be re-appointed as the External Auditor for a further year and that their re-appointment would be put to the shareholders at the 2018 AGM. PwC has been the Company’s Auditor since 2001, following a tender for the External Audit. The senior partner responsible is rotated every five years to ensure objectivity and the last lead partner change took place at the close of the 2015 audit. The Committee continues to review the auditor appointment and the need to tender the audit, ensuring compliance with the Code. The Committee has considered the timing of a potential External Audit tender timetable and processes and concluded that the tender process should take place at the end of the next lead audit partner term in 2020. The Committee is satisfied that the proposed retender of audit services in 2020 was in the best interests of the shareholders of the Company. An important aspect of managing the External Auditor relationship, and of the annual effectiveness review, is ensuring that there are adequate safeguards to protect auditor objectivity and independence. In conducting its annual assessment, the Committee reviews the External Auditor’s own policies and procedures for safeguarding its objectivity and independence. The Committee’s assessment of PwC’s independence is underpinned by the Group’s policy on the use of PwC for the provision of non-audit services. In accordance with the Group’s policy in place to 31 December 2017, the following non-audit services were not provided by the External Auditor: • bookkeeping or other services related to the accounting records or financial statements; • taxation services (except for de minimis amounts, outside of Europe and outside the scope of the Group audit); • financial information systems design and implementation; • Internal Audit outsourcing services; • management functions or human resources advice; or • advising on senior executive (including Executive Director) remuneration. To further safeguard the independence of the Company’s External Auditor and the integrity of the audit process, recruitment of senior employees from the External Auditor is not allowed for an appropriate period after they cease to provide services to the Company. During the year, PwC was paid £1.8m for audit services and £0.8m for non-audit services, principally for advice on transaction-related matters. Details of the fees paid to the External Auditor can be found in Note 72 on page 108. During the financial year ending 31 December 2017, contracts for non-audit services in excess of £0.1m require Committee approval and the Chair of the Audit Committee is notified of new instructions for the delivery of non-audit services below this level. The Committee was satisfied that in view of their knowledge and experience of the Company, that when PwC was used, it was best placed to provide such non-audit services and that their objectivity and independence had not been impaired by reason of this further work. In line with the Company’s policy for the financial year ending 31 December 2017 on the provision of non-audit work, the Committee reviewed the provision of non-audit work provided by the External Auditor on a case-by-case basis. The Committee was satisfied that the overall levels of audit related and non-audit fees were not material relative to the income of the External Auditor firm as a whole. The restrictions (FRC’s Revised Ethical Standard for Auditors June 2016) on the supply of non-audit services that the External Auditor can provide, including the cap on the amount of non-audit fees that can be billed and a list of prohibited services, were effective for the Group from 1 January 2017. As a result the Group’s policy on using the External Auditor for non-audit engagements was reviewed in 2016 and subsequently amended to reflect these additional restrictions. As part of the Group’s monitoring system, all non-audit instructions with the External Auditor must be approved by either the Group Chief Financial Officer or the Group Financial Controller and management must seek approval from the Committee for all non-audit contracts in excess of £0.1m. The Group’s policy also requires that non-audit fees must not exceed 70% of the average External Audit fees billed over the previous three years. The Directors confirm that, insofar as they are each aware, there is no relevant audit information of which PwC is unaware and each Director has taken the steps that ought to have been taken as a Director to be aware of any relevant audit information and to establish that PwC is aware of that information. Savills plc Report and Accounts 2017 55 Financial statementsGovernance Strategic reportOverviewCompliance with the UK Corporate Governance Code The UK Corporate Governance Code 2016 (the “Code”) is the standard against which we measured ourselves in 2017 and the Board fully supports the principles set out in the Code. The Main Principles have been applied as follows: A. Leadership A1 The Board’s Role The Board met formally eight times during the year with specific focus on strategy, performance, leadership and risk, governance and finance. There is a schedule of matters reserved for the Board. A2 Clear Division of Responsibilities The roles of the Chairman and Group Chief Executive are clearly defined. The Chairman, Nicholas Ferguson, is responsible for the leadership and effectiveness of the Board, and the Group Chief Executive, Jeremy Helsby is responsible for leading the day-to-day management of the Group within the strategy set by the Board. A3 Role of the Chairman The Chairman sets the Board’s agenda, manages the meeting timetable (in conjunction with the Group Legal Director & Company Secretary) and promotes a culture of open and constructive dialogue during meetings. The Chairman, on appointment, met and continues to meet the independence criteria set out in B.1.1 of the Code. A4 Role of the Non-Executive Directors The Chairman promotes an open and constructive environment in the boardroom and actively invites the Non-Executive Directors’ views. The Non-Executive Directors provide objective, constructive and rigorous challenge to management and meet regularly in the absence of the Executive Directors. B. Effectiveness B1 The Board’s Composition The Board is made up of a majority of Independent Non-Executive Directors, excluding the Chairman. The Board has determined that each Non-Executive Director is independent in character and judgement, commits sufficient time and energy to the role, and continues to make a valuable contribution to the Board and its Committees, including Charles McVeigh, notwithstanding his long service. The Nomination & Governance Committee’s primary objective is to review the composition of the Board. In making appointments to the Board, the Nomination & Governance Committee assesses the 56 Savills plc Report and Accounts 2017 balance of skills, knowledge, independence, experience and diversity required in order to maintain an effective Board. B2 Board appointments The Nomination & Governance Committee leads the appointment of new Directors to the Board. B3 Time commitment On appointment, Directors are notified of the time commitment expected of them. The Non-Executive Directors have ensured that they have sufficient time to carry out their duties. B4 Development To ensure a full understanding of Savills and its businesses, on appointment each new Director undergoes a comprehensive and tailored induction programme which introduces the Director to the Group’s businesses, its operations, strategic plans, key risks and its governance policies. The induction also includes one to one meetings with the Heads of the Principal Businesses and an introduction to each Group business's development strategy. B5 Provision of information and support To enable the Board to discharge its duties, each Director received appropriate and timely information, including detailed papers in advance of Board meetings. Each Director has access to the advice and services of the Group Legal Director & Company Secretary and through him have access to independent professional advice in respect of their duties at the Company’s expense. B6 Board and Committee performance evaluation During 2017, the Board’s annual evaluation was led by the Chairman and facilitated by the Group Legal Director & Company Secretary. The process and key findings are explained on page 49 of the Annual Report. B7 Re-election of the Directors All Directors are subject to election by Shareholders at the AGM. All Directors will stand for re-election by Shareholders at the AGM on 8 May 2018. Directors’ biographies are set out on pages 44 to 45 of the Annual Report, enabling Shareholders to take an informed decision when determining their re-election C. Accountablity C1 Financial and business reporting The Strategic Report is set out on pages 2 to 35 of the Annual Report and provides information about the performance of the Group, the business model, strategy and the principal risks and uncertainties. The Directors’ going concern statement is given on page 50 of the Annual Report. C2 Risk management and internal control The Board sets out the Group’s risk appetite and, through the Audit Committee, annually reviews the effectiveness of the Group’s risk management and internal control systems. The Directors carried out a robust assessment of the principal risks including those that would threaten the business model, future performance, solvency or liquidity. Those risks and how they are being managed or mitigated is set out in the Annual Report at pages 25 to 29. Taking account of the Company’s current position and principal risks, the Directors assessed the viability of the Group over a three-year period. The Directors have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period. The viability statement is set out on page 29 of the Annual Report. The Board monitors the Group’s risk management and internal control systems and, at least annually, carries out a review of the effectiveness of the Group’s systems of internal control, covering all material controls, including financial, operational and compliance. The activities of the Audit Committee are summarised on pages 51 and 55 of the Annual Report. C3 Audit Committee and Auditors The Board has satisfied itself that Liz Hewitt has recent and relevant financial experience and is confident that the collective experience of the members enables it to be effective. The fact that a person has been identified as having recent and relevant financial experience does not impose additional duties, obligations or responsibilities on that Audit Committee member. The Committee also has access to the financial expertise of the Group and its external and internal auditors and can seek further professional advice at the Company’s expense, if required. The Group Legal Director & Company Secretary ensures that it receives information and papers in a timely manner to enable full and proper consideration of agenda items. These agenda items are agreed in advance in its annual meeting activity plan. The main roles and responsibilities of the Audit Committee are set out in written Terms of Reference which are available on our website. The Committee is authorised to investigate any matter within its Terms of Reference and has access to the services of the Group Legal Director & Company Secretary and, where necessary, the authority to obtain external legal or other independent professional advice in the fulfilment of its duties. The Committee has responsibility for reviewing the Group’s whistleblowing arrangements, including ensuring that appropriate arrangements are in place for employees to be able to raise, in confidence, matters of alleged impropriety, and for ensuring that appropriate follow-up actions are taken. The Audit Committee’s role is to assist the Board in discharging its duties and responsibilities for financial reporting, internal control and in making recommendations to the Board on the appointment of the independent External Auditors. The Committee is responsible for the scope and results of the audit work, its cost effectiveness and the independence and objectivity of the External Auditors. C4 Tenure of Auditor At the 2017 AGM, shareholders approved the re-appointment of PwC as the Company’s External Auditor. The Audit Committee has assessed whether suitable accounting policies have been adopted and whether management have made appropriate judgements and estimates. The main areas of judgement considered by the Committee during 2017 are presented on page 54 of the Annual Report. The Audit Committee keeps under review the independence and objectivity of the External Auditor, including the review of audit fee proposals and non-audit fees. The Committee reported on how the effectiveness of PwC was assessed for the 2017 financial year on page 55 of the Annual Report. D. Renumeration D1 Levels and components of remuneration The Group’s focus and business policy is founded on the premise that staff in the real estate advisory sector are motivated through highly incentive-based (and therefore variable) remuneration consistent with the Group’s partnership style culture, which also ensures that the Group’s reward arrangements are consistent with – and sensitive to – the cyclical nature of real estate markets. The Group’s Remuneration Policy is designed to deliver these objectives and to provide the reward potential necessary for the Company to attract, retain and motivate the high-calibre individuals on whom its continued growth and development depend. Reflecting this philosophy, the salaries for the Executive Directors, Group Executive Board members and senior fee-earners are set significantly below market medians for similar businesses, with a greater emphasis on the performance-related elements of profit share and/or, outside of the UK, commission in the total reward package. The Committee is mindful of its responsibility to reward appropriately, but not excessively, and rigorously assesses competitive positioning in setting remuneration and determining targets to ensure that reward properly reflects performance, that it supports the delivery of our strategic and operational objectives and that it is fair to management and Shareholders alike. The Remuneration Policy was reviewed in 2016/17 and approved by Shareholders at the 2017 AGM (as required by the Directors Remuneration Regulations 2013). D2 Procedure The Remuneration Committee is principally responsible for determining Company policy on senior executive remuneration and for setting the remuneration arrangements of the Executive Directors and reviewing those of the members of the Group Executive Board. The Committee (excluding the Non-Executive Chairman) also determines the level of fees payable to the Non- Executive Chairman. The Committee is advised by FIT Remuneration Consultants LLP, who provide an independent commentary on matters under consideration by the Committee and updates on market developments, legislative requirements and best practice, and internally by the Group Legal Director & Company Secretary. The Remuneration Committee’s terms of reference are available on our website. An overview of what the Committee has done during the year is provided on pages 58 to 73 of the Annual Report. E. Relations with Shareholders E1 Shareholder engagement and dialogue The Group Chief Executive Officer and Group Chief Financial Officer lead a regular programme of meetings and presentations with analysts and investors, including presentations following the publication of the Company’s full and half year results. This programme maintains a continuous two-way dialogue between the Company and Shareholders, and helps to ensure that the Board is aware of Shareholders’ views on a timely basis. The Board also normally receives feedback twice each year from the Company’s corporate brokers on investors’ and the market’s perceptions of the Company. The Chairman and the Senior Independent Director are also available to meet with Shareholders if so required. E2 Constructive use of the general meetings The AGM provides the Board with a valuable opportunity to communicate with private Shareholders and is generally attended by all of the Directors. The Notice of Meeting and related papers for the AGM are sent to Shareholders at least 20 working days before the meeting. Savills plc Report and Accounts 2017 57 Financial statementsGovernance Strategic reportOverviewDirectors’ Remuneration Report Annual statement “ On behalf of the Board, I am pleased to introduce our 2017 Directors’ Remuneration Report (the ‘Report’) which sets out Savills philosophy and policy in relation to Directors’ remuneration and how this was implemented in the year ended 31 December 2017. ” Governance This Report has been prepared on behalf of the Board by the Remuneration Committee (the ‘Committee’) in accordance with the requirements of the Companies Act 2006 and the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013 (‘Regulations’) and the auditable disclosures referred to in the External Auditor’s Report on pages 78 to 84 as specified by the UK Listing Authority and the Regulations. Included within this Report we have summarised the Remuneration Policy (‘Policy’) approved by shareholders at the 2017 AGM rather than reproduce the Policy in full. This gives an overview on the directors’ annual remuneration framework and the full Policy is available on our website. The Annual Report on Directors’ Remuneration will be presented to Shareholders for approval at the AGM on 8 May 2018. Our remuneration philosophy As previously reported, our long-standing focus and business philosophy is founded on the premise that staff in our sector are motivated through highly incentive and performance based (and, therefore, variable) remuneration consistent with our partnership style culture. We firmly believe that this approach best aligns shareholders’ and management’s interests and incentivises superior performance and the creation of long-term shareholder value. This approach also ensures that our reward arrangements are consistent with and sensitive to the cyclical nature of real estate markets. The Policy is designed to deliver these objectives and to provide the reward potential necessary for the Company to attract, retain and motivate the high-calibre individuals on whom its continued growth and development depend. Reflecting this philosophy, the salaries for the Executive Directors, Group Executive Board members and senior fee-earners are set significantly below market medians for similar businesses, with a greater emphasis on the performance-related elements of profit share and/or, outside the UK, commission in the total reward package. The Committee is mindful of its responsibility to reward appropriately, but not excessively. As such, it places great emphasis on the calibration of Executive Director remuneration and structure against internal relativities, whilst also rigorously assessing competitive positioning in setting remuneration. Finally, it determines targets to ensure that reward properly reflects performance, that it supports the delivery of our strategic and operational objectives and that it is fair to management and Shareholders alike. Overall, we continue to expect employment costs over the cycle to be in the range of 65%–70% of revenues. 2013–2017 Overview Underlying Profit +87% Dividend Payments to Shareholders* +68% Executive Director Remuneration** +1% Total Shareholder Return +74% * The dividend cost for 2017 comprises the cost of the final dividend recommended by the Board (amounting to £14.3m), payment of which is subject to shareholder approval at the Company’s Annual General Meeting (‘AGM’) scheduled to be held on 8 May 2018, the cost of the supplemental dividend (£20.6m) declared by the Board on 15 March 2018 (payable to shareholders on the Register of Members as at 13 April 2018) and the interim dividend (£6.3m) paid on 4 October 2017. ** Executive Director remuneration comprises the remuneration paid to the Group Chief Executive Officer and Group Chief Financial Officer job holders between 1 January 2013 and 31 December 2017. Since 1 July 2010 the Executive Director representation on the Board has comprised these job holders. 58 Savills plc Report and Accounts 2017 2017 performance and remuneration Annual performance-related profit share Savills delivered excellent performance in 2017, against the backdrop of heightened uncertainty over global economic prospects, geopolitical risks and rising interest rates, with particularly strong performances in our transactional businesses in the UK, and in a number of European and Asia Pacific markets and the relative resilience of Savills UK Residential transaction business is of particular note. Key financial highlights for the year included: • Revenue of £1.6bn, representing growth of 11% on 2016; • Underlying profit before tax of £140.5m which represented 3.5% growth on 2016 and; • Transaction Advisory revenues up 13%, Consultancy revenues by 14% and Property Management by 9% We further progressed our strategy of being the leading advisor in the key markets in which we operate, by adding complementary businesses and teams to our strong core business. In particular during 2017 we: • continued to build our US platform with the acquisition of Cresa Orange County, a tenant rep business in California, and the hire of a significant new capital markets team in New York; • strengthened our investment sales teams in Beijing and Shanghai with significant new hires; • in Europe, acquired Aguirre Newman in Spain, Larry Smith in Italy and SB Property Services in the Czech Republic, along with the recruitment of industrial teams in Amsterdam and Warsaw; and • continued to invest in our own technology platform, and invested in promising external technology based businesses which have the potential to significantly enhance or disrupt traditional business models in the real estate sector. At the beginning of 2017, the Committee set stretching financial targets for the 75% of the performance-related profit share relating to the delivery of Underlying Profit before Tax (‘UPBT’). The Group delivered a very strong financial performance in 2017, notwithstanding the market uncertainties noted above. As such, the Executive Directors received 77% of the maximum potential award in relation to financial performance. This compares with an allocation of 100% of the maximum potential award in relation to financial performance in the previous year. The absolute amount of this element of the bonus is accordingly down by approximately 15%. In relation to the objectives-based element which accounts for up to 25% of annual award, the Executive Directors were deemed to have performed towards the top end of their personal strategic and operational objectives. Full details of the annual performance-related profit share awards approved by the Committee for the Executive Directors are included along with the other elements of remuneration in the total remuneration table on page 62 of this Report. 2018 remuneration We were very pleased that shareholders gave over 98% approval to our renewal of our Policy at the 2017 AGM and we are not seeking to amend our Policy at the 2018 AGM. An overview of the key decisions for 2018 is as follows: • Base salaries: we have an established approach of offering low base salaries, relative to market medians (which approach applies to the Executive Directors, Group Executive Board Members and other senior fee earners). Salaries continue to be reviewed each year (although not necessarily increased; where an increase is agreed in principle but not implemented, the notionally increased base salary (“Reference Salary”) will be used as the base when future salary increases are considered). For 2018, the Committee approved a 2.5% increase in base salaries (applied to the Executive Directors’ Reference Salaries as at 1 March 2017) for the Executive Directors effective 1 March 2018. • Benefits & pension: no changes are proposed and these continue to be set below market rates. • Annual performance-related profit share: in line with our Policy, the maximum opportunity for 2018 is increased in line with the increase in RPI for 2017. For 2018, the cap on the profit share opportunity will therefore be, for the Group Chief Executive Officer, £2.134m and for the Group Chief Financial Officer, £1.6m, being 4.1% higher than the cap applying in 2017, reflecting year on year growth in RPI (2017 caps: Group CEO £2.05m; Group CFO £1.5375m). Annual awards will continue to be determined as follows: • 75% based on a Group UPBT performance • 25% on the achievement of pre-set personal strategic and operational objectives • The Group UPBT payment scale will be adjusted for any acquisitions/disposals in the year which impact Group UPBT by more than 7.5% (on an annualised basis). In such cases the scale will be adjusted to neutralise the benefit of any overage above the 7.5% level. • Performance Share Plan: annual grant to be made at the existing award levels of 200% of base salary for the Group Chief Executive Officer and the Group Chief Financial Officer. The EPS growth and relative total shareholder return targets will remain unchanged from those applying in 2017, but are subject to ongoing review to ensure that these continue to provide meaningful targets in the light of market developments and the Group’s strategic objectives. Director changes As announced on 16 January 2018, Mark Ridley, currently CEO of Savills UK and Europe, will become an Executive Director on 1 May 2018 joining the Board then as Deputy Group Chief Executive and will succeed Jeremy Helsby upon the latter’s retirement as Group Chief Executive Officer effective 1 January 2019. As Deputy Group Chief Executive, effective 1 May 2018 the remuneration package will consist of a salary of £255k p.a. and an annual performance-related profit share maximum opportunity of £1.867m, with 75% based on a mixture of Group UPBT performance and 25% on the achievement of pre-set personal strategic and operational objectives (in 2018, both salary and the performance related profit share opportunity will be pro-rated to reflect the 1 May 2018 appointment date). He will also receive a Performance Share Plan grant in line with the other Executive Directors. Upon Mark Ridley’s appointment as Group Chief Executive Officer, the package will be increased to the same level as that of the outgoing CEO (subject to any inflation-related adjustments to salary and/or bonus potential). Following his retirement from the Board at the end of 2018, Jeremy Helsby will remain an advisor to the Company supporting the management team of the Savills US business. Governance developments As a Committee, we continue to monitor best practice developments in executive remuneration and consider whether any amendments to the Policy are appropriate. The Committee is appreciative of the significant Shareholder support that it has enjoyed in recent years and welcomed Shareholders’ endorsement of the 2016 Annual Remuneration Report along with the renewal of the Policy at the 2017 AGM. We hope that you find this year’s Annual Remuneration Report equally clear and informative and that you will continue to support us by voting in favour of the resolution at this year’s AGM on 8 May 2018. Rupert Robson Chairman of the Remuneration Committee Savills plc Report and Accounts 2017 59 Financial statementsGovernance Strategic reportOverview Directors’ Remuneration Report continued Annual Report on Remuneration As at 31 December 2017 and up to the date of this Report, the Committee comprises the Independent Non-Executive Directors. Biographical details relating to each of the Committee members are shown on pages 44 and 45. The Committee met four times during the year. The principal agenda items considered by the Committee during the year were as follows: • reconfirming the Group’s Policy in the context of best practice and corporate governance developments; • agreeing performance targets for both the annual performance- related profit share and Performance Share Plan awards; • preparing an Annual Remuneration Report consistent with the legislation relating to executive remuneration; • agreeing the remuneration packages of the Executive Directors, including the proposed package for the Deputy Group Chief Executive and reviewing those of Group Executive Board members; and • approving the grant of Performance Share Plan awards. Advisors to the Committee In determining Executive Director remuneration, the Committee has access to detailed external information and research on market trends and peer practice provided by its independent external advisor, FIT Remuneration Consultants. FIT Remuneration Consultants are members of the Remuneration Consultants Group, and adhere to the voluntary code of conduct in relation to executive remuneration consulting in the UK. FIT Remuneration Consultants’ fees are based on a time and material basis, within the parameters of an overall annual budget. In 2017, FIT Remuneration Consultants received fees of £57,703 plus VAT in relation to advice provided to the Committee. FIT Remuneration Consultants provided no other services to the Group during the year. The Committee is satisfied that the advice received from FIT Remuneration Consultants during the year was entirely objective and independent. The Committee will continue to keep these arrangements under review to ensure that they remain appropriate to the needs of the Committee in developing remuneration policy to support the delivery of Group strategy. The Committee is also advised internally by the Group Legal Director & Company Secretary (save in relation to matters concerning his own remuneration). Given the fundamental role that remuneration plays in the success of the Group, in terms of the recruitment, motivation and retention of high-quality staff, the Group Chief Executive Officer attends meetings by invitation and is consulted on the remuneration package of the Group Chief Financial Officer. Terms of Reference The Committee’s Terms of Reference, which are reviewed annually, or by exception to take account of regulatory changes or best practice, are available from the Group Legal Director & Company Secretary upon request or can be viewed on the Company’s website (www.savills.com). Role of the Committee The principal role of the Committee is to support the Group to achieve its strategic objectives by designing a remuneration policy consistent with the Group’s business model such that we have the ability to attract, recruit, retain and motivate the high-calibre individuals needed to deliver the Group’s strategy while promoting the long-term interests of the Company. The Committee also considers the broader implications of the Policy to mitigate any potential environmental, social or governance implications. The Committee is responsible for the broad policy governing senior staff pay and remuneration. It sets the actual levels of all elements of the remuneration of the Executive Directors and reviews that of Group Executive Board members. The Policy remains under periodic review to ensure that it remains consistent with the Company’s scale and scope of operations, supports business strategy and growth plans and helps drive the creation of shareholder value. The Committee also oversees the operation of Savills’ employee share schemes. Committee members and attendees As shown in the table below, the Committee comprises the Independent Non-Executive Directors: Committee member Position Status Rupert Robson Chair of the Committee Independent Tim Freshwater Member of the Committee Independent Liz Hewitt Member of the Committee Independent Committee attendee Position Status Nicholas Ferguson Non-Executive Chairman Jeremy Helsby Group Chief Executive Officer Chris Lee Group Legal Director & Companys ecretary Attends by invitation (except when his own remuneration is discussed) Attends by invitation (except when his own remuneration is discussed) Provides advice and support (except when his own remuneration is discussed) as well as acting as Secretary to the Committee Simon Shaw, Group Chief Financial Officer, may be invited to attend meetings to provide an overview of market conditions and the Group’s prospective financial performance. Meetings Attendance table Committee member Rupert Robson Tim Freshwater Liz Hewitt 60 Savills plc Report and Accounts 2017 Meetings attended Meetings eligible to attend 4 4 4 4 4 4 Directors’ Remuneration Report continued Remuneration Policy The Group’s remuneration arrangements for the Executive Directors, Group Executive Board members and senior fee-earners are structured to provide a competitive mix of variable performance-related (ie annual performance profit share and longer-term incentives) and fixed remuneration (principally base salary) to reflect individual and corporate performance. The objective is to set targets which provide an appropriate balance between being achievable and stretching. In determining the remuneration of the Executive Directors and reviewing that of the Group Executive Board members, the Committee reviews the role and responsibility of the individual, their performance, the arrangements applying across the wider employee group and internal pay relativities. It also considers sector and broader market practice in the context of the prevailing economic conditions and corporate performance on environmental, social and governance issues. Overview of the Policy A summary of the Policy for Executive Directors and how it will be applied for 2018 is set out below. Element Base salary Pension Summary of approach Application of Policy for 2018 Base salaries are set significantly below market median levels, in line with the Group’s philosophy to place greater emphasis on variable, performance- related remuneration. • The Committee has approved an increase in the base salaries of the Executive Directors of 2.5% (which will be applied to 2017 ‘Reference Salaries’) effective 1 March 2018. • Salaries in 2018 will therefore be as follows • Group Chief Executive Officer: £289,000 • Deputy Group Chief Executive Officer (effective 1 May 2018): £255,000 • Group Chief Financial Officer: £221,000 Pension contributions/salary supplements for 2018 are: • Group Chief Executive Officer: 14% of salary • Deputy Group Chief Executive Officer (effective 1 May 2018): 14% of salary • Group Chief Financial Officer: 18% of salary Pension benefits are provided through a Group personal pension plan, as a non-pensionable salary supplement or as a contribution to a personal pension arrangement. The CEO receives a pension from the legacy defined benefit pension plan but no longer accrues benefits under the plan. Benefits Benefits include: Benefits in line with Policy. Medical insurance benefits; Annual car/car allowance (up to £10,000) Permanent Health Insurance; Life Insurance; and Relocation expenses. Annual performance- related profit share Reflects the Group’s annual profit performance and personal performance against pre-set objectives and overall contribution. Performance Share Plan In line with the Group’s philosophy that there is greater emphasis (than under listed company norms) on variable performance-related pay. Consequently, 50% of any award payable above an amount equal to base salary is deferred into shares for three years. Malus and clawback provisions apply. Awards of shares are made subject to a three-year performance period. Any vested awards will then be subject to an additional two-year holding period. The maximum award potential remains at 200% of base salary, subject to an overall annual maximum of shares with a value of £1m on award per participant. Malus and clawback provisions apply. The maximum potential annual profit share awards for 2018 are: • Group Chief Executive Officer: £2.134m • Deputy Group Chief Executive Officer (effective 1 May 2018): £1.867m (pro-rated) • Group Chief Financial Officer: £1.6m. For 2018 profit share awards, 75% will be based on the Group’s annual profit performance and 25% will be based on the delivery of strategic and operational performance goals. The Committee reserves its ability to vary these proportions or apply different/additional measures in future years. The awards for 2018 will be up to 200% of base salary. For 2018 Performance Share Plan awards, 50% of the award will vest subject to Earnings Per Share performance and 50% will vest subject to relative TSR performance against the FTSE Mid 250 Index (excluding investment trusts). Share Ownership Guidelines Achieved through share purchase and/or retention of any after-tax shares which vest pursuant to the Group’s share plans until the guideline is met. 500% of base salary for the Group Chief Executive Officer, (effective 1 May 2018) Deputy Chief Executive Officer and Group Chief Financial Officer. Savills plc Report and Accounts 2017 61 Financial statementsGovernance Strategic reportOverviewDirectors’ Remuneration Report continued Annual Report on Remuneration Total remuneration for 2017 Set out below are details of Executive Director remuneration for 2017. Executive Directors’ ‘single figure’ for the financial year ended 31 December 2017 and as a comparison for the financial year ended 31 December 2016 (audited). Salary (1) Benefits(2) Pension: contribution Annual profit share – cash(3) Annual profit share – deferred shares(3) Near term remuneration Jeremy Helsby Simon Shaw 2017 £ 275,000 10,837 38,500 961,000 686,000 1,971,337 2016 £ 275,000 11,055 38,500 1,314,800 598,200 2,237,555 2017 £ 210,000 11,216 37,800 723,000 513,000 1,495,016 2016 £ 210,000 11,216 37,800 1,040,000 435,000 1,734,016 The aggregate near term remuneration paid to the Executive Directors in the year ended 31 December 2017 was £3.47m (2016: £3.97m). Notes: 1 Benefits comprise private medical insurance and car allowance. 2 The 2016 figures exclude any charity/pension waiver. Jeremy Helsby waived £45,000 and Simon Shaw waived £25,000 in favour of contributions to registered charities. 3 (See the table below) For 2017 the notional value of the PSP award with a performance period which ended on 31 December 2017 (ie where the award will vest in April 2018) has been valued based on the number of shares that will vest and the three month average share price for the period to 31 December 2017 (949.2p per share). For 2016, the value shown has been updated to reflect the actual market sale price at the date of vesting which was 868.1p per share and Dividend Shares. The estimates provided for long-term share-based reward in last year’s report in respect of 2016 were: Jeremy Helsby £259,665 and Simon Shaw £144,256. The actual value has been split between the relevant value on the date of the original award of the relevant shares (the PSP – performance element) and subsequent increase in value (PSP – share price appreciation). Gain on long-term share-based awards Performance Share Plan – performance element(3) (for 2017: notional) Performance Share Plan – share appreciation element(3) (for 2017: notional) Long-term share-based reward (non-cash – for 2017: notional)(3) Total ie ‘Single Figure’ (for 2017: part notional) Jeremy Helsby Simon Shaw 2017 £ Notional 2016 £ Actual 2017 £ Notional 2016 £ Actual 462,546 225,000 294,339 125,000 72,879 132,059 46,376 73,362 535,425 2,506,762 357,059 2,594,614 340,715 1,835,731 198,362 1,932,378 The information in this table has been audited by the Auditor, PricewaterhouseCoopers LLP. Performance-related remuneration for 2017 Annual performance-related profit share UPBT performance-related element The following near-term performance measures applied to the 2017 annual performance-related profit share arrangements: 75% of the award was based on profit performance, defined as UPBT performance. The Committee set targets at a level which were significantly higher than the previous year. The target range and Savills performance were as follows: Minimum (0% of element) Mid-point (62.5% of element) Maximum target (100% of element) Savills UPBT performance Bonus award (% of element) £96m £128m £160m £140.5m 77% There was straight-line vesting between minimum, mid-point and maximum. Reflecting the Group’s very strong performance in 2017, awards at 77% of the maximum potential were earned by the Executive Directors in respect of the UPBT performance-related element (2016: 100%). The remaining 25% of annual performance-related profit share awards was based on individual performance against key strategic and operational objectives. The Executive Directors were each awarded 90% of this 25%. 62 Savills plc Report and Accounts 2017 The Committee set strategic and operational objectives for the Executive Directors which were aligned with value creation for Savills. Details of Jeremy Helsby’s achievement against the key objectives set included the following: • building out the Group’s US Capital Markets offering and driving the continued development of Savills Studley’s tenant rep and occupier services platforms; • developing a long-term incentive plan for senior management and fee earners in Savills Studley to align further fee earners’ and shareholders’ interests; • further strengthening and broadening the management team across Asia; • continuing the expansion of Savills European platform by strengthening teams and broadening its geographic and service line offerings through selective acquisitions, principally Aguirre Newman in Spain, Larry Smith in Italy and SB Property Services in the Czech Republic; and • enhancing further the Group’s cross-border offering, to ensure the provision of seamless servicing to clients seeking advice or support outside of their home market. Details of Simon Shaw’s achievement against the key objectives set included the following: • the further development of the Group’s own technology platform to deliver innovative solutions to our clients through data analysis and insight and to drive internal efficiencies; • identifying and investing in external technology-based businesses with the capability of significantly enhancing or disrupting traditional business models in real estate services; • playing a leading role in the identification of strategic acquisition opportunities and the execution of the Aguirre Newman acquisition in Spain; and • developing and implementing management succession plans in Savills Investment Management; and • delivering a targeted increase in the scale of Savills Investment Management, particularly through organic fund raising with £1.9bn of new equity raised in 2017. For Jeremy Helsby and Simon Shaw, in line with the Policy, 50% of their overall awards, above an amount equal to their respective base salaries, was deferred for a further three-year period in the form of shares. Long-term incentives The PSP award granted in 2015 will vest in April 2018, subject to performance in the three years to 31 December 2017. Following an assessment of Savills performance against targets set at grant, the Committee determined that 84.1% of the award should vest. The targets and Savills performance were as follows: Weighting Threshold target (25% vesting) Maximum target (100% vesting) Savills performance Vesting (% of maximum) Relative TSR versus FTSE Mid 250 index (excluding investment trusts) 50% Equal to index by 8% p.a. by 6.3% p.a. 83.7% Outperform index Outperform index % EPS growth 50% RPI plus 3% p.a. compounded RPI plus 10% p.a. compounded RPI plus 8.6% p.a. compounded 84.5% Non-Executive Directors fees (audited) The Non-Executive Director fees for 2017 were as follows: Basic fee Additional fees Senior Independent Director Remuneration Committee Chairman Audit Committee Chairman 2017 Total 2016 Total Nicholas Ferguson (Chairman) Tim Freshwater Liz Hewitt Charles McVeigh Rupert Robson £193,333 £51,000 £51,000 £51,000 £51,833 £6,500 £193,333 £149,406 £57,500 £53,200 £12,500 £63,500 £60,000 £51,000 £50,000 £8,750 £60,583 £57,500 The information in this table has been audited by the Auditor, PricewaterhouseCoopers LLP. The fees payable to the Non-Executive Directors are determined by the Non-Executive Chairman and the Executive Directors after considering external market research and individual roles and responsibilities. The fees for the Non-Executive Chairman are determined by the Remuneration Committee. Savills plc Report and Accounts 2017 63 Financial statementsGovernance Strategic reportOverviewDirectors’ Remuneration Report continued Annual Report on Remuneration continued The current fee payable to Nicholas Ferguson as Chairman is £200,000 p.a.. The current base fee for the Non-Executive Directors is £52,000 p.a., with additional fees payable to the Senior Independent Director (£8,000 p.a.), the Remuneration Committee Chairman (£10,000 p.a.) and the Audit Committee Chairman (£15,000 p.a.). These fees have not been increased for 2018. The Non-Executive Directors do not participate in incentive arrangements or share schemes. Operation of Policy in 2018 Base salary The Committee approved a 2.5% salary increase (against 2017 Reference Salaries) for the Executive Directors for 2018, effective 1 March 2018. The base salaries of the Executive Directors effective 1 March 2018 are therefore as follows: • Group Chief Executive Officer: £289,000 p.a.; • Group Deputy Chief Executive Officer: £255,000 p.a. (effective 1 May 2018); and • Group Chief Financial Officer: £221,000 p.a.. In line with our Policy, the base salaries for the Executive Directors continue to be positioned significantly below market median against the FTSE 250. Variable remuneration Annual performance-related profit share The maximum annual performance-related profit share opportunity for 2018 will be: • £2.134m for the Group Chief Executive Officer; • £1.867m for the Group Deputy Chief Executive Officer (effective 1 May 2018); and • £1.6m for the Group Chief Financial Officer. For the 2018 performance-related profit share, 75% of award potential will reflect the Group’s UPBT performance and 25% of award potential will reflect delivery against a mix of personal, strategic and operational objectives. The Committee considers prospective disclosure of individual objectives to be commercially sensitive and disclosure will therefore be on a retrospective basis. The Committee retains a general discretion to reduce the pay-out level to reflect exceptional events over the performance period. Performance Share Plan The remuneration policy is for maximum awards of 200% of base salary. The PSP awards for 2018 will be up to two times each Executive Director’s base salary. Awards will vest subject to the satisfaction of EPS targets for 50% of the award as follows: • 25% (ie threshold) of the element to vest if the Company’s EPS growth is RPI plus 3% p.a. compounded; • 100% (ie the maximum) of the element to vest if the Company’s EPS growth is RPI plus 8% p.a. compounded or more; and with straight- line vesting between the two points. The Committee considers that if EPS growth of RPI plus 8% p.a. were achieved from the strong 2017 EPS base starting position, this would represent outstanding performance for shareholders. The other 50% of the award will vest subject to the satisfaction of relative TSR performance versus the FTSE Mid 250 Index (excluding investment trusts) (‘the Index’) as follows: • 25% (ie threshold) of the element to vest if the Group’s TSR performance equals that of the Index; • 100% (ie the maximum) of the element to vest if the Group’s TSR performance outperforms the Index by 8% p.a.; and with straight-line vesting between the two points. The awards made to Executive Directors will also be subject to a holding period so that any PSP awards for which the performance vesting conditions are satisfied will not normally be released for a further two years from the third anniversary of the original award date. Dividend accrual for PSP awards will continue until the end of the holding period. 64 Savills plc Report and Accounts 2017 Relative spend on pay To provide context and outline how remuneration for Executive Directors compares with other disbursements, such as dividends and general employment costs the table below illustrates general employment costs, Executive Director reward, tax charges and dividend payments to shareholders in 2017 and 2016. Employment costs Underlying profit before tax Dividend payment to Shareholders Executive Director remuneration Tax 2017 £m 1,061.7 140.5 41.1 4.0 103.7 2016 £m 948.6 135.8 38.9 4.4 99.9 % increase 12 3 6 -10 4 The information in this table has been audited by the Auditor, PricewaterhouseCoopers LLP. • Employment costs (excluding arrangements for Executive Directors) comprise basic salaries, profit share and commissions, social security costs, other pension costs and share-based payments. • Tax comprises corporation tax, employers’ social security and business rates and equivalent payments. • The dividend cost for 2017 comprises the cost of the final dividend recommended by the Board (amounting to £14.3m), payment of which is subject to shareholder approval at the Company’s AGM scheduled to be held on 8 May 2018, the cost of the supplemental dividend (£20.6m) declared by the Board on 15 March 2018 (payable to shareholders on the Register of Members as at 13 April 2018) and the interim dividend (£6.3m) paid on 4 October 2017 and is based on the number of shares in issue as at 31 December 2017. • Executive Director remuneration is the remuneration paid to the Group Chief Executive Officer and Group Chief Financial Officer role holders and comprises basic salaries, profit share, social security costs, pension costs and share-based payments. Total shareholder return and Group Chief Executive Officer remuneration The total shareholder return delivered by the Company over the last nine years is shown in the chart below. Over this period the Company has delivered total shareholder return of 22% per annum (FTSE 250 (excluding investment trusts): 18% per annum; FTSE 350 Super Sector Real Estate: 10% per annum). Savills was ranked 54th by TSR performance in the FTSE 250 (excluding investment trusts) and ranked second (of 18 companies) by performance in the FTSE 350 Super Sector Real Estate over the nine years to 31 December 2017. Total Shareholder Return ('TSR') (rebased) 9 years to 31 December 2017 600 500 400 300 200 100 0 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Jun 18 Dec 18 Savills FTSE 250 (excluding investment trusts) FTSE 350 Super Sector Real Estate The Board believes that the FTSE 250 Index (excluding investment trusts) remains the most appropriate index against which to compare TSR over the medium term as it is an index of companies of similar size to Savills. Savills TSR relative to that of the FTSE 350 Super Sector Real Estate Index is also shown, as this index better reflects conditions in real estate markets over recent years. Savills plc Report and Accounts 2017 65 Financial statementsGovernance Strategic reportOverviewDirectors’ Remuneration Report continued Annual Report on Remuneration continued Pay for performance Year 2017 2016 2015 2014 2013 2012 2011 Total Single Figure Remuneration £’000 UPBT £m UPBT annual % change 2,507 2,595 2,298 3,279 2,630 1,786 1,268 140.5 135.8 121.4 100.5 75.2 58.6 50.4 +3.5 +12 +21 +34 +28 +16 +7 Annual variable element: performance-related profit share – annual award against maximum potential % Long-term Incentive fully vested (maximum potential of award) 100% 80 98 100 100 86 65 49 84 50 N/A 100 100 100 0 Total remuneration in the years 2012 to 2017 includes, as required, the notional value of PSP awards and executive share options which vested (but were not exercised) in those years (note that no PSP awards were made in 2013 with the consequent effect on Total Single Figure Remuneration in 2015 compared to the 2013, 2014, 2016 and 2017 years). The awards granted in 2008 lapsed in 2011. Group Chief Executive Officer pay increase in relation to all UK employees Group Chief Executive Officer All UK employees Notes: Percentage change in remuneration from 31/12/2016 to 31/12/2017 Percentage change in base salary % Percentage change in benefits % Percentage change in profit share award % 2.5% -0.3% 2% -2.4% -13.9% 5.1% 1. Salary, benefits and bonus is compared against full-time equivalent UK employees. The UK workforce was chosen as a suitable comparator group as Jeremy Helsby is based in the UK (notwithstanding his global role and responsibilities) and is in line with Policy benefits which vary across the Group by reference to local market conditions and practice. (Audited information.) 2. The base salary for the Group Chief Executive Officer continues to be positioned significantly below the market median against the FTSE 250. Pensions disclosure From March 2015, the Group Chief Executive Officer has received a non-pensionable salary supplement equal to 14% of pensionable earnings. The Group Deputy Chief Executive Officer receives an equivalent salary supplement. For the Group Chief Financial Officer, the Company contributes 18% per annum of pensionable earnings to his personal pension plan. The Group Chief Executive Officer no longer accrues a pension benefit under the Savills Defined Benefit Pension Plan (The ‘Plan’). The value of the legacy benefit is shown below. Executive Director Jeremy Helsby Notes Defined benefit pension accrued at 31 december 2017 Defined benefit pension accrued at 31 December 2016 Defined benefit pensions value for 2017 remuneration table Defined benefit pensions value for 2016 remuneration table 52,617 51,112 – – 1. Jeremy Helsby reached Plan retirement age on 9 July 2015 since which date his pension increases in line with the standard provisions of the Plan applicable to all pensioners. 2. As Jeremy Helsby is now in receipt of pension benefits, no remuneration amount is applicable relating to the Plan. 66 Savills plc Report and Accounts 2017 Share interests Details of shares in the Company which the Directors beneficially held or had a beneficial interest in as at 31 December 2017 are shown below. Where any vested PSP awards in the future are subject to a holding period requirement, the vested PSP award shares (discounted for anticipated tax liabilities) will count towards the shareholding requirements: Executive Directors Jeremy Helsby Simon Shaw Number of shares (including beneficially held under the SIP) Unvested shares subject to performance conditions (PSP) Deferred share bonus plan awards (vesting not subject to performance conditions) (DSBP) 564,849 155,864 206,550 125,366 224,024 161,210 Extent to which shareholding guideline met 390% 141% The Company currently applies shareholding requirements that the Group Chief Executive Officer and Group Chief Financial Officer hold shares to the value of five times their respective base salaries. New Executive Directors will be expected to build holdings to this level over time, principally through the retention of shares released to them (after settling any tax due) following the vesting of share awards. Non-Executive Directors Nicholas Ferguson Tim Freshwater Liz Hewitt Charles McVeigh Rupert Robson At 31 December 2017 29,286 – 3,400 – 7,981 As at 14 March 2018, no Director had bought or sold shares since 31 December 2017. The Sharesave Scheme No Directors hold outstanding options under the Sharesave Scheme and no options were exercised during the year. Scheme interests granted in 2017 The following table sets out details of awards made under the PSP in 2017. Type of award Basis of award (face value) Performance period % vesting for threshold performance % vesting for maximum performance Jeremy Helsby Nil-cost options £550,000 Performance criteria – 50% of award Earnings per share growth Simon Shaw Nil-cost options £420,000 1 January 2017 to 31 December 2019 25% 100% – 50% of award Relative total shareholder return against the FTSE 250 (excluding investment trusts) Awards were also made during the year under the Deferred Share Bonus Plan. Details of awards under this plan are set out on page 68. Savills plc Report and Accounts 2017 67 Financial statementsGovernance Strategic reportOverviewDirectors’ Remuneration Report continued Annual Report on Remuneration continued The Performance Share Plan (‘PSP’) Number of shares Directors Jeremy Helsby Simon Shaw At 31 December 2016 75,000 67,073 77,084 Awarded during year Vested Lapsed during year during year – – – 37,500 37,500 – – – – – – 20,833 20,833 – – – – – – – 62,393 41,666 42,682 35,038 – – – – 47,646 Closing mid- market price of a share the day before grant At 31 December 2017 – 67,073 77,084 62,393 – 42,682 35,038 47,646 600.0p 820.0p 713.5p 881.5p 600.0p 820.0p 713.5p 881.5p Market value at date of vesting First vesting date 868.1p 12.08.17 – – – 23.04.18 27.04.19 22.05.20 868.1p 12.08.17 – – – 23.04.18 27.04.19 22.05.20 Awards over 58,333 shares, together with a further 5,645 shares in lieu of dividends, vested under the PSP to Executive Directors during the year. A subscription cost of 2.5p nominal value per share is payable on actual receipt of shares. The total pre-tax gain on awards vested during the year was £553,822. The Deferred Share Bonus Plan (‘DSBP’) Number of shares Directors Jeremy Helsby Simon Shaw Awarded during year Vested during year Closing mid-market price of a share the day before grant At 31 December 2017 At 31 December 2016 70,767 73,170 86,463 – – – – 64,391 53,048 54,146 60,240 – – – – 46,824 70,767 – – – 53,048 – – – - 73,170 86,463 64,391 – 54,146 60,240 46,824 653.0p 820.0p 705.5p 929.0p 653.0p 820.0p 705.5p 929.0p Market value at date of exercising 910.4p – – – 910.4p – – – Normal vesting date 13.05.17 24.04.18 14.03.19 18.04.20 13.05.17 24.04.18 14.03.19 18.04.20 Under the DSBP awards over 123,815 shares and 10,339 shares in lieu of dividends vested to Executive Directors during the year. The total pre-tax gain on awards vested during the year was £1,221,306. No DSBP awards lapsed. During the year, the aggregate gain on the exercise of share options and shares vested was £1,775,128. The mid-market closing price of the shares at 29 December 2017, the last business day of the year, was 993p and the range during the year was 687p to 993p. Exit payments No Executive Director left the Company during the year ended 31 December 2017. No payments for compensation for loss of office were paid to, or receivable by, any Director for that or any earlier year. External Directorships Savills recognises that its Executive Directors may be invited to become non-executive Directors of other companies. Such non-executive duties can broaden experience and knowledge which can benefit Savills. Subject to approval by the Board and any conditions which it might impose, the Executive Directors and Group Executive Board members are allowed to accept external non-executive Directorships and retain the fees received, provided that these appointments are not likely to lead to conflicts of interest. For non-executive Directorships which are considered to arise by virtue of an Executive Director’s or Group Executive Board member’s position within Savills, the fees are paid directly to Savills. During 2017, Simon Shaw received a fee of £30,000 in relation to his continuing appointment as Non-Executive Chairman of Synairgen plc which he was permitted to keep (as this appointment is not linked to his role within the Company). 68 Savills plc Report and Accounts 2017 Service contracts The Executive Directors have rolling service contracts which are terminable on 12 months’ notice by either the Company or the Executive Director. Directors Jeremy Helsby Mark Ridley Simon Shaw Contract date 1 May 1999 1 May 2018 16 March 2009 The Non-Executive Directors and the Chairman have letters of appointment. In line with the UK Corporate Governance Code, all Directors are subject to annual re-election at the AGM. The Chairman’s letter of engagement allows for six months’ notice. Appointment of other Non-Executive Directors may be terminated by either party with three months’ notice. Director Nicholas Ferguson Tim Freshwater Liz Hewitt Charles McVeigh Rupert Robson Date appointed to Board End date of current letter of appointment 26 January 2016 1 January 2012 25 June 2014 1 August 2000 23 June 2015 25 January 2019 31 December 2020 30 June 2020 AGM May 2019 22 June 2018 The Directors’ service contracts and letters of appointment are available for inspection at our City office, 15 Finsbury Circus, London EC2M 7EB. Shareholder votes on remuneration matters The table below shows the voting outcomes for the 2016 Annual Remuneration Report and the Directors’ Remuneration Policy at the AGM held on 9 May 2017. Number of votes ‘For’ and Number of votes discretionary % of votes cast ‘Against’ % of votes cast Total number of votes cast Number of votes ‘Withheld’* 2016 Annual Directors’ Remuneration Report 106,174,260 Directors’ Remuneration Policy 104,842,007 98.98% 98.35% 1,089,770 1,753,512 1.02% 107,264,030 1,996,488 1.65% 106,595,519 2,665,000 * A vote withheld is not a vote in law. Savills plc Report and Accounts 2017 69 Financial statementsGovernance Strategic reportOverviewDirectors’ Remuneration Report continued Annual Report on Remuneration continued Policy table extract from the Directors’ Remuneration Policy approved by shareholders at the 2017 AGM The following sets out the table of remuneration elements from the Remuneration Policy, which was approved by shareholders at the 2017 AGM. To provide consistency with the remainder of the Report, salaries shown are 2018 salaries and annual performance-related profit share levels have been updated for the operation of the Policy in 2018. Operation Potential Performance measures Purpose and link to strategy Base salary • A core component of the total reward package, which package overall is designed to attract, motivate and retain individuals of the highest quality. The Committee considers base salary levels annually taking into consideration: • the Group’s philosophy to place greater emphasis on variable performance-related remuneration • the individual’s experience • the size and scope of the role • the general level of salary reviews across the Group • appropriate external market competitive data. Pension • Provides appropriate retirement benefits. • Rewards sustained contribution. Defined contribution pension arrangements are provided. HMRC approved salary and profit share sacrifice arrangements are in place. Pension benefits are provided either through a Group personal pension plan, as a non-pensionable salary supplement, contribution to a personal pension arrangement, or equivalent arrangement for overseas jurisdictions. 70 Savills plc Report and Accounts 2017 Set significantly below market median levels with greater emphasis on the performance-related elements of reward. For 2018, the Committee approved an increase in base salaries (which was applied to 2017 Reference Salaries) of 2.5% effective 1 March 2018 as follows: n/a • Group Chief Executive Officer: £289,000 • Deputy Group Chief Executive Officer: £255,000 • Group Chief Financial Officer: £221,000 The Committee retains the flexibility to award base salary increases taking into consideration the factors considered as part of the annual review. Although base salaries are reviewed annually, in line with the Group’s philosophy, the Committee may elect to only notionally rather than actually increase base salaries for Executive Directors. In such circumstances this notionally increased Reference Salary would be used as the base for future base salary increases. The annual base salary for any existing Executive Director shall not exceed £500,000. For 2018 the pension contributions/supplements are: n/a • Group Chief Executive Officer: 14% of annual base salary. • Deputy Group Chief Executive Officer: 14% of annual base salary. • Group Chief Financial Officer: 18% of annual base salary. As part of the funding arrangements agreed when Savills’ Defined Benefit Pension Plan (‘the Plan’) was closed to future accrual in 2010, the Group Chief Executive Officer receives a minimum contribution of 14%. The maximum contribution will be no more than the maximum contribution for all other former members of the plan. The maximum annual pension contribution for the current Chief Financial Officer is 18%. The Plan is closed to future accruals. However, legacy arrangements will be honoured. New recruits would normally participate in defined contribution arrangements or take a non-pensionable salary supplement. The level of contribution would be determined at the time of appointment and may be set at a higher level than that set out above, although a contribution limit of 20% of annual base salary per Executive Director has been set for the duration of this Policy. For international appointments, the Committee may determine that alternative pension provisions will operate, and when determining arrangements, the Committee will have regard to the cost of the arrangements, market practice in the relevant international jurisdiction and the pension arrangements received elsewhere in the Group. Purpose and link to strategy Benefits Operation Potential Performance measures • To provide market Benefits currently comprise: competitive benefits. • Medical insurance benefits • Car/car allowance • Permanent Health Insurance • Life insurance Other benefits may be provided if the Committee considers it appropriate. Where an Executive Director is located in a different international jurisdiction, benefits may reflect market practice in that jurisdiction. In the event that an existing Executive Director or new Executive Director is required by the Group to relocate, other benefits may be provided including (but not limited to) a relocation allowance, housing allowance and tax equalisation. Annual performance-related profit share • To encourage the achievement of challenging financial, strategic and/or operational targets. • Further alignment with Shareholders’ interests through deferral of a significant amount of any award into shares. Annual profit share awards reflect the Group’s annual profit performance and personal performance and contribution. Awards are delivered part in cash and part in shares subject to a minimum cash threshold of 100% of annual salary. Thereafter, 50% of any award is delivered in shares. The share element of any award is normally deferred for a period of three years. The number of shares in that part of the award deferred for three years is increased at the time of vesting to reflect the value of dividends declared over the deferral period. Alternatively the cash equivalent is paid. The Committee may exercise its judgement to adjust (on a downwards only basis) individual annual bonus payouts should they not reflect overall business performance or individual contribution. Malus/clawback provisions apply, allowing for the reduction of awards as explained in the notes to this table. Car allowance (currently up to a maximum of £9,000 p.a.). n/a There is no overall maximum as the cost of insurance benefits depends on the individual’s circumstances, but the provision of taxable benefits will normally operate within an annual limit of 30% of an Executive Director’s annual base salary. The Committee will monitor the costs in practice and ensure that the overall costs do not increase by more than the Committee considers to be reasonable in all the circumstances Relocation expenses are subject to a maximum limit of £200,000 (£300,000 in the case of an international relocation) plus, if relevant, the cost of tax equalisation. In line with the Group’s philosophy, there is greater emphasis on variable performance-related pay, while base salaries are set significantly below market median levels. The maximum potential annual profit share awards for 2018 are: • £2.134m for the Group Chief Executive Officer. • £1.867m for the Deputy Group Chief Executive Officer. • £1.6m for the Group Chief Financial Officer. For a new executive director the Committee would determine the appropriate normal maximum taking into account the role and responsibility, subject to a maximum of £2.134m p.a. Each of these caps will increase in line with the rate of any increase in RPI for the preceding financial year (if there is no increase in RPI, the cap will remain unchanged). For 2018 the weighting will be 75% in relation to the Group’s annual profit performance, defined as underlying profit before tax performance, and 25% in relation to delivery against a mix of personal, strategic and operational objectives. The Committee reserves the right to vary these proportions in subsequent years and/or to add additional or substitute measures to ensure that incentive remains appropriate to business strategy. The scale for the profit share element of any award will be disclosed annually in arrears. Unless the Committee determines otherwise, this scale will normally be adjusted for any acquisitions/disposals in a single year which impact (on an annualised basis) UPBT by more than 7.5%. In such cases the scale will be adjusted to neutralise the benefit of any overage above the 7.5% level. If there is significant transaction that results in the scale becoming inappropriate then Shareholders will be consulted about any adjustment to the scale. The award potential at threshold is 25%. As the arrangement is an annual profit share there is no pre-set award level for on-target performance. Savills plc Report and Accounts 2017 71 Financial statementsGovernance Strategic reportOverviewDirectors’ Remuneration Report continued Annual Report on Remuneration continued Purpose and link to strategy Operation Performance Share Plan (‘PSP’) Potential Performance measures • To drive and reward the delivery of longer-term sustainable shareholder value, aid retention and ensure alignment of senior management and shareholder interests. Awards of shares subject to a performance period of normally no less than three years. A holding period will apply so that Executive Directors may not normally exercise vested PSP awards until the fifth anniversary of the award date. PSP awards may be in the form of nil cost options or conditional awards over shares. Awards may incorporate an award of tax-advantaged Company Share Option Plan options. Maximum annual award potential of 200% of salary (plan rules limit). Subject to an overall maximum of £1m per annum per participant. For a new Executive Director, the Committee would determine the appropriate normal maximum taking into account the role and responsibility, subject to a maximum of 200% of base salary p.a. (or if lower £1m p.a.). The Committee awards dividend equivalents on a reinvested basis in respect of dividends paid over the vesting or any subsequent holding period. Malus/clawback provisions apply, allowing for the reduction of awards as explained in the notes to this table. The Committee may adjust vesting of awards if it considers that the outcome of the measurement of the performance conditions does not accurately reflect the underlying performance or financial health of the Company. In the event the Committee proposed to make an upward adjustment, the Committee would consult with major shareholders in advance. The Committee may adjust or amend awards in accordance with the PSP rules. Performance conditions for future awards are reviewed annually to ensure that the measures and their targets remain appropriate to business strategy and are sufficiently challenging, and that the relative balance of the performance measures remains appropriate for properly incentivising and rewarding the creation of longer-term sustainable Shareholder value. Performance conditions are currently based on two measures: • Relative TSR against the FTSE 250 (excluding investment trusts) or other appropriate comparator group • Earnings per share. The Committee may review the performance measures for the PSP to ensure they remain aligned to the strategy. The Committee would consult with major shareholders in advance of a change in performance measures used for the PSP. No more than 25% of an award vests for threshold performance. UK tax advantaged all-employee share plans • Share plans available to all UK employees in the Group who satisfy the statutory requirements. Executive Directors are eligible to participate in any of the Group’s all-employee share plans on the same terms as other UK employees. Maximum Partnership Shares in accordance with statutory limits. The Company does not presently offer Free Shares, Matching Shares or Dividend Shares. n/a Shareholding Guidelines • To encourage share ownership by the Executive Directors and ensure interests are aligned. Executive Directors are expected to purchase and/or retain all shares (net of tax) which vest under the Group’s share plans (or any other discretionary long-term incentive arrangement introduced in the future) until such time as they hold a specified value of shares. 500% of base salary for all Executive Directors. n/a Only beneficially owned shares and vested share awards (including PSP vested awards subject to a holding period discounted for anticipated tax liabilities) may be counted for the purposes of the guidelines. Share awards do not count towards this requirement prior to vesting. Once shareholding guidelines have been met, individuals are expected to retain these levels as a minimum. The Committee will review shareholdings annually in the context of this Policy. 72 Savills plc Report and Accounts 2017 Malus and clawback Malus (being the forfeiture of unvested awards) and clawback (being the ability of the Company to reclaim paid amounts as a debt) provisions apply to the annual performance-related profit share and the PSP. These provisions may be applied where the Committee considers it appropriate to do so following: a material misstatement of the Group’s financial results; serious misconduct by the individual; a factual error in calculating an award or vesting; and other exceptional developments which have an actual or potential material adverse effect on the value or reputation of the Group as determined by the Committee. Clawback will apply for a two-year period post the vesting of awards. In the event of a regulatory or criminal inquiry being ongoing at that point, the clawback period will be extended to a six-month period post the conclusion of such an inquiry. Remuneration Policy for Non-Executive Directors Approach to fees Operation Other items Fees for the Chairman and other Non-Executive Directors are set at an appropriate level taking into consideration individual roles and responsibilities, the time commitment required and external market practice. Fees will generally be increased annually in line with increases in RPI over the previous 12 months. All fees for membership of the Board are subject to the maximum payable to Non-Executive Directors as stated in the Company’s Articles of Association (currently £500,000 for the Chairman and NED base fees) and within an additional limit determined by the Non-Executive Chairman and the Executive Directors on behalf of the Board of £200,000 for any additional responsibility or other special fees. Fees payable to the Non-Executive Directors are determined by the Non-Executive Chairman and the Executive Directors on behalf of the Board. Fees payable to the Chairman are determined by the Committee. The Non-Executive Director fee policy is to pay: • a basic fee for membership of the Board • Committee chairmanship and Senior Independent Director fees to reflect the additional responsibilities and time commitment of the roles. The Chairman receives an all-inclusive fee for the role. Additional fees for membership of a Committee or chairmanship or membership of subsidiary boards or other fixed fees may be introduced, if considered appropriate. Non-Executive Directors are not entitled to participate in any of the Group’s incentive arrangements or share schemes. Non-Executive Directors do not currently receive any taxable benefits (however, they are covered by Directors’ and Officers’ liability insurance). Expenses incurred in the performance of Non-Executive duties for the Company may be reimbursed or paid for directly by the Company, including any tax due on the benefits. Additional benefits may be provided in the future if the Board considered this appropriate. Savills plc Report and Accounts 2017 73 Financial statementsGovernance Strategic reportOverviewDirectors’ Report In accordance with the UK Financial Conduct Authority’s Listing Rules (LR 9.8.4C), the information to be included in the Annual Report and Accounts, where applicable, under LR 9.8.4, is set out in this Directors’ Report. Operations The Company and its subsidiaries (together the ‘Group’) operate through a network of offices and associates throughout the Americas, the UK, Continental Europe, Asia Pacific, Africa and the Middle East. Results for the year The results for the Group are set out in the consolidated income statement on page 85 which shows a reported profit for the financial year attributable to the shareholders of the Company of £80.1m (2016: £66.9m). Dividend An interim dividend of 4.65p per ordinary share amounting to £6.3m (2016: £5.9m) was paid on 4 October 2017. It is recommended that a final dividend of 10.45p per ordinary share (amounting to £14.3m) is paid, together with a supplemental interim dividend of 15.1p per ordinary share (amounting to £20.6m) and to be declared by the Board on 15 March 2018, on 14 May 2018 to shareholders on the register at 13 April 2018. More details of the proposed dividend and the Company’s performance can be found in the Chairman’s statement on pages 4 to 7. Principal developments The principal developments of the business are detailed in the Strategic Report on pages 4 to 35 and incorporated into this Report by reference. The principal risks and uncertainties are detailed on pages 25 to 29 and incorporated into this Report by reference. Directors Biographical details of the current Directors are shown on pages 44 and 45. All the Board members served throughout the year. As at 31 December 2017 the Board comprised the Non-Executive Chairman, two Executive Directors and five Independent Non-Executive Directors. Interests in the issued share capital of the Company held at the end of the period under review and up to the date of this Report by the Directors or their families are set out on page 67 of the Remuneration Report. Details of share options held by the Directors pursuant to the Company’s share option schemes are provided in the Remuneration Report on page 67 and 68. It is the Board’s policy that the GEB Members should retain at least 105,000 shares (value at 31 December 2017: £1,042,650) in the Company and that the Group Chief Executive Officer and Group Chief Financial Officer hold shares to the value of five times their respective base salaries (£1,375,000 and £1,050,000 respectively). Directors’ interests in significant contracts No Directors were materially interested in any contract of significance. Statement of Directors’ responsibilities In accordance with the Code and the Disclosure Guidance and Transparency Rules (‘DTR’) DTR4, the Directors’ Responsibilities Statement is set out on page 76 and is incorporated into this Report by reference. Corporate Governance Statement In accordance with the Code and DTR 7.2.9R, the Corporate Governance Statement on pages 38 and 39 is incorporated into this Report by reference. Management Report This Directors’ Report, on pages 74 and 75, together with the Strategic Report on pages 4 to 35, form the Management Report for the purposes of DTR 4.1.5R. Additional Information Disclosure Pursuant to regulations made under the CA 2006 the Company is required to disclose certain additional information. Those disclosures not covered elsewhere within this Annual Report are as follows: Share capital and major shareholdings The issued share capital of the Company as at 31 December 2017 comprised 141,931,341 2.5p ordinary shares, details of which may be found on pages 137 and 138. The Company has only one class of share capital formed of ordinary shares. All shares forming part of the ordinary share capital have the same rights and each carries one vote. Votes may be exercised for general meetings of the company, by members in person, by proxy or by corporate representatives (in relation to corporate members). The Articles provide a deadline for the submission of proxy forms (electronically or by paper) of not less than 48 hours before the time appointed for the holding of the general meeting or the adjourned meeting (as the case may be). There are no unusual restrictions on the transfer of ordinary shares. The Directors may refuse to register a transfer of a certificated share unless the instrument of transfer is: (i) lodged at the registered office of the Company or any other place as the Board may decide accompanied by the certificate for the shares to be transferred and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer; or (ii) in respect of only one class of shares. The Directors may also refuse to register a transfer of a share (whether certificated or uncertificated), whether fully paid or not, in favour of more than four persons jointly. As at 31 December 2017 the Company had been notified of the following interests in the Company’s ordinary share capital in accordance with DTR 5: Shareholders Aggregate of Standard Life Aberdeen plc affiliated investment management entities with delegated voting rights on behalf of multiple managed portfolios Old Mutual Plc Note: Number of shares % 12,270,237 6,685,646 8.65 4.71 No other changes to the above have been disclosed to the Company in accordance with DTR 5, between 31 December 2017 and 15 March 2018. As at 31 December 2017, the Savills plc 1992 Employee Benefit Trust (the ‘EBT’) held 4,819,684 ordinary shares and the Savills Rabbi Trust held 800,000 ordinary shares. Any voting or other similar decisions relating to these shares held in trust are taken by the trustees, who may take account of any recommendation of the Company. During the year the EBT waived all but 0.01p per share of its dividend entitlement. In December 2017 the EBT Trust Deed was amended so that future Savills plc dividends will be waived in full. The Savills Rabbi Trust does not currently waive Savills plc dividends. For further details of the trusts please refer to Note 2.21 to the financial statements. 74 Savills plc Report and Accounts 2017 Purchase of own shares In accordance with the Listing Rules, at the AGM on 9 May 2017 shareholders gave authority for a limited purchase of Savills shares of up to 10% of the issued share capital of the company. During the year, no shares were purchased under the authority. The Board proposes to seek shareholder approval at the AGM on 8 May 2018 to renew the Company’s authority to make market purchases of its own ordinary shares of 2.5p each for cancellation or to be held in treasury. Details of the proposed resolution are included in the Notice of AGM circulated to shareholders with this Annual Report (the ‘AGM Notice’). Change of control There are no significant agreements which take effect, alter or terminate in the event of change of control of the Company except that under its banking arrangements, a change of control may trigger an early repayment obligation. Articles of Association The Company’s Articles are governed by relevant statutes and may be amended by special resolution of the shareholders in a general meeting. The Company’s rules about the appointment and replacement of Directors are contained in the Articles. The powers of the Directors are determined by UK legislation and the Articles in force from time to time. Unless determined by ordinary resolution of the Company, the number of Directors shall be not less than three and not more than 18. A Director is not required to hold any shares in the Company by way of qualification. However, as more fully described on page 72, in accordance with Board policy, the members of the GEB (which includes the Executive Directors) are expected to build-up and maintain a shareholding in the Company. The Board may appoint any person to be a Director and such Director shall hold office only until the next AGM when he or she shall then be eligible for reappointment by the shareholders. The Articles provide that each Director shall retire from office at the third AGM after the AGM at which he or she was last elected. A retiring Director shall be eligible for re-election. However, in accordance with the Code, all Directors of the Company are subject to annual re-election. Annual General Meeting The AGM is to be held at 33 Margaret Street, London W1G 0JD at 12 noon on 8 May 2018; details are contained in the AGM Notice circulated to shareholders with this Report. Half Year Report Like many other listed public companies, we no longer circulate printed Half Year reports to shareholders. Instead, Half Year results statements are published on the Company’s website. This is consistent with our target to reduce printing and distribution costs. Political contributions The Company made no political contributions during the year (2016: £nil). Employees’ policies and involvement The Directors recognise that the quality, commitment and motivation of Savills staff are key elements to the success of the Group. See pages 31 and 32 for more information as to employee engagement. The Group provides regular updates covering performance, developments and progress to employees through regular newsletters, video addresses, the Group’s intranet, social media and through formal and informal briefings. These arrangements also aim at ensuring that all of our staff understand our strategy and to build knowledge on the part of employees of matters affecting the performance of the Group. The Group also consults with employees so as to ascertain their views in relation to decisions which are likely to affect their interests. Employees are able to share in the Group’s success through performance-related profit share schemes (see page 71 for more details) and for UK employees (including Executive Directors), share plans which include a Sharesave Scheme and a Share Incentive Plan (‘SIP’). The Sharesave Scheme is an HMRC-approved save-as- you-earn share option scheme which allows participants to purchase shares out of the proceeds of a linked savings contract at a price set at the time of the option grant. Participants may elect to save up to £500 per month and options may normally be exercised in the six months following the maturity of the linked three-year savings contract. The potential for extending the Sharesave Scheme internationally remains under consideration. The SIP is also HMRC-approved and through which participants may make regular purchases of shares (up to the current statutory limit of £150 per month) from pre-tax income. Shares under the SIP normally vest after five years, free from income tax and national insurance contributions. Human rights and equal opportunities We support the principles of the UN Universal Declaration of Human Rights and the Core Principles of the International Labour Organization. It is Group policy to provide employment on an equal basis irrespective of gender, sexual orientation, marital or civil partner status, gender reassignment, race, colour, nationality, ethnic or national origin, religion or belief, disability or age. In particular, the Group gives full consideration to applications for employment from disabled persons. Where existing employees become disabled, it is the Group’s policy, wherever practicable, to provide continuing employment and to provide training and career development and promotion to disabled employees. Independent Auditors In accordance with Section 489 of the CA 2006, a resolution for the reappointment of PricewaterhouseCoopers LLP as Auditors of the Company will be proposed at the forthcoming AGM. Whistleblowing The Group encourages staff to report any concerns which they feel need to be brought to the attention of management. Whistle- blowing procedures, which are published on the Group’s intranet site, are available to staff who are concerned about possible impropriety, financial or otherwise, and who may wish to ensure that action is taken without fear of victimisation or reprisal. Greenhouse gas emissions Details of the Group’s global greenhouse gas emissions for the financial year under review can be found on page 34 and are incorporated into this Report by reference. By order of the Board Chris Lee Group Legal Director & Company Secretary 14 March 2018 Savills plc Registered in England No. 2122174 Savills plc Report and Accounts 2017 75 Financial statementsGovernance Strategic reportOverviewForward-looking statements Forward-looking statements have been made by the Directors in good faith using information up until the date on which they approved the Annual Report and Accounts. Forward-looking statements should be regarded with caution due to uncertainties in economic trends and business risks. 14 March 2018 Directors’ responsibilities Directors’ responsibility statement The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent Company and of the profit or loss of the Group and parent Company for that period. In preparing the financial statements, the Directors are required to: • select suitable accounting policies and then apply them consistently; • state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; • make judgements and accounting estimates that are reasonable and prudent; and • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and parent Company will continue in business. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and parent Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and parent Company and enable them to ensure that the financial statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the group financial statements, Article 4 of the IAS Regulation. The Directors are also responsible for safeguarding the assets of the Group and parent Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the Group and parent Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and parent Company’s performance, business model and strategy. Each of the Directors, whose names and functions are listed on pages 44 and 45 confirm that, to the best of their knowledge: • the Group and parent Company financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group and profit of the parent Company; and • the Directors’ Report includes a fair review of the development and performance of the business and the position of the Group and parent Company, together with a description of the principal risks and uncertainties that it faces. In the case of each Director in office at the date the Directors’ Report is approved: • so far as the director is aware, there is no relevant audit information of which the Group and parent Company’s auditors are unaware; and • they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group and parent Company’s auditors are aware of that information. On behalf of the Board Jeremy Helsby Group Chief Executive Chris Lee Group Legal Director & Company Secretary 76 Savills plc Report and Accounts 2017 Overview Strategic report Governance Financial statements Financial statements 78 Independent auditor’s report 85 Consolidated income statement 86 Consolidated statement of comprehensive income 87 Consolidated and Company statements of financial position 88 Consolidated statement of changes in equity 89 Company statement of changes in equity 90 Consolidated and Company statements of cash flows 91 Notes to the financial statements 151 Shareholder information Savills plc Savills plc Report and Accounts 2017 Report and Accounts 2016 77 77 Independent auditor’s report to the members of Savills plc Report on the audit of the financial statements Opinion In our opinion, Savills plc’s Group financial statements and Company financial statements (the “financial statements”): • give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2017 and of the Group’s profit and the Group’s and the Company’s cash flows for the year then ended; • have been properly prepared in accordance with IFRSs as adopted by the European Union and, as regards the Company’s financial statements, as applied in accordance with the provisions of the Companies Act 2006; and • have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. We have audited the financial statements, included within the Report and Accounts (the “Annual Report”), which comprise: the Consolidated and Company statements of financial position as at 31 December 2017; the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated and Company statements of changes in equity and the Consolidated and Company statements of cash flows for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Audit Committee. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ('ISAs (UK)') and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the Company. Other than those disclosed in the Directors’ Report, we have provided no non-audit services to the Group or the Company in the period from 1 January 2017 to 31 December 2017. Our audit approach Context Savills plc is listed on the London Stock Exchange and is structured across four business lines: Transactional Advisory, Property Consultancy, Property and Facilities Management, and Investment Management Services. The Group financial statements are a consolidation of reporting units that make up the four business lines, spread across four geographical regions: UK, North America, Europe and Asia Pacific. Overview Materiality • Overall Group materiality: £7.0 million (2016: £6.8 million), based on 5% of Group underlying profit before tax as defined in note 2.2 to the financial statements. • Overall parent company materiality: £2.3 million (2016: £2.3 million), based on 1% of total assets. Audit scope • We conducted audit work in the UK, Germany, Spain, US, Hong Kong, China, South Korea, Singapore, Japan and Australia, and across all four of the Group’s business lines. • Audits of the complete financial information were performed on the businesses in the UK, US, Hong Kong, Shanghai (China Central), Australia and South Korea, as well as the German Investment Management business. • We carried out procedures on parts of the business which accounted for 86% (2016: 83%) of Group revenues and 91% (2016: 92%) of Group underlying profit before tax. Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. Key audit matters • Goodwill impairment assessment – particularly for European businesses and the US (Group) • Risk of fraud in revenue recognition in relation to cut-off for transaction income in the investment management and transactional advisory businesses (Group) 78 Savills plc Report and Accounts 2017 • Provisions for litigation (Group) • Recoverability of trade receivables (Group) • Regulatory compliance obligations (Group and Company) • Accounting for acquisition of Aguirre Newman (Group) The scope of our audit As part of planning our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. We gained an understanding of the legal and regulatory framework applicable to the group and the industry in which it operates, and considered the risk of acts by the Group which were contrary to applicable laws and regulations, including fraud. We designed audit procedures at Group and significant component level to respond to the risk, recognising that the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. We focused on laws and regulations that could give rise to a material misstatement in the Group and Company financial statements, including those relating to financial services and real estate services across the Group. Our tests included discussing compliance with internal legal counsel, reviewing correspondence with the Group’s solicitors and examining litigation costs incurred by the Group over the financial year. There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. We did not identify any key audit matters relating to irregularities, including fraud. As in all of our audits we also addressed the risk of management override of internal controls, including testing journals and evaluating whether there was evidence of bias by the Directors that represented a risk of material misstatement due to fraud. Key audit matters Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Key audit matter How our audit addressed the key audit matter Goodwill impairment assessment – particularly for European businesses and the US (Group) Refer to page 54 (Audit Committee Report), page 94 and (Significant Accounting policies) and pages 119 to 121 (notes). Focusing on the US and Sweden businesses, we evaluated and challenged the Directors’ future cash flow forecasts and the process by which they were drawn up, and tested the underlying value in use calculations. We compared management’s forecast with the latest Board-approved budget and found them to be consistent. The Group carried £351.3m of goodwill at 31 December 2017 (2016: £309.8m) of which £57.8m related to new acquisitions made during 2017. We challenged: The carrying value of goodwill is contingent on future cash flows of the underlying cash generating units (‘CGUs’) and there is a risk that if these cash flows do not meet the Directors’ expectations, the goodwill will be impaired. The Group’s performance in Europe improved during 2017 with the exception of Sweden, where an impairment charge of £2.3m was recognised reflecting recent performance in challenging market conditions. After the impairment charge, the value of the Sweden CGU at 31 December 2017 was £2.7m. There was significant headroom in management’s impairment models for the other European CGUs. We focused our assessment on the US, which holds £148.1m of goodwill and other intangible assets, as the profitability of that business declined in 2017. Risk of fraud in revenue recognition in relation to cut-off for transaction income in the investment management and transactional advisory businesses (Group) Refer to page 98 (note 2 to the financial statements) for the Directors’ disclosures of the related accounting policies, judgments and estimates. Our specific audit focus was on the risk that revenue may be recorded in the incorrect period in respect of transaction fees in the transactional advisory and investment management businesses, in light of the incentive schemes for management in those businesses designed to reward performance. The recognition of revenue is largely dependent on the date the underlying transaction is deemed to be completed, which is typically the point at which unconditional exchange has been achieved. • the key assumptions for short and long term growth rates in the forecasts by comparing them with historical results, as well as economic and industry forecasts for the relevant international property markets; and • the discount rate used in the calculations by assessing the cost of capital for the Group and comparable organisations, and assessed the specific risk premium applied to each CGU in question. We performed sensitivity analysis on the key assumptions within the cash flow forecasts. This included sensitising the discount rate applied to the future cash flows, and the short and longer term growth rates and profit margins. We ascertained the extent to which a reduction in these assumptions both individually or in aggregate would result in goodwill impairment, and considered the likelihood of such events occurring. We did not regard this to be reasonably possible. We were satisfied that the impairment charge recorded in Sweden was reasonable and that no other goodwill impairments were required in the 2017 financial statements. For material transactions, we evaluated the commercial rationale and the revenue recognition process adopted and determined that the related revenue had been recorded on a consistent basis across the Group in accordance with Group policies and applicable IFRSs. We tested a sample of revenue transactions to underlying contracts and third party completion documentation, for example, property sales completion statements, or asset or property management contracts, determining that these sales had taken place and were recorded in the correct period. There were no material issues identified by our testing of revenue recognition in the period. Savills plc Report and Accounts 2017 79 Financial statementsGovernance Strategic reportOverviewIndependent auditor’s report continued Key audit matter How our audit addressed the key audit matter Provisions for litigation (Group) Refer to page 54 (Audit Committee Report), page 97 (Significant Accounting Policies) and page 105 (notes).  In order to assess the accuracy and completeness of the provisions held at the balance sheet date, we performed the following procedures: The Group is subject to a number of legal claims in the normal course of business. The calculation of provisions against these claims is judgmental, given the range of possible outcomes on each claim. The number of new claims has continued to decline in recent years. • Obtained and read the legal claim letters and accompanying third party documentation received by the Group; • Obtained and read the legal insurance contract, and verified that the terms were appropriately accounted for; Our audit procedures took into account both the potential exposure and the extent to which liabilities are likely to crystallise, as well as the adequacy of the insurance cover held by the Group. • Met with the Group’s internal and external legal counsels to consider in detail a number of cases, including the potential exposure after taking into account the Group’s insurance cover; • Checked the amounts and other details in respect of each new claim to the relevant supporting documentation; • Reviewed the outcome of prior year estimates of litigation provisions to help assess the reliability of the estimates this year; • Reviewed the legal cases settled during the year and, where relevant, traced the related cash payments to bank statements; and • Examined board minutes, legal expenses incurred during the year and any litigation-related matters arising after the year-end. We determined based on these procedures that the Directors had made reasonable judgments in their assessment process for determining the level of provision held. Our procedures did not identify any further legal cases other than those identified by management. Recoverability of trade receivables (Group) • Requested confirmations for a sample of client debtor balances; Refer to page 54 (Audit Committee Report), page 95 (Significant Accounting Policies) and page 130 (notes). The Group is exposed to a risk of default in respect of trade receivables, and there is therefore a risk that the net valuation of receivables could be overstated. This risk is factored into our audit approach with respect to the provision against trade receivables. In order to test the recoverability of trade receivables, we performed the following procedures: • Where a response to our request was not received, we sought to agree the relevant trade receivables balances to post year end cash receipts; • Where both a response and cash had not been received post year-end, we performed alternative procedures, by agreeing amounts recorded to underlying sales contracts and completion documentation; • Discussed and assessed the reasons that the amounts were not yet paid with local management teams. We also evaluated the Group's credit control procedures, and assessed the ageing profile of trade receivables, focusing on older debts; • We challenged management as to the recoverability of the older, unprovided amounts, corroborating management explanations with underlying documentation and correspondence with the customer; and • We inspected management’s bad debt provision calculations and ensured that these were consistent with Group policy, and that they provided appropriate cover over older uncollected debts We did not encounter any issues through these audit procedures that indicated further provisioning against trade receivables was required. Based upon the above, we are satisfied that management had taken reasonable judgments that were supported by the available evidence in respect of the relevant receivables. 80 Savills plc Report and Accounts 2017 Key audit matter How our audit addressed the key audit matter Regulatory compliance obligations (Group and Company) The Group is subject to Financial Services, Chartered Surveyor, tax, anti-bribery and anti-money laundering laws and regulations across a number of jurisdictions in which it operates. We updated our understanding of the legal and regulatory framework within which the Group operates, discussed the Group’s approach to regulatory compliance with management and with internal legal counsel, and evaluated management’s internal control procedures. The Company is subject to those laws and regulations applicable in the UK. Failure to comply with any of these applicable laws and regulations could have a material impact on the results of the Group and the reputation for integrity on which it relies. The Directors did not identify any material instances of non- compliance in the year. Accounting for acquisition of Aguirre Newman (Group) Refer to page 54 (Audit Committee Report), page 94 (Significant Accounting Policies) and page 126 (notes). The Group completed the acquisition of Aguirre Newman, a Spanish real estate advisory business, on 29 December 2017. The acquisition did not include Aguirre Newman’s South American business, which was carved out of the acquisition balance sheet. Accounting for the acquisition required a provisional fair value exercise, including valuing separately identifiable intangible assets. This can be a particularly subjective process, given the range of assumptions that are adopted to determine the valuations, including the applicable discount rate used in the fair value calculations. Based on an exercise performed by external valuation experts, the Directors identified £3.4m of intangibles relating to Aguirre Newman’s brand, order back-log and its customer contracts and relationships. We considered that appropriate procedures are in place to identify any instances of non-compliance that would have a material impact on the results and reputation of the business. We read relevant correspondence with regulators to support management’s assertions, as well as board minutes and internal audit reports. We examined legal expense accounts and considered the results of our audit work in other areas to determine whether there was any evidence of non-compliance with applicable laws and regulations. We identified no evidence of such instances of non-compliance with applicable laws and regulations. In order to test the components of the acquisition, we performed the following procedures: • Reviewed technical papers prepared by management in respect of the acquisition and inspected all relevant contracts and information; • Tested the adjustments made to carve out the net assets of the Aguirre Newman South American business from the acquired balance sheet; • Assessed the provisional fair value calculation of the assets acquired, including assessing the completeness and quantum of adjustments made by management; • Reviewed the work performed on the purchase price allocations by management’s external experts, to ensure that the relevant intangible assets have been appropriately identified and reasonably valued; • Evaluated the competency and objectivity of management’s external valuation expert; • Challenged the key assumptions used in the valuation model, including the discount rate • Challenged management’s identification and valuation of other known and contingent liabilities associated with Aguirre Newman; • Understood what management have done to assess the control environment of the entity and align accounting practices; and Based upon the above, we are satisfied that the Directors had taken reasonable judgments in accounting for the acquisition of Aguirre Newman. Savills plc Report and Accounts 2017 81 Financial statementsGovernance Strategic reportOverviewIndependent auditor’s report continued How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. Taken together, our full scope audit procedures accounted for 86% (2016: 83%) of Group revenues and 91% (2016: 92%) of Group underlying profit before tax. The Group’s accounting process is structured around a local finance function in each of the territories in which the Group operates. In Europe, these functions maintain their own accounting records and controls and report to a Head Office finance team in the UK through submission of management reporting packs. In Asia Pacific, these functions similarly report to a regional finance team in Hong Kong, and in the US the local functions report to the US finance team in New York. At a Group level, a separate finance team consolidates the reporting packs of Europe, Asia Pacific, UK, North America and the central functions. In our view, due to their significance and/or risk characteristics, as defined in our areas of focus, those businesses in the UK and US, Hong Kong, Shanghai (China Central) and Australia within the Asia Pacific region, and the German Investment Management business, required an audit of their complete financial information. We used component auditors from PwC network firms who are familiar with the local laws and regulations in each of the identified territories outside the UK to perform this audit work. Specific risk-based audit procedures were performed by local teams in Beijing, Chengdu, Tokyo and Singapore, focusing on revenue and receivables based on the audit risks we had identified in these areas. Specific audit procedures were also performed by a local team in Spain over the Aguirre Newman balance sheet, following the acquisition on 29 December 2017. Based upon Group materiality, we did not carry out detailed audit procedures on Savills Europe other than Aguirre Newman. Local audit teams perform statutory audits of subsidiary companies in Europe where required by local legislation. These audits were carried out to the same timetable as the Group audit and, accordingly, we were able to incorporate the results of their work into our overall risk assessment. In order to direct and supervise the Group audit, the Group engagement team sent detailed instructions to significant component audit teams. This included communication of the areas of focus above and other required communications. The Group engagement team held regular meetings throughout the year with all significant component audit teams. The Group team visited the audit teams located at the Savills Asia Pacific head office in Hong Kong, given the significance of this region to the Group, the US head office in New York, and also visited Savills regional offices in Shanghai and Beijing. This ensured that we had a comprehensive understanding of the results of their work – particularly insofar as it related to the identified areas of focus. The Group consolidation, financial statement disclosures and a number of complex items were audited by the Group engagement team at the head office. These included pensions, tax and share-based payments. Taken together, these procedures gave us the evidence we needed for our opinion on the financial statements as a whole. Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Overall materiality £7.0 million (2016: £6.8 million). Group financial statements How we determined it Rationale for benchmark applied 5% of Group underlying profit before tax as defined in note 2.2 to the financial statements. Based on our professional judgment, we determined materiality by applying a benchmark of 5% of underlying profit before tax. We believe that underlying profit before tax is the most appropriate measure as it eliminates any disproportionate effect of exceptional charges and provides a consistent year-on-year basis for our work. It is the key measure used by management and the Group’s investors. Parent company financial statements £2.3 million (2016: £2.3 million). 1% of total assets of the Company. We determined that as the Company is a non-trading holding company, total assets to be an appropriate benchmark. For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality allocated across components was between £1.0 million and £5.7 million. Certain components were audited to a local statutory audit materiality that was also less than our overall group materiality. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.3 million (Group audit) (2016: £0.3 million) and £0.3 million (Company audit) (2016: £0.3 million) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. 82 Savills plc Report and Accounts 2017 Going concern In accordance with ISAs (UK) we report as follows: Reporting obligation Outcome We are required to report if we have anything material to add or draw attention to in respect of the Directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the directors’ identification of any material uncertainties to the Group’s and the Company’s ability to continue as a going concern over a period of at least 12 months from the date of approval of the financial statements. We have nothing material to add or to draw attention to. As not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s and Company’s ability to continue as a going concern. We are required to report if the Directors’ statement relating to Going Concern in accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit. We have nothing to report. Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The Directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic Report and Directors’ Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06), ISAs (UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated). Strategic Report and Directors’ Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. (CA06) In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic Report and Directors’ Report. (CA06) The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group We have nothing material to add or draw attention to regarding: • The Directors’ confirmation on page 26 of the Annual Report that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. • The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated. • The Directors’ explanation on page 29 of the Annual Report as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We have nothing to report having performed a review of the Directors’ statement that they have carried out a robust assessment of the principal risks facing the Group and statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries and considering the Directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and considering whether the statements are consistent with the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit. (Listing Rules) Savills plc Report and Accounts 2017 83 Financial statementsGovernance Strategic reportOverviewAppointment Following the recommendation of the Audit Committee, we were appointed by the members on 30 April 2001 to audit the financial statements for the year ended 31 December 2002 and subsequent financial periods. The period of our total uninterrupted engagement is 16 years, covering the years ended 31 December 2002 to 31 December 2017. John Waters (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors London 14 March 2018 Independent auditor’s report continued Other Code Provisions We have nothing to report in respect of our responsibility to report when: • The statement given by the Directors, on page 76, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the information necessary for the members to assess the Group’s and Company’s position and performance, business model and strategy is materially inconsistent with our knowledge of the Group and Company obtained in the course of performing our audit. • The section of the Annual Report on page 54 describing the work of the Audit Committee does not appropriately address matters communicated by us to the Audit Committee. • The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified, under the Listing Rules, for review by the auditors. Directors’ Remuneration In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. (CA06) Responsibilities for the financial statements and the audit Responsibilities of the directors for the financial statements As explained more fully in the Directors’ Responsibility Statement set out on page 76, the Directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so. Auditors’ responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc. org.uk/auditorsresponsibilities. This description forms part of our auditors’ report. Use of this report This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Other required reporting Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: • we have not received all the information and explanations we require for our audit; or • adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not visited by us; or • certain disclosures of Directors’ remuneration specified by law are not made; or • the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. 84 Savills plc Report and Accounts 2017 Consolidated income statement for the year ended 31 December 2017 Revenue Less: Employee benefits expense Depreciation Amortisation of intangible assets and impairment of goodwill Other operating expenses Other operating income Profit on disposal of available-for-sale investments and joint ventures Loss on disposal of available-for-sale investments Operating profit Finance income Finance costs Share of post-tax profit from joint ventures and associates Profit before income tax Comprising: – underlying profit before tax – restructuring and acquisition-related costs – other underlying adjustments Income tax expense Profit for the year Attributable to: Owners of the parent Non-controlling interests Earnings per share Basic earnings per share Diluted earnings per share Underlying earnings per share Basic earnings per share Diluted earnings per share Notes 6 2017 £m 2016 £m 1,600.0 1,445.9 9.1 16 15 7.1 7.1 8 8 11 11 17.1 8 8 8 12 14.1 14.1 14.2 14.2 (1,061.7) (953.5) (13.5) (9.3) (418.5) 0.9 5.9 – 103.8 2.8 (4.1) (1.3) 9.9 112.4 140.5 (29.0) 0.9 112.4 (31.3) 81.1 80.1 1.0 81.1 58.8p 57.5p 75.8p 74.1p (12.7) (6.9) (382.7) 2.5 0.5 (0.4) 92.7 1.6 (2.4) (0.8) 7.9 99.8 135.8 (34.5) (1.5) 99.8 (32.1) 67.7 66.9 0.8 67.7 48.8p 47.7p 72.5p 71.0p Savills plc Report and Accounts 2017 85 Financial statementsGovernance Strategic reportOverviewConsolidated statement of comprehensive income for the year ended 31 December 2017 Profit for the year Other comprehensive income/(loss) Items that will not be reclassified to profit or loss: Remeasurement of defined benefit pension scheme obligation Tax on items that will not be reclassified Total items that will not be reclassified to profit or loss Items that may be reclassified subsequently to profit or loss: Fair value gain/(loss) on available-for-sale investments Currency translation differences Tax on items that may be reclassified Total items that may be reclassified subsequently to profit or loss Other comprehensive (loss)/income for the year, net of tax Total comprehensive income for the year Total comprehensive income attributable to: Owners of the parent Non-controlling interests Notes 10.2 12 17.2 12 2017 £m 81.1 14.1 (2.8) 11.3 0.3 (16.2) 2.3 (13.6) (2.3) 78.8 77.8 1.0 78.8 2016 £m 67.7 (35.2) 7.2 (28.0) (0.6) 52.6 (0.7) 51.3 23.3 91.0 90.0 1.0 91.0 As permitted by Section 408 of the Companies Act 2006, the income statement and statement of comprehensive income of the Company are not presented as part of these financial statements. The Company has produced its own income statement and statement of comprehensive income for approval by its Board. The Company receives dividends from subsidiaries and charges subsidiaries for the provision of Group-related services. The profit after income tax of the Company for the year was £64.0m (2016: £80.9m). 86 Savills plc Report and Accounts 2017 Consolidated and Company statements of financial position as at 31 December 2017 Assets: Non-current assets Property, plant and equipment Goodwill Intangible assets Investments in subsidiaries Investments in joint ventures and associates Deferred income tax assets Available-for-sale investments Retirement benefit surplus Derivative financial instruments Non-current receivables Assets: Current assets Work in progress Trade and other receivables Current income tax receivable Derivative financial instruments Cash and cash equivalents Liabilities: Current liabilities Borrowings Derivative financial instruments Trade and other payables Current income tax liabilities Employee benefit obligations Provisions for other liabilities and charges Net current (liabilities)/assets Total assets less current liabilities Liabilities: Non-current liabilities Borrowings Trade and other payables Retirement and employee benefit obligations Provisions for other liabilities and charges Deferred income tax liabilities Net assets Equity: Share capital Share premium Shares to be issued Other reserves Retained earnings Equity attributable to owners of the parent Non-controlling interests Total equity Notes 16 15 15 17.3 17.1 18 17.2 10.2 23 19 23 20 22 23 21 24.2 24.1 22 21 10.2 and 24.2 24.1 18 25 27 27 Group 2017 £m 2016 £m 68.2 351.3 34.4 – 30.0 36.9 24.6 1.3 – 15.7 562.4 6.0 490.6 2.3 0.5 208.8 708.2 110.1 0.1 592.7 16.4 11.2 11.4 741.9 (33.7) 528.7 0.1 35.6 35.5 12.9 2.9 87.0 441.7 3.5 91.1 – 98.4 247.2 440.2 1.5 441.7 59.7 309.8 29.2 – 28.9 36.5 20.8 – 0.1 9.6 494.6 5.3 419.4 4.3 0.2 223.6 652.8 35.8 0.3 550.2 17.5 9.2 10.2 623.2 29.6 524.2 – 44.9 57.0 11.7 3.6 117.2 407.0 3.5 91.1 11.3 103.9 195.8 405.6 1.4 407.0 Company 2017 £m 1.7 – 2.7 123.7 – 2.2 – – – – 130.3 – 7.9 2.6 – 90.8 101.3 – – 13.1 – 0.1 – 13.2 88.1 218.4 – – 1.1 0.6 – 1.7 216.7 3.5 91.1 – 38.2 83.9 216.7 – 216.7 2016 £m 1.9 – 1.4 118.7 – 2.5 – – – – 124.5 – 16.5 1.3 – 88.3 106.1 – – 21.3 – 0.1 – 21.4 84.7 209.2 – – 2.3 1.9 – 4.2 205.0 3.4 91.1 11.3 26.9 72.2 205.0 – 205.0 The consolidated and Company financial statements on pages 85 to 150 were authorised for issue by the Board of Directors on 14 March 2018 and were signed on its behalf by: J C Helsby S J B Shaw Savills plc Registered in England No. 2122174 Savills plc Report and Accounts 2017 87 Financial statementsGovernance Strategic reportOverview Consolidated statement of changes in equity for the year ended 31 December 2017 Attributable to owners of the parent Share capital £m Share premium £m Shares to be issued £m Other reserves* £m Retained earnings** £m Notes Non- controlling interests £m Total £m 3.5 91.1 11.3 103.9 195.8 405.6 Balance at 1 January 2017 Profit for the year Other comprehensive income/(loss): Remeasurement of defined benefit pension scheme obligation Fair value gain on available-for-sale investments Tax on items directly taken to reserves Currency translation differences Total comprehensive income for the year 10.2 17.2 12 Transactions with owners: Employee share option scheme: – Value of services provided Purchase of treasury shares Shares issued Disposal of available-for-sale investments Dividends 13 Total equity £m 407.0 81.1 1.4 1.0 – – – – 14.1 0.3 (0.5) (16.2) 80.1 80.1 14.1 – 14.1 0.3 (0.8) (0.5) – (16.2) 93.4 77.8 1.0 78.8 14.5 14.5 (17.2) (17.2) – – – (1.2) – – – – 14.5 (17.2) – (1.2) – (39.3) (39.3) (0.9) (40.2) 98.4 247.2 440.2 1.5 441.7 – – – – – – – – – – – – – – – – – – – – – – – – 0.3 0.3 (16.2) (15.6) – – 11.3 (1.2) – – – – – – – – (11.3) – – – Balance at 31 December 2017 3.5 91.1 Attributable to owners of the parent Share capital £m Share premium £m Shares to be issued £m Other reserves* £m Retained earnings** £m Notes Non- controlling interests £m Total equity £m Total £m 91.1 22.9 39.1 207.8 364.3 Balance at 1 January 2016 Profit for the year Other comprehensive income/(loss): Remeasurement of defined benefit pension scheme obligation Fair value loss on available-for-sale investments Tax on items directly taken to reserves Currency translation differences Total comprehensive income for the year Transactions with owners: Employee share option scheme: – Value of services provided Purchase of treasury shares Shares issued Dividends Transfer between reserves Transactions with non-controlling interests 10.2 17.2 12 13 3.4 – – – – – – – – 0.1 – – – – – – – – – – – – – – – – – – – – – – – – – (0.6) – 52.4 51.8 66.9 66.9 (35.2) (35.2) – 6.5 – 38.2 (0.6) 6.5 52.4 90.0 – – 13.4 13.4 (23.2) (23.2) (11.6) 11.6 – 0.1 – – – – 1.4 – (1.4) (3.6) – (3.6) 0.7 0.8 365.0 67.7 – – – 0.2 1.0 (35.2) (0.6) 6.5 52.6 91.0 – – – 13.4 (23.2) 0.1 – 0.6 1.4 – (3.0) 407.0 Balance at 31 December 2016 3.5 91.1 11.3 103.9 195.8 405.6 * Included within other reserves on the face of the statement of financial position are the capital redemption reserve, merger relief reserve, foreign exchange reserve and revaluation reserve as disclosed in Note 27. ** Included within retained earnings on the face of the statement of financial position are treasury shares, share-based payments reserve and the profit and loss account as disclosed in Note 27. 88 Savills plc Report and Accounts 2017 (35.4) (35.4) (0.9) (36.3) Company statement of changes in equity for the year ended 31 December 2017 Balance at 1 January 2017 3.5 91.1 11.3 Share capital £m Share premium £m Shares to be issued £m Notes Profit for the year Other comprehensive income: Remeasurement of defined benefit pension scheme obligation Tax on items directly taken to reserves 10.2 12 Total comprehensive income for the year Employee share option scheme: – Value of services provided – Exercise of share options Distribution for Employee Benefit Trust Shares issued Dividends 13 – – – – – – – – – – – – – – – – – – Balance at 31 December 2017 3.5 91.1 – – – – – – – (11.3) – – Share capital £m Share premium £m Shares to be issued £m Notes Balance at 1 January 2016 Profit for the year Other comprehensive income: Remeasurement of defined benefit pension scheme obligation Tax on items directly taken to reserves 10.2 12 Total comprehensive income for the year Employee share option scheme: – Value of services provided – Exercise of share options Distribution for Employee Benefit Trust Shares issued Dividends Balance at 31 December 2016 13 3.4 – – – – – – – 0.1 – 3.5 91.1 22.9 – – – – – – – – – 91.1 – – – – – – – (11.6) – 11.3 Attributable to owners of the Company Capital redemption reserve* £m 0.3 – – – – – – – – – Merger relief reserve* £m 23.6 – – – – – – – 11.3 – Other reserves* £m 3.0 – – – – – – – – – Share- based payments reserve** £m 5.0 – – – – Retained earnings** £m 67.2 64.0 Total equity £m 205.0 64.0 0.7 0.3 0.7 0.3 65.0 65.0 2.4 (1.9) – – – – 2.4 (11.5) (13.4) (3.0) (3.0) – – (39.3) (39.3) 0.3 34.9 3.0 5.5 78.4 216.7 Attributable to owners of the Company Capital redemption reserve* £m 0.3 – – – – – – – – – Merger relief reserve* £m 12.0 – – – – – – – 11.6 – Share- based payments reserve** £m Other reserves* £m 3.0 – 3.5 – Retained earnings** £m 56.9 80.9 Total equity £m 193.1 80.9 – – – – – – – – – – – 2.4 (0.9) – – – (1.9) 0.2 (1.9) 0.2 79.2 79.2 – (10.3) (23.2) – 2.4 (11.2) (23.2) 0.1 (35.4) (35.4) 0.3 23.6 3.0 5.0 67.2 205.0 * Included within other reserves on the face of the statement of financial position are the capital redemption reserve, the merger relief reserve and other reserves as disclosed above. ** Included within retained earnings on the face of the statement of financial position are share-based payments reserve and retained earnings as disclosed above. Savills plc Report and Accounts 2017 89 Financial statementsGovernance Strategic reportOverview Consolidated and Company statements of cash flows for the year ended 31 December 2017 Group 2017 £m Notes 30 145.1 2016 £m 117.8 1.6 (1.3) (24.8) 93.3 0.2 5.1 2.0 7.5 1.2 – (4.4) (6.8) (12.8) (4.7) (12.6) (25.3) 0.1 144.6 (141.2) – (23.2) (3.3) 0.3 (36.3) (59.0) 9.0 182.2 32.2 223.4 Company 2017 £m 49.9 0.9 – 1.5 52.3 – – – – 3.6 (8.6) – – (0.9) (1.6) – (7.5) – – – 2016 £m 70.3 1.0 – 3.9 75.2 – – – – – (9.0) – – (0.5) (1.1) – (10.6) 0.1 – – (3.0) (23.2) – – – (39.3) (42.3) 2.5 88.3 – 90.8 – – – (35.4) (58.5) 6.1 82.2 – 88.3 2.7 (2.1) (34.0) 111.7 0.1 4.6 0.4 8.3 – (0.6) (39.8) (67.9) (23.1) (8.8) (9.4) (136.2) – 181.5 (110.6) – (17.2) – – (40.2) 13.5 (11.0) 223.4 (7.2) 205.2 Cash flows from operating activities Cash generated from operations Interest received Interest paid Income tax (paid)/received Net cash generated from operating activities Cash flows from investing activities Proceeds from sale of property, plant and equipment Proceeds from sale of available-for-sale investments Proceeds from sale of interests in joint ventures and associates Dividends received from joint ventures and associates Repayment of loans by joint ventures, associates and subsidiaries Loans to joint ventures, associates and subsidiaries Acquisition of subsidiaries, net of net cash acquired Deferred consideration paid in relation to current and prior year acquisitions Purchase of property, plant and equipment Purchase of intangible assets 17.4 16 15 Purchase of investment in joint ventures, associates and available-for-sale investments 17.1 and 17.2 Net cash used in investing activities Cash flows from financing activities Proceeds from issue of share capital Proceeds from borrowings Repayments of borrowings Contribution to Employee Benefit Trust Purchase of treasury shares Purchase of non-controlling interests Proceeds from disposal of non-controlling interests Dividends paid Net cash received from/(used) in financing activities 27 17.4 17.4 13 Net (decrease)/increase in cash, cash equivalents and bank overdrafts Cash, cash equivalents and bank overdrafts at beginning of year Effect of exchange rate fluctuations on cash held Cash, cash equivalents and bank overdrafts at end of year 20 and 22 90 Savills plc Report and Accounts 2017 Notes to the financial statements Year ended 31 December 2017 1. General information Savills plc (the ‘Company’) and its subsidiaries (together the ‘Group’) is a global real estate services Group. The Group operates through a network of offices in the UK, Continental Europe, Asia Pacific, North America, Africa and the Middle East. Savills is listed on the London Stock Exchange and employs 34,429 staff worldwide. The Company is a public limited company incorporated and domiciled in the United Kingdom. The address of its registered office is 33 Margaret Street, London W1G 0JD. These consolidated financial statements were approved for issue by the Board of Directors on 14 March 2018. 2. Accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated, and are also applicable to the parent Company. 2.1 Basis of preparation These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRS Interpretations Committee interpretations as adopted by the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements are prepared on a going concern basis and under the historical cost convention as modified by the revaluation of available-for-sale investments and derivative financial instruments. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates and for management to exercise judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in Note 5. 2.2 Use of non-GAAP measures The Group believes that the consistent presentation of underlying profit before tax, underlying effective tax rate, underlying basic earnings per share and underlying diluted earnings per share provides additional useful information to shareholders on the underlying trends and comparable performance of the Group over time. The ‘underlying’ measures are also used by Savills for internal performance analysis and incentive compensation arrangements for employees. All the adjustments made to the GAAP measures are considered exceptional and/or non-operational in nature. These terms are not defined terms under IFRS and may therefore not be comparable with similarly-titled profit measures reported by other companies. They are not intended to be a substitute for, or superior to, GAAP measures. The term ‘underlying’ refers to the relevant measure of profit, earnings or taxation being reported excluding the impact (pre and post-tax where applicable) of the following items: • amortisation of acquired intangible assets (excluding software); • the difference between IFRS 2 charges related to outstanding bonus-related deferred share awards and the estimated value of the current year bonus pool expected to be allocated to deferred share awards (refer to Note 8 for further explanation); • items that are considered exceptional by size or nature including restructuring costs, impairments of goodwill, intangible assets and investments and profits or losses arising on disposals of subsidiaries and other investments; and • significant acquisition costs related to business combinations. The underlying effective tax rate represents the underlying income tax expense expressed as a percentage of underlying profit before tax. The underlying income tax expense is the income tax expense excluding the tax effect of the adjustments made to arrive at underlying profit before tax and other tax effects related to these adjustments. Underlying basic earnings per share and underlying diluted earnings per share both utilise the underlying profit after tax measure instead of GAAP earnings. The weighted average number of shares remain the same as the GAAP measure. A reconciliation between GAAP and underlying measures are set out in Note 8 (underlying profit before tax) and Note 14.2 (underlying basic earnings per share and underlying diluted earnings per share). The Group also refers to revenue and underlying profit on a constant currency basis which are both non-GAAP measures. Constant currency results are calculated by translating the current year revenue and underlying profit using the prior year exchange rates. This measure allows the Group to assess the results of the current year compared to the prior year, excluding the impact of foreign currency movements. Savills plc Report and Accounts 2017 91 Financial statementsGovernance Strategic reportOverview2. Accounting policies continued 2.3 Consolidation The consolidated financial statements include those of the Company and its subsidiary undertakings, together with the Group’s share of results of its associates and joint ventures. (a) Subsidiaries Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. Inter-company transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. Investments in subsidiaries held by the Company are held at cost, less any provision for impairment. (b) Acquisition of subsidiaries The Group applies the acquisition method of accounting to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred and the equity interests issued by the Group. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of the acquiree’s identifiable net assets. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Contingent consideration only applies to situations where contingent payments are not dependent on future employment of vendors. Payments dependent on future employment are expensed to the income statement over the relevant period of employment as required by IFRS 3 (revised). Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 in profit or loss. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity. Acquisition-related costs are expensed as incurred. (c) Changes in ownership interests in subsidiaries without change of control Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. (d) Disposal of subsidiaries When the Group ceases to control any retained interest in a subsidiary, the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. (e) Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting. Under the equity method, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. The Group’s investment in associates includes goodwill (net of any accumulated impairment loss) identified on acquisition (see Note 17.1). The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement with a corresponding adjustment to the carrying amount of the investment. Dividends received or receivable from associates are recognised as a reduction in the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses unless it has incurred legal or constructive obligations or made payments on behalf of the associate. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group. The carrying amount of associates is tested for impairment in accordance with the policy described in Note 2.9. 92 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017(f) Joint arrangements The Group applies IFRS 11 to all joint arrangements. Under IFRS 11 investments in joint arrangements are classified as either joint operations or joint ventures depending on the contractual rights and obligations of each investor. The Group has assessed the nature of its joint arrangements and determined them to be joint ventures. Joint ventures are accounted for using the equity method of accounting, the investment is initially recognised at cost, and the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. The Group’s share of its joint venture’s post-acquisition profits or losses is recognised in the income statement with a corresponding adjustment to the carrying amount of the investment. Dividends received or receivable from joint ventures are recognised as a reduction in the carrying amount of the investment. When the Group’s share of losses in a joint venture equals or exceeds its interests in the joint ventures (which includes any long-term interests that, in substance, form part of the Group’s net investment in the joint ventures), the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the joint ventures. Unrealised gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s interest in the joint ventures. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of the joint ventures have been changed where necessary to ensure consistency with the policies adopted by the Group. The carrying amount of joint ventures is tested for impairment in accordance with the policy described in Note 2.9. 2.4 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Group Executive Board. A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that is subject to risks and returns that are different from those of segments operating in other economic environments. As the Group is strongly affected by both differences in the types of services it provides and the geographical areas in which it operates, the matrix approach of disclosing both the business and geographical segments format is used. Revenues and expenses are allocated to segments on the basis that they are directly attributable or the relevant portion can be allocated on a reasonable basis. 2.5 Foreign currency translation (a) Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in sterling, which is also the Company’s functional and presentation currency. (b) Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges. Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss and are recognised in the income statement, except for available-for-sale equity investments, which are recognised in other comprehensive income. Non-monetary items carried at historical cost are reported using the exchange rate at the date of the transaction. (c) Group entities The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on consolidation, are translated to the Group’s presentational currency at foreign exchange rates ruling at the reporting date. Exchange differences arising from this translation of foreign operations are taken directly to the foreign exchange reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the foreign exchange reserve is transferred to the income statement. The income and expenses of foreign operations are translated at an average rate for the year where this rate approximates to the foreign exchange rates ruling at the dates of the transactions. Savills plc Report and Accounts 2017 93 Financial statementsGovernance Strategic reportOverview2. Accounting policies continued 2.6 Property, plant and equipment Property, plant and equipment is stated at historical cost less accumulated depreciation and impairment. Historical cost includes expenditure directly attributable to acquisition. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that the future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Provision for depreciation is made at rates calculated on a straight-line basis to write-off the assets over their estimated useful lives as follows: Freehold property Short leasehold property (less than 50 years) Equipment and motor vehicles 50 years Over unexpired term of lease 3–10 years Residual values and useful lives are reviewed and adjusted if appropriate, at each reporting date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. 2.7 Goodwill Goodwill represents the excess of the cost of acquisition of a subsidiary or associate over the Group’s share of the fair value of identifiable net assets acquired. In respect of associates, goodwill is included in the carrying value of the investment. Goodwill is carried at cost less accumulated impairment losses. Separately recognised goodwill is tested annually for impairment, or more frequently if events or changes in circumstances indicate potential impairment. An impairment loss is recognised for the amount by which the carrying value exceeds the recoverable amount. The recoverable amount is the higher of value-in-use and fair value less costs of disposal. Impairment losses on goodwill are not reversed. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups of cash-generating units that are expected to benefit from the business combination in which the goodwill arose. The Group allocates goodwill to each business segment in the geographical region in which it operates (Note 15). Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. 2.8 Intangible assets other than goodwill Intangible assets acquired as part of business combinations and incremental contract costs are valued at fair value on acquisition and amortised over the useful life. Fair value on acquisition is determined by third party valuation where the acquisition is significant. Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the Group are recognised as intangible assets when the following criteria are met: • it is technically feasible to complete the software product so that it will be available for use; • management intends to complete the software product and use or sell it; • there is an ability to use or sell the software product; • it can be demonstrated how the software product will generate probable future economic benefits; • adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and • the expenditure attributable to the software product during its development can be reliably measured. Measurement subsequent to initial recognition is at cost less accumulated amortisation and impairment. 94 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017Amortisation charges are spread on a straight-line basis over the period of the assets’ estimated useful lives as follows: Customer relationships Order backlogs Contracts – investment, property management and other existing business contracts Brands Computer software 3–15 years 2 years 2–20 years 2 years 3–5 years Acquired investment management contracts relating to open-ended funds have been attributed indefinite useful lives, reflecting the open- ended nature of the funds, the Group’s intention to continue with the management of the funds for the foreseeable future and the expectation that these contracts are expected to generate net cash inflows for the Group for this foreseeable period. 2.9 Impairment of other non-financial assets Assets that have indefinite useful lives are not subject to amortisation or depreciation and are tested annually for impairment or whenever an indicator of impairment exists. Assets that are subject to amortisation or depreciation are reviewed for impairment whenever an indicator of impairment exists. An impairment loss is recognised to the extent that the carrying value exceeds the higher of the asset’s fair value less cost to sell and its value-in-use. Prior impairments of non-financial assets (other than goodwill) are reviewed for possible reversal at each reporting date. Value-in-use is determined using the discounted cash flow method, with an appropriate discount rate to reflect market rates and specific risks associated with the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. 2.10 Financial instruments Financial assets and liabilities are recognised on the Group’s statement of financial position at fair value when the Group becomes party to the contractual provisions of the instrument. Subsequent measurement depends on the classification and is discussed in paragraphs 2.11–2.16. Financial assets and liabilities are offset and the net amount reported in the balance sheet where there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of consideration received is recognised in profit or loss. The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid is recognised in profit or loss. 2.11 Available-for-sale investments Available-for-sale investments are stated at fair value, with changes in fair value being recognised in other comprehensive income. When such investments are disposed or become impaired, the accumulated gains and losses, previously recognised in other comprehensive income, are recognised in the income statement. 2.12 Trade receivables Trade receivables are recognised initially at fair value and subsequently measured at amortised cost less provision for impairment. Receivables are discounted where the time value of money is material. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within ‘other operating expenses’. When a trade receivable is uncollected, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against ‘other operating expenses’ in the income statement. Savills plc Report and Accounts 2017 95 Financial statementsGovernance Strategic reportOverview2. Accounting policies continued 2.13 Cash and cash equivalents Cash and cash equivalents include cash in hand and deposits held on call with banks, together with other short-term highly liquid investments with original maturities of three months or less and working capital overdrafts, which are subject to an insignificant risk of changes in value. Bank overdrafts are included under borrowings in the statement of financial position. 2.14 Bank borrowings Interest-bearing bank loans and overdrafts are initially measured at fair value, net of transaction costs incurred, and subsequently measured at amortised cost using the effective interest rate method. 2.15 Trade payables Trade payables are initially measured at fair value and subsequently measured at amortised cost, using the effective interest rate method. Trade payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. 2.16 Derivative financial instruments and hedging Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument and if so, the nature of the item being hedged. Certain derivatives do not qualify for hedge accounting. In these cases, changes in the fair value of all derivative instruments are recognised immediately in the income statement. 2.17 Share capital Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. When share capital is repurchased, the amount of consideration paid, including directly attributable costs, is recognised as a charge to equity. Repurchased shares which are not cancelled, or shares purchased for the Employee Benefit Trust, are classified as treasury shares and presented as a deduction from total equity. 2.18 Taxation The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income tax levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. 96 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 20172.19 Pension obligations The Group operates both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors, such as age, years of service and compensation. The asset or liability recognised in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the reporting date less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows. The defined benefit scheme charge consists of net interest costs, past service costs and the impact of any settlements or curtailments and is charged as an expense as they fall due. All actuarial gains and losses are recognised immediately in other comprehensive income in the period in which they arise. The Group also operates a defined contribution Group Personal Pension Plan for new entrants and a number of defined contribution individual pension plans. Contributions in respect of defined contribution pension schemes are charged to the income statement when they are payable. The Group has no further payment obligations once the contributions have been paid. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. The net defined benefit cost is allocated amongst participating Group subsidiaries on the basis of pensionable salaries. 2.20 Share-based payments The Group operates equity-settled share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. All equity-settled share-based payments are measured at fair value at the date of grant. Fair value is predominantly measured by use of the Actuarial Binomial option pricing model. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period. Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At the end of each reporting period, the Group revises its estimate of the number of options that are expected to vest based on the non-market vesting conditions. It recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity. Any cash proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised. 2.21 Employee Benefit Trust and Savills Rabbi Trust The Company has established the Savills plc 1992 Employee Benefit Trust (the ‘EBT’) and the Savills Rabbi Trust (the ‘Rabbi Trust’), the purposes of which are to grant awards to employees, to acquire shares in the Company pursuant to the Savills Deferred Share Bonus Plan and the Savills Deferred Share Plan and to hold shares in the Company for subsequent transfer to employees on the vesting of the awards granted under the schemes. The assets and liabilities of the EBT and Rabbi Trust are included in the Group statement of financial position. Investments in the Group’s own shares are shown as a deduction from equity. 2.22 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of a past event, it is probable that the Group will be required to settle that obligation and the amount has been reliably estimated. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the reporting date and are discounted to present value where the effect is material. (a) Professional indemnity claims Provisions on professional indemnity claims are recognised when it is probable that the Group will be required to settle claims against it as a result of a past event and the amount of the obligation can be reliably estimated. The Group recognises a provision up to the limit of its self-insured liabilities in respect of any claim, with the excess of any self-insured element settled by professional indemnity insurance cover. The professional indemnity insurance cover is spread across a panel of insurers so that it is highly unlikely that the Group would be liable for any settlement in excess of the self-insured element of any given claim. As a result, the amount of the claim in excess of the self-insured element is not included in the professional indemnity claims provision. Savills plc Report and Accounts 2017 97 Financial statementsGovernance Strategic reportOverview2. Accounting policies continued (b) Dilapidation provisions The Group is required to perform dilapidation repairs and restore properties to agreed specifications on leased properties prior to the properties being vacated at the end of their lease term. Provision for such cost is made where a legal obligation is identified and the liability can be reasonably quantified. (c) Onerous leases A provision is recognised where the costs of meeting the obligations under a lease contract exceed the economic benefits expected to be received and is measured as the net least cost of exiting the contract, being the lower of the cost of fulfilling it and any compensation or penalties arising from the failure to fulfil it. (d) Restructuring provision A provision is recognised when there is a present constructive obligation to meet the costs of restructure. This arises when there is a detailed formal plan for the restructuring, identifying at least the business or part of the business concerned, principal locations affected and the location, function and approximate number of employees to be compensated for terminating their services and when the plan has been communicated to those affected by it, raising an expectation that the plan will be carried out. 2.23 Revenue Revenue comprises the fair value of the consideration received or receivable for the provision of services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax and amounts due to third parties and after elimination of revenue within the Group. (a) Residential transactional fees Generally, where contracts are unconditional, revenue is recognised on exchange of contracts. However, for new home developments revenue is recognised on a staged basis, following the terms of the contract, to reflect the Group’s obligations to find a buyer and to further support the client after exchange of contracts through to completion of the build and contract, which can be a number of years later. For these developments, revenue recognition commences when the underlying contracts are exchanged, with total revenue from the contract recognised by the date of completion. (b) Commercial transactional fees Generally, revenue is recognised on the date of completion or when unconditional contracts have been exchanged. (c) Property consultancy Revenue in respect of property consultancy represents commissions and fees recognised on a time basis, fixed fee or percentage of completion. Percentage of completion is principally measured by the proportion of actual costs incurred in relation to the best estimate of total costs expected for completion of the contract. (d) Property and facilities management Revenue represents fees earned for managing properties and providing facilities and is generally recognised in the period the services are provided using a straight-line basis over the term of the contract. (e) Investment management Revenue represents commissions and fees receivable, net of marketing costs in accordance with the relevant fee agreements. Annual management fees are recognised, gross of costs, in the period to which the service has been provided, in accordance with the contracted fee agreements. Transaction fees are recognised on the date of completion of a purchase or sale transaction. Distribution fees are recognised on the completion of a signed subscription agreement and performance fees are recognised as earned and when approved by the fund. (f) Work in progress Work in progress generally relates to consultancy revenue and is stated at the lower of cost and net realisable value. Cost includes an appropriate proportion of overheads. (g) Interest income Interest income is recognised on a time-proportion basis using the effective interest method. (h) Dividend income Dividend income is recognised when the right to receive payment is established. (i) Other income Other income includes interest and dividend income on available-for-sale investments plus fair value gains and losses on assets at fair value through profit or loss. 98 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 20172.24 Leases Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance lease assets are initially recognised at an amount equal to the lower of their fair value and the present value of the minimum lease payments at inception of the lease. The assets are then depreciated over the lower of the lease terms or the estimated useful lives of the assets. The capital elements of future obligations under finance leases are included as liabilities in the statement of financial position. Leasing payments comprise capital and finance elements and the finance element is charged to the income statement. The annual payments under all other lease agreements (operating leases) are charged to the income statement on a straight-line basis over the lease term. Benefits received and receivable as an incentive to enter into the operating lease are also spread on a straight-line basis over the lease term. A lease is classified as onerous where the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. 2.25 Dividends Dividend distributions are recognised as a liability in the Group’s financial statements in the period in which they are approved by the Company’s shareholders. Interim dividends are recognised when paid. 2.26 Adoption of standards, amendments and interpretations to standards Standards, amendments and interpretations endorsed by the EU and mandatorily effective for the first time for the financial year beginning 1 January 2017 that are not relevant or considered to have a significant impact on the Group and its financial statements include the following: Amendments to IAS 7 Amendments to IAS 12 Disclosure Initiative Recognition of Deferred Tax Assets for Unrealised Losses The following standards and amendments to published standards are mandatory for accounting periods beginning on or after 1 January 2018, and have not been early adopted: • • • IFRS 15, ‘Revenue from contracts with customers’ (‘IFRS 15’), including amendments, is effective for accounting periods beginning on or after 1 January 2018. The standard establishes a principles based approach for revenue recognition and is based on the concept of recognising revenue for obligations only when they are satisfied and the control of goods or services is transferred. It applies to all contracts with customers, except those in the scope of other standards. It replaces the separate models for goods, services and construction contracts under the current accounting standards. The implementation of IFRS 15 will result in some refinement in the timing of recognition of investment management performance fees and the amortisation period for contract costs however the impact of this refinement is not material. IFRS 9, ‘Financial instruments’, including amendments, effective for accounting periods beginning on or after 1 January 2018. This standard addresses the classification, measurement and recognition of financial assets and financial liabilities. It replaces the guidance in IAS 39 that relates to the classification and measurement of financial instruments. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through other comprehensive income and fair value through profit and loss. The basis of classification depends on the entity’s business model and the contractual cash flow characteristics of the financial asset. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. The Group’s available-for-sale investments will be renamed in accordance with IFRS 9, with the only change in accounting treatment being that fair value re-measurements in reserves will not be recycled to the income statement upon disposal of the investment. Otherwise, the application of IFRS 9 will not have a material impact on the amounts reported in the Group’s consolidated financial statements. IFRS 16, ‘Leases’, effective for the accounting periods beginning on or after 1 January 2019. The standard addresses the classification, measurement and recognition of leases with the objective of ensuring that lessees and lessors provide relevant information that faithfully represents those transactions. The standard supersedes IAS 17 ‘Leases’. The standard is expected to have a significant impact on the consolidated financial statements of the Group. On adoption, lease agreements will give rise to both a right of use asset and a lease liability for future lease payables. Depreciation of the right of use asset will be recognised in the income statement on a straight-line basis, with interest recognised on the lease liability. This will result in a change to the profile of the net charge taken to the income statement over the life of the lease. These charges will replace the lease costs currently charged to the income statement. The Group continues to assess the full impact of IFRS 16, however, the impact will greatly depend on the facts and circumstances at the time of adoption and upon transition choices adopted. It is therefore not yet practicable to provide a reliable estimate of the financial impact on the Group’s consolidated results. Other standards, amendments and interpretations not yet effective and not discussed above are not relevant or considered significant to the Group. Savills plc Report and Accounts 2017 99 Financial statementsGovernance Strategic reportOverview3. Financial risk management 3.1 Financial risk factors The Group’s activities expose it to a variety of financial risks. The Group has in place a risk management programme that seeks to limit the adverse effects on the financial performance of the Group. The Group uses financial instruments to manage material foreign currency and interest rate risk. The treasury function is responsible for implementing risk management policies applied by the Group and has a policy and procedures manual that sets out specific guidelines on financial risks and the use of financial instruments to manage these. 3.2 Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risks primarily with respect to the euro, Hong Kong dollar and US dollar. Foreign exchange risk arises from future commercial transactions, recognised assets and liabilities and net investments in foreign operations. When there is a material committed foreign currency exposure the foreign exchange risk will be hedged. The Group may finance some overseas investments through the use of foreign currency borrowings. The Group does not actively seek to hedge risks arising from foreign currency translations due to their non-cash nature and the high costs associated with such hedging. The sensitivity analysis has been prepared for the major currencies to which the Group is exposed. Recent historical movements in these currencies has been considered and it has been concluded that a 5–10% movement in rates is a reasonable benchmark. For the years ended 31 December, if the average currency conversion rates against sterling for the year had changed with all other variables held constant, the Group post-tax profit for the year would have increased or decreased as shown below: Movement of currency against sterling -10.0% -5.0% +5.0% +10.0% (1.0) (1.5) 0.9 1.0 (12.3) (12.1) (1.3) (0.5) 0.8 1.1 (13.7) (11.4) (0.5) (0.8) 0.5 0.5 (6.5) (6.3) (0.7) (0.3) 0.4 0.5 (7.2) (6.0) 0.6 0.9 (0.5) (0.6) 7.1 7.0 0.7 0.3 (0.4) (0.6) 7.9 6.6 1.2 1.8 (1.1) (1.2) 15.1 14.8 1.5 0.6 (0.9) (1.3) 16.7 13.9 £m 2017 Estimated impact on post-tax profit Euro Hong Kong dollar US dollar Estimated impact on components of equity Euro Hong Kong dollar US dollar 2016 Estimated impact on post-tax profit Euro Hong Kong dollar US dollar Estimated impact on components of equity Euro Hong Kong dollar US dollar 100 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 20173.3 Interest rate risk The Group has both interest-bearing assets and liabilities. The Group finances its operations through a mixture of retained profits and bank borrowings, at both fixed and floating interest rates. Borrowings issued at variable rates expose the Group cash flow to interest rate risk, which is partially offset by cash held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. Group policy is to maintain at least 70% of its borrowings in fixed rate instruments. For the year ended 31 December 2017, if the average interest rate for the year had changed with all other variables held constant, the Group’s post-tax profit for the year and equity would have increased or decreased as shown below: £m 2017 Estimated impact on post-tax profit and equity 2016 Estimated impact on post-tax profit and equity £m 2017 Increase in interest rates +0.5% +1.0% +1.5% +2.0% 0.3 0.4 0.6 0.8 1.0 1.2 1.4 1.6 Decrease in interest rates -0.5% -1.0% -1.5% -2.0% Estimated impact on post-tax profit and equity (0.5) (0.9) (0.9) (0.6) 2016 Estimated impact on post-tax profit and equity (0.5) (0.5) (0.2) (0.2) The rationale behind the 2.0% sensitivity analysis is based upon historic trends in interest rate movements and the short-term expectation that any increase or decrease greater than 2.0% is unlikely to occur. 3.4 Credit risk Credit risk arises from cash and cash equivalents, available-for-sale investments, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to clients, including outstanding receivables and committed transactions. The Group has policies that require appropriate credit checks on potential customers before engaging with them. A risk control framework is used to assess the credit quality of clients, taking into account financial position, past experience and other factors. Individual risk limits for banks and financial institutions are set based on external ratings and in accordance with limits set by the Board. The utilisation of credit limits is regularly monitored. As at the reporting date, no significant credit risk existed in relation to banking counterparties. No credit limits were exceeded during the reporting year, and management does not expect any losses from non-performance by these counterparties. There were no other significant receivables or individual trade receivable balances as at 31 December 2017. Refer to Note 19 for information on the credit quality of trade receivables and the maximum exposure to credit risk arising on outstanding receivables from clients. The table below shows Group cash balances split by counterparty ratings at the reporting date: Counterparty rating (provided by S&P) AA- A+ A A- BBB+ or below Total 2017 £m 24.7 30.2 96.6 16.6 40.7 208.8 2016 £m 23.1 65.1 101.7 13.7 20.0 223.6 Savills plc Report and Accounts 2017 101 Financial statementsGovernance Strategic reportOverview3. Financial risk management continued 3.5 Liquidity risk The Group maintains appropriate committed facilities to ensure the Group has sufficient funds available for operations and expansion. The Group prepares an annual funding plan approved by the Board which sets out the Group’s expected financing requirements for the next 12 months. Management monitors rolling forecasts of the Group’s liquidity reserve comprising undrawn borrowing facilities (Note 22) and cash and cash equivalents (Note 20) on the basis of expected cash flow. This is carried out at local level in the operating companies of the Group in accordance with Group practice as well as on a Group consolidated basis. The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities into relevant maturity groupings based on the remaining period from the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. £m 2017 Borrowings Finance leases Derivative financial instruments Trade and other payables 2016 Borrowings Derivative financial instruments Trade and other payables Less than a year 1 and 2 years 2 and 5 years Over 5 years Between Between 110.1 – 0.1 538.0 648.2 35.8 0.3 497.8 533.9 – 0.1 – 13.9 14.0 – – 18.6 18.6 – – – 18.6 18.6 – – 24.2 24.2 – – – 5.2 5.2 – – 2.1 2.1 3.6 Capital risk management The Group’s objectives when managing capital are: • to safeguard the Group’s ability to provide returns for shareholders and benefits for other stakeholders; and • to maintain an optimal capital structure to reduce the cost of capital. The Group’s overall strategy remains unchanged from 2016. Savills plc is not subject to any externally-imposed capital requirements, with the exception of its regulated entities within the Savills Investment Management group and its FCA (Financial Conduct Authority) regulated entity, Savills Capital Advisors Ltd, in the UK. All regulated entities complied with the relevant capital requirements during the year ended 31 December 2017. The Savills Investment Management group has regulated entities in the UK, Jersey, Luxembourg, Germany, Italy, Japan, Singapore, Hong Kong and the US. For more information on Savills Investment Management group’s regulated entities and regulatory requirements, please visit www.savillsim.com. In order to maintain an optimal capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Board has put in place a distribution policy which takes into account the degree of maintainability of the Group’s different profit streams and the Group’s overall exposure to cyclical Transaction Advisory profits, as well as the requirement to maintain a certain level of cash resources for working capital and corporate development purposes. The Board will recommend an ordinary dividend broadly reflecting the profits derived from the Group’s less volatile businesses. In addition, when profits from the cyclical Transaction Advisory business are strong, the Board will consider and, if appropriate, recommend the payment of a supplemental dividend alongside the final ordinary dividend. The value of any such supplemental dividend will vary depending on the performance of the Group’s Transaction Advisory business and the Group’s anticipated working capital and corporate development requirements through the cycle. It is intended that, in normal circumstances, the combined value of the ordinary and supplemental dividends declared in respect of any year are covered at least 1.5 times by statutory retained earnings and/or at least 2.0 times by underlying profits after taxation. The Group complied with this policy throughout the year. 102 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017The Group’s policy is to borrow centrally, if required, to meet anticipated funding requirements. These borrowings, together with cash generated from operations, are then on-lent or contributed as equity to certain subsidiaries. The Board of Directors monitors a number of debt measures on a rolling forward 12-month basis including: gross cash by location; gross debt by location; cash subject to restrictions; total debt servicing cost to operating profit; gross borrowings as a percentage of EBITDA (earnings before interest, tax, depreciation and amortisation); and forecast headroom against available facilities. These internal measures indicate the levels of debt that the Group has and are closely monitored to ensure compliance with banking covenants and to confirm that the Group has sufficient unused facilities. The Group complied with all banking covenants throughout the year and met all internal counterparty exposure limits set by the Board. The capital structure is as follows: £m Equity Cash and cash equivalents Bank overdrafts Borrowings Net cash 3.7 Categories of financial instruments Financial assets: Available-for-sale investments Trade and other receivables Derivative financial instruments Cash and cash equivalents Total financial assets Financial liabilities: Borrowings Trade and other payables Derivative financial instruments Total financial liabilities Group Company 2017 441.7 208.8 (3.6) (106.6) 98.6 2016 407.0 223.6 (0.2) (35.6) 187.8 2017 216.7 90.8 – – 2016 205.0 88.3 – – 90.8 88.3 Available- for-sale financial assets 2017 £m Loans and receivables 2017 £m Financial asset at fair value 2017 £m Total carrying amount 2017 £m Financial asset at fair value 2016 £m Available- for-sale financial assets 2016 £m Loans and receivables 2016 £m – – 0.5 – 0.5 24.6 – – – 24.6 – 440.0 – 208.8 648.8 24.6 440.0 0.5 208.8 673.9 – – 0.2 – 0.2 20.8 – – – 20.8 – 363.0 – 223.6 586.6 Total carrying amount 2016 £m 20.8 363.0 0.2 223.6 607.6 Financial liabilities at fair value 2017 £m Financial liabilities at amortised cost 2017 £m Total carrying amount 2017 £m Financial liabilities at fair value 2016 £m Financial liabilities at amortised cost 2016 £m Total carrying amount 2016 £m – – 0.1 0.1 110.2 573.6 – 110.2 573.6 0.1 683.8 683.9 – – 0.3 0.3 35.8 542.7 – 35.8 542.7 0.3 578.5 578.8 Savills plc Report and Accounts 2017 103 Financial statementsGovernance Strategic reportOverview3. Financial risk management continued 3.8 Fair value estimation The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December 2017: £m 2017 Assets Available-for-sale investments – Unlisted Derivative financial instruments Total assets Liabilities Derivative financial instruments Total liabilities Level 1 Level 2 Level 3 Total – – – – – 24.6 0.5 25.1 0.1 0.1 – – – – – 24.6 0.5 25.1 0.1 0.1 The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December 2016: £m 2016 Assets Available-for-sale investments – Unlisted Derivative financial instruments Total assets Liabilities Derivative financial instruments Total liabilities Level 1 Level 2 Level 3 Total – – – – – 20.8 0.2 21.0 0.3 0.3 – – – – – 20.8 0.2 21.0 0.3 0.3 Level 1 instruments are those whose fair values are based on quoted market prices. The Group has no Level 1 instruments. The fair value of unlisted available-for-sale investments is determined using valuation techniques using observable market data where available and rely as little as possible on entity estimates. The fair value of investment funds is based on underlying asset values determined by the Fund Manager’s audited annual financial statements. The fair value of other unlisted investments is based on price earnings models. These instruments are included in Level 2. The fair value of derivative financial instruments is determined by using valuation techniques using observable market data. The fair value of derivative financial instruments is based on the market value of similar instruments with similar maturities. These instruments are included in Level 2. If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. The Group has no Level 3 instruments. 104 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 20174. Offsetting financial assets and financial liabilities The table below shows the amounts of financial assets and financial liabilities before and after offsetting. The amounts offset in the balance sheet were established in accordance with IAS 32. The assets and liabilities offset stem from the multi-currency cash pooling implemented within the Group. £m As at 31 December 2017 Assets Cash and cash equivalents Liabilities Bank overdrafts As at 31 December 2016 Assets Cash and cash equivalents Liabilities Bank overdrafts Gross financial assets/ (liabilities) Amounts offset in the balance sheet Net amount in the balance sheet 371.1 (162.3) 208.8 (165.9) 162.3 (3.6) 375.7 (152.1) 223.6 (152.3) 152.1 (0.2) 5. Critical accounting estimates and management judgements 5.1 Accounting estimates Estimates are continually evaluated and are based on historical experience, current market conditions and other factors including expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Changes in accounting estimates may be necessary if there are changes in circumstances on which the estimate was based, or as a result of new information or more experience. The estimates that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. (a) Pension benefits The present value of the defined benefit pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions including the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. The Group determines the appropriate discount rate at the end of each year. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability. Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in Note 10.2. (b) Income taxes The Group is subject to income taxes in numerous jurisdictions. Judgement is required in determining the provision for income taxes. There are transactions and calculations for which the ultimate tax determination is uncertain. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. (c) Deferred taxes The recognition of deferred tax assets is based upon whether it is probable that sufficient and suitable taxable profits will be available in the future, against which the reversal of temporary differences can be deducted. Recognition, therefore, involves judgement regarding the future financial performance of the particular legal entity or tax group in which the deferred tax asset has been recognised, especially with regard to the extent that future taxable profits will be available against which losses can be utilised. (d) Valuation of intangible assets and useful life The Group has made assumptions in relation to the potential future cash flows to be determined from separable intangible assets acquired as part of business combinations. This assessment involves assumptions relating to potential future revenues, appropriate discount rates and the useful life of such assets. These assumptions impact the income statement over the useful life of the intangible asset. (e) Provisions The Group and its subsidiaries are party to various legal claims. Provisions made within these financial statements and further details are contained in Note 24.1. Additional claims could be made which might not be covered by existing provisions or by insurance as detailed in Note 28. 5.2 Management judgements In the course of preparing the financial statements, no judgements have been made in the process of applying the Group’s accounting policies, other than those involving estimations, that have had a significant effect on the amounts recognised in the financial statements. Savills plc Report and Accounts 2017 105 Financial statementsGovernance Strategic reportOverview6. Segment analysis Operating segments reflect internal management reporting to the Group’s chief operating decision maker, defined as the Group Executive Board (GEB). The operating segments are determined based on differences in the nature of their services. Geographical location also strongly affects the Group and both are therefore disclosed. The reportable operating segments derive their revenue primarily from property-related services. Refer to the Group overview on page 3 and the segmental reviews on pages 18 to 21 for further information on revenue sources. Operations are based in four main geographical areas. The UK is the home of the parent Company with segment operations throughout the region. Asia Pacific segment operations are based in Hong Kong, Macau, China, South Korea, Japan, Taiwan, Thailand, Singapore, Vietnam, Australia, Indonesia, Malaysia and Myanmar. Continental Europe segment operations are based in Germany, France, Spain, the Netherlands, Belgium, Sweden, Italy, Ireland, Poland and Czech Republic. North America segment operations are based in a number of states throughout the US and in Canada. The sales location of the client is not materially different from the location where fees are received and where the segment assets are located. Within the UK, both commercial and residential services are provided. Other geographical areas, although largely commercial-based, also provide residential services, in particular Hong Kong, China, Vietnam, Singapore, Australia, Taiwan and Thailand. The GEB assesses the performance of operating segments based on a measure of underlying profit before tax which adjusts reported pre-tax profit by profit/(loss) on disposals, share-based payment adjustment, significant restructuring costs, acquisition-related costs, amortisation of acquired intangible assets (excluding software) and impairments. Segmental assets and liabilities are not measured or reported to the GEB, but non-current assets are disclosed geographically on page 107. The segment information provided to the GEB for revenue and underlying profit for the year ended 31 December 2017 is as follows: 2017 Revenue United Kingdom – commercial – residential Total United Kingdom Continental Europe Asia Pacific – commercial – residential Total Asia Pacific* North America Revenue Underlying profit/(loss) before tax United Kingdom – commercial – residential Total United Kingdom Continental Europe Asia Pacific – commercial – residential Total Asia Pacific North America Underlying profit/(loss) before tax** Transaction Advisory £m Consultancy £m Property and Facilities Management £m Investment Management £m Other £m Total £m 101.6 128.9 230.5 78.2 168.4 44.3 212.7 224.8 746.2 17.2 18.7 35.9 4.5 26.9 6.4 33.3 7.8 81.5 160.2 44.7 204.9 22.5 45.7 – 45.7 – 273.1 17.1 6.8 23.9 2.0 5.1 – 5.1 – 31.0 135.1 30.7 165.8 46.4 300.9 – 300.9 – 513.1 9.0 2.7 11.7 (1.8) 15.4 – 15.4 – 25.3 24.8 – 24.8 35.3 6.4 – 6.4 – 66.5 5.0 – 5.0 6.5 1.8 – 1.8 – 1.1 – 1.1 – – – – – 422.8 204.3 627.1 182.4 521.4 44.3 565.7 224.8 1.1 1,600.0 (10.6) – (10.6) – – – – – 37.7 28.2 65.9 11.2 49.2 6.4 55.6 7.8 13.3 (10.6) 140.5 106 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017The segment information provided to the GEB for revenue and underlying profit for the year ended 31 December 2016 is as follows: 2016 Revenue United Kingdom – commercial – residential Total United Kingdom Continental Europe Asia Pacific – commercial – residential Total Asia Pacific* North America Revenue Underlying profit/(loss) before tax United Kingdom – commercial – residential Total United Kingdom Continental Europe Asia Pacific – commercial – residential Total Asia Pacific North America Underlying profit/(loss) before tax** Transaction Advisory £m Consultancy £m Property and Facilities Management £m Investment Management £m Other £m Total £m 86.0 124.4 210.4 71.5 129.7 38.1 167.8 211.1 660.8 14.7 17.5 32.2 5.0 20.6 3.3 23.9 18.9 80.0 145.3 37.8 183.1 19.3 37.9 – 37.9 – 240.3 16.3 5.9 22.2 1.3 2.4 – 2.4 – 25.9 130.4 28.5 158.9 40.1 273.8 – 273.8 – 472.8 8.7 2.6 11.3 (2.2) 14.5 – 14.5 – 23.6 25.9 – 25.9 39.7 6.4 – 6.4 – 72.0 6.4 – 6.4 9.4 1.8 – 1.8 – – – – – – – – – – (11.3) – (11.3) – – – – – 387.6 190.7 578.3 170.6 447.8 38.1 485.9 211.1 1,445.9 34.8 26.0 60.8 13.5 39.3 3.3 42.6 18.9 17.6 (11.3) 135.8 * Revenues of £243.7m (2016: £204.7m) are attributable to the Hong Kong and Macau region. ** Transaction Advisory underlying profit before tax includes depreciation of £6.6m (2016: £5.7m), software amortisation of £0.8m (2016: £0.8m) and share of post-tax profit from joint ventures and associates of £2.2m (2016: £2.3m). Consultancy underlying profit before tax includes depreciation of £2.0m (2016: £2.0m), software amortisation of £0.4m (2016: £0.5m) and share of post- tax loss from joint ventures and associates of £nil (2016: £.01m profit). Property and Facilities Management underlying profit before tax includes depreciation of £3.4m (2016: £3.4m), software amortisation of £1.3m (2016: £0.7m) and share of post-tax profit from joint ventures and associates of £7.7m (2016: £6.3m). Investment Management underlying profit before tax includes depreciation of £0.4m (2016: £0.4m) and software amortisation of £0.4m (2016: £0.5m). Included in Other underlying loss is depreciation of £1.1m (2016: £1.2m), software amortisation of £0.3m (2016: £0.4m) and share of post-tax loss from joint ventures and associates of £nil (2016: £0.1m). The Other segment includes costs and other expenses at holding company and subsidiary levels, which are not directly attributable to the operating activities of the Group’s business segments. A reconciliation of underlying profit before tax to profit before tax is provided in Note 8. Inter-segmental revenue is not material. No single customer contributed 10% or more to the Group’s revenue for both 2017 and 2016. Non-current assets by geography are set out below: Non-current assets United Kingdom Continental Europe Asia Pacific North America Total non-current assets 2017 £m 2016 £m 131.1 96.7 87.6 169.8 485.2 125.3 45.1 87.4 169.7 427.5 Non-current assets include goodwill and intangible assets, plant, property and equipment, investments in joint ventures and associates and retirement benefits. Available-for-sale investments, non-current receivables and deferred tax assets are not included. Savills plc Report and Accounts 2017 107 Financial statementsGovernance Strategic reportOverview7. Operating profit 7.1 Operating profit Operating profit is stated after charging/(crediting): – Net foreign exchange losses/(gains) (excluding net losses on forward foreign exchange contracts) – Net loss on forward foreign exchange contracts – Provision for receivables impairment – Restructuring costs* – Acquisition-related costs** – Operating lease costs – Other income – dividend and investment income Group 2017 £m 0.3 0.2 7.2 7.7 21.3 54.6 (0.9) 2016 £m (1.4) – 7.2 5.8 28.7 48.9 (2.5) * Restructuring costs include staff related costs of £5.1m (2016: £3.7m) and an onerous lease charge of £2.3m (2016: £nil) arising from integration activities in relation to the acquisitions of Smiths Gore and GBR Phoenix Beard in the UK and Savills Investment Management’s acquisition of SEB. ** Refer to Note 8 for a further breakdown of acquisition-related costs. 7.2 Fees payable to the Company’s auditors, PricewaterhouseCoopers LLP, and its associates Audit services Fees payable to the Company’s auditors for the audit of parent Company Fees payable to the Company’s auditors for the audit of the Company’s subsidiaries Taxation advisory services Audit-related assurance services Other assurance services Total Group 2017 £m 0.2 1.6 1.8 – 0.2 0.6 0.8 2.6 2016 £m 0.2 1.4 1.6 0.2 0.1 0.3 0.6 2.2 108 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 20178. Underlying profit before tax Statutory profit before tax Adjustments: Amortisation of acquired intangible assets (excluding software) Impairment of goodwill Share-based payment adjustment Net profit on disposal of available-for-sale investments and joint ventures Restructuring costs Acquisition-related costs Underlying profit before tax 2017 £m 112.4 3.9 2.3 (1.2) (5.9) 7.7 21.3 140.5 2016 £m 99.8 4.0 – (2.4) (0.1) 5.8 28.7 135.8 The adjustment for share-based payments relates to the impact of the accounting standard for share-based compensation. The annual bonus is paid in a mixture of cash and deferred shares and the proportions can vary from one year to another. Under IFRS, the deferred share element is amortised to the income statement over the vesting period whilst the cash element is expensed in the year. The adjustment above addresses this by adding to or deducting from profit the difference between the IFRS 2 charge in relation to outstanding bonus- related share awards and the estimated value of the current year bonus pool to be awarded in deferred shares. This adjustment is made to align the underlying staff cost in the year with the revenue recognised in the same period. An impairment charge of £2.3m was recognised in the year relating to the goodwill of the Group’s Swedish property management business. Refer to Note 15 for further details. Profit on disposal includes profits recognised in relation to the disposals of the Group’s available-for-sale investments, SPF Private Clients Limited (£5.3m) and Cordea Savills German Retail Fund (£0.6m). Restructuring costs includes costs of integration activities in relation to recent significant business acquisitions (primarily GBR Phoenix Beard and Smiths Gore in the UK and Savills Investment Management’s acquisition of SEB). Acquisition-related costs include £10.2m of provisions for the future payments in relation to the acquisition of Studley, Inc. which are expensed through the income statement to reflect the requirement for the recipients to remain actively engaged in the business at the payment date. Acquisition-related costs also include £1.4m for payments in relation to Savills Investment Management’s acquisition of Merchant Capital (Japan) in May 2014, £2.1m of transaction related costs (primarily Aguirre Newman and Larry Smith) and £7.6m of provisions for future payments relating to acquisitions in the UK (primarily GBR Phoenix Beard and Smiths Gore) and North America. Savills plc Report and Accounts 2017 109 Financial statementsGovernance Strategic reportOverview2016 £m 7.7 5.9 13.6 1.9 0.4 2.4 18.3 2016 122 – – – 9. Employees 9.1 Employee benefits expense Basic salaries and wages Profit share and commissions Wages and salaries Social security costs Other pension costs Share-based payments 9.2 Staff numbers The monthly average number of employees (including Directors) for the year was: Group Company 2017 £m 530.5 426.7 957.2 63.0 27.0 14.5 1,061.7 2016 £m 497.6 360.8 858.4 58.5 23.2 13.4 953.5 2017 £m 8.2 5.8 14.0 2.0 0.3 2.4 18.7 Group Company United Kingdom Continental Europe Asia Pacific North America 2017 5,554 1,206 26,894 775 34,429 2016 5,136 1,103 25,446 676 32,361 2017 125 – – – 125 122 The average number of UK employees (including Directors) during the year included 96 employed under fixed-term and temporary contracts (2016: 139). 9.3 Key management compensation Key management – Short-term employee benefits – Post-employment benefits – Share-based payments Group 2017 £m 28.0 0.2 3.3 31.5 2016 £m 20.1 0.2 3.3 23.6 The key management of the Group for the year ended 31 December 2017 comprised Executive Directors and the GEB members. Details of Directors’ remuneration is contained in the Remuneration report on pages 58 to 73. During the year seven (2016: five) GEB members made aggregate gains totalling £3.5m (2016: £1.2m) on the exercise of options under PSP, DSP and DSBP schemes (2016: DSBP schemes). Retirement benefits under the defined benefit scheme are accruing for three (2016: three) GEB members and benefits are accruing under a defined contribution scheme in Hong Kong for two (2016: two) GEB members. 110 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 201710. Pension schemes 10.1 Defined contribution plans The Group operates the Savills UK Group Personal Pension Plan, a defined contribution scheme, a number of defined contribution individual pension plans and a Mandatory Provident Fund Scheme in Hong Kong, to which it contributes. The total pension charges in respect of these plans were £26.9m (2016: £23.0m). The amount outstanding as at 31 December 2017 in relation to defined contribution schemes is £1.9m (2016: £1.5m). 10.2 Defined benefit plan The Group operates two defined benefit plans. The Pension Plan of Savills (the ‘UK Plan’) is a UK-based plan which provided final salary pension benefits to some employees, but was closed with regard to future service-based benefit accrual with effect from 31 March 2010. From 1 April 2010, pension benefits for former employees of the UK Plan are provided through the Group’s defined contribution Personal Pension Plan. The UK Plan is administered by a separate Trust that is legally separated from the Company. The board of the pension fund is composed of six trustees. The board of the pension fund is required by law and by its Article of Association to act in the interest of the fund and of all relevant stakeholders in the scheme. The board of the pension fund is responsible for the investment policy with regard to the assets of the fund. The contributions are determined by an independent qualified actuary on the basis of triennial valuations. A full actuarial valuation of the UK Plan was carried out as at 31 March 2016 and has been updated to 31 December 2017 by a qualified independent actuary. The Savills Fund Management GMBH Plan (the ‘SFM Plan’) is a Germany-based plan which provides final salary benefits to 17 active employees and 97 former employees. The plan is closed to future service-based benefit accrual. The SFM Plan is administered by an external Trust that is legally separated from the Company. The Trust Agreement requires the trustee to maintain the plan assets in the interest of the beneficiaries of the plan and to fulfil their pension entitlements in the event of insolvency to the extent of the plan assets held. The Investment Committee of the fund, advised by expert investment managers, is responsible for the investment policy with regards to the assets of the fund. The contributions are determined based on the annual valuations of an independent qualified actuary. A full actuarial valuation of the SFM Plan was carried out as at 31 December 2017 by a qualified independent actuary. The table below outlines the Group’s and Company’s defined benefit pension amounts in relation to the UK Plan: Liability in the statement of financial position Net interest cost included in finance costs Actuarial (gain)/loss included in other comprehensive income Group Company 2017 £m 19.5 1.0 (13.3) 2016 £m 40.8 0.4 33.6 2017 £m 1.1 – (0.7) The amounts recognised in the statement of financial position in relation to the UK Plan are as follows: Present value of funded obligations Fair value of plan assets Liability recognised in the statement of financial position Group Company 2017 £m 298.2 (278.7) 19.5 2016 £m 298.4 (257.6) 40.8 2017 £m 16.5 (15.4) 1.1 2016 £m 2.3 – 1.9 2016 £m 16.5 (14.2) 2.3 Savills plc Report and Accounts 2017 111 Financial statementsGovernance Strategic reportOverview10. Pension schemes continued 10.2 Defined benefit plan continued The movement in the defined benefit obligation for the UK Plan over the year is as follows: At 1 January 2017 Interest expense/(income) Remeasurements: – Return on plan assets, excluding amounts included in interest income – Loss from change in financial assumptions – Gain from change in demographic assumptions – Experience losses Employer contributions Benefit payments At 31 December 2017 At 1 January 2016 Interest expense/(income) Remeasurements: – Return on plan assets, excluding amounts included in interest income – Loss from change in financial assumptions – Gain from change in demographic assumptions – Experience losses Employer contributions Benefit payments At 31 December 2016 Present value of obligation £m 298.4 7.8 Group Fair value of plan assets £m (257.6) (6.8) Present value of obligation £m 16.5 0.4 Total £m 40.8 1.0 Company Fair value of plan assets £m (14.2) (0.4) – 10.2 – (0.2) – (18.0) 298.2 (23.3) – – – (9.0) 18.0 (278.7) (23.3) 10.2 – (0.2) (9.0) – 19.5 – 0.6 – – – (1.0) 16.5 (1.3) – – – (0.5) 1.0 (15.4) Present value of obligation £m 225.7 8.3 Group Fair value of plan assets £m (209.9) (7.9) Total £m 15.8 0.4 Present value of obligation £m 12.5 0.4 Company Fair value of plan assets £m (11.6) (0.4) – 65.7 (0.8) 3.7 – (4.2) 298.4 (35.0) – – – (9.0) 4.2 (257.6) (35.0) 65.7 (0.8) 3.7 (9.0) – 40.8 – 3.6 – 0.2 – (0.2) 16.5 The table below outlines the Group’s defined benefit pension amounts in relation to the SFM Plan: (Asset)/liability in the statement of financial position Current service cost included in employee benefits expense Actuarial (gain)/loss included in other comprehensive income (1.9) – – – (0.5) 0.2 (14.2) SFM Plan 2017 £m (1.3) 0.1 (0.8) Total £m 2.3 – (1.3) 0.6 – – (0.5) – 1.1 Total £m 0.9 – (1.9) 3.6 – 0.2 (0.5) – 2.3 2016 £m 0.4 0.2 1.6 Section 5.2 of the SFM Plan Trust Deed provides the Trustor (Savills Fund Management GmbH, Savills Fund Management Holding AG, and Savills Investment Management (Germany) GmbH respectively) with an unconditional right to a refund of surplus assets assuming the full settlement of plan liabilities in the event of a plan wind-up. Furthermore, in the ordinary course of business neither Trustor nor Trustee have any rights to unilaterally wind up, or otherwise augment the benefits due to members of the scheme. Based on these rights, any net surplus in the scheme is recognised in full. The amounts recognised in the statement of financial position in relation to the SFM Plan are as follows: Present value of funded obligations Fair value of plan assets (Asset)/liability recognised in the statement of financial position 112 Savills plc Report and Accounts 2017 SFM Plan 2017 £m 13.9 (15.2) (1.3) 2016 £m 14.4 (14.0) 0.4 Notes to the financial statements continuedYear ended 31 December 2017The movement in the defined benefit liability/(asset) for the SFM Plan over the year is as follows: At 1 January 2017 Current service cost Interest expense/(income) Remeasurements: – Return on plan assets, excluding amounts included in interest income – Gain from change in financial assumptions – Experience gains Transfers Employer contributions Benefit payments Exchange movement At 31 December 2017 At 1 January 2016 Current service cost Interest expense/(income) Remeasurements: – Loss on plan assets, excluding amounts included in interest income – Loss from change in financial assumptions – Experience gains Benefit payments Exchange movement At 31 December 2016 The significant actuarial assumptions were as follows: As at 31 December Expected rate of salary increases Projection of social security contribution ceiling Rate of increase to pensions in payment – Pension promise before 1 January 1986 – Pension promise after 1 January 1986 – accrued before 6 April 1997 – accrued after 5 April 1997 – accrued after 5 April 2005 Rate of increase to pensions in deferment – accrued before 6 April 2001 – accrued after 5 April 2001 – accrued after 5 April 2009 Discount rate Inflation assumption SFM Plan Present value of obligation £m Fair value of plan assets £m Total £m 14.4 0.1 0.3 – (0.5) (0.1) (0.3) – (0.4) 0.4 13.9 (14.0) – (0.3) (0.2) – – 0.3 (0.9) 0.4 (0.5) (15.2) SFM Plan Present value of obligation £m Fair value of plan assets £m 10.9 0.2 0.3 – 1.6 (0.2) (0.3) 1.9 14.4 (12.2) – (0.3) 0.2 – – 0.3 (2.0) (14.0) 0.4 0.1 – (0.2) (0.5) (0.1) – (0.9) – (0.1) (1.3) Total £m (1.3) 0.2 – 0.2 1.6 (0.2) – (0.1) 0.4 SFM Plan UK Plan 2017 2.50% 2.25% 2.25% 1.75% – – – – – – 2016 2.50% 2.25% 2.25% 1.75% – – – – – – 2.06% 1.75% 1.84% 1.75% 2017 3.25% 2016 3.25% – – – 3.00% 3.30% 2.30% 5.00% 2.30% 2.30% 2.50% 3.40% – – – 3.00% 3.40% 2.30% 5.00% 2.40% 2.40% 2.70% 3.50% Savills plc Report and Accounts 2017 113 Financial statementsGovernance Strategic reportOverview10. Pension schemes continued 10.2 Defined benefit plan continued Assumptions regarding future mortality are set based on actuarial advice in accordance with published statistics and experience. These assumptions translate into an average life expectancy in years for a pensioner retiring at age 60: Retiring at the end of the reporting year – Male – Female Retiring 20 years after the end of the reporting year – Male – Female SFM Plan UK Plan 2017 83.9 88.4 86.6 91.0 2016 84.1 88.2 86.5 90.8 2017 88.8 90.3 91.0 92.7 2016 88.7 90.3 90.9 92.7 The sensitivity of the defined benefit obligation to changes in the principal assumptions is: 0.1% increase in discount rates 0.1% increase in inflation rate 0.1% increase in salary increase rate 1 year increase in life expectancy SFM Plan UK Plan Impact on present value of Impact on present value of scheme obligations £m scheme obligations £m (0.2) 0.2 – 0.6 (7.1) 4.0 0.7 11.6 The sensitivity analysis presented above may not be representative of the actual change in the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated. Furthermore, in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as that applied in calculating the defined benefit obligation liability recognised in the statement of financial position. Plan assets are comprised as follows: Equity instruments Investment funds Liability-driven investment (LDI) Bonds Cash and cash equivalents SFM Plan UK Plan 2017 2016 2017 2016 £m – % – £m – % – 15.2 100% 14.0 100% – – – – – – – – – – – – £m 92.4 30.9 82.0 72.6 0.8 % 33% 11% 29% 26% 1% £m 98.1 67.8 15.8 74.9 1.0 % 38% 26% 6% 29% 1% Total 15.2 100% 14.0 100% 278.7 100% 257.6 100% No Plan assets are the Group’s own financial instruments or property occupied or used by the Group. The fair values of the above equity and debt instruments are determined based on quoted market prices in active markets. Although the UK Plan does not invest directly in the Group’s financial instruments, it does invest in passive equity funds, so will have some exposure to FTSE All Share, hence indirectly to the Savills share price. 114 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017Through the defined benefit plans, the Group is exposed to a number of risks, the most significant of which are detailed below: (a) Asset volatility The plan liabilities are calculated using a discount rate set with reference to corporate bond yields; if plan assets underperform this yield, this will create a deficit. The Plan holds a significant proportion of equities and investment funds, which are expected to outperform corporate bonds in the long-term while providing volatility and risk in the short term. (b) Changes in bond yields A decrease in corporate bond yields will increase the Plan’s liabilities, although this will be partially offset by an increase in the value of the Plan’s bond holdings. (c) Inflation risk Higher inflation will lead to higher liabilities. The majority of the Plan’s assets are either unaffected by or are loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit. (d) Life expectancy The majority of the Plan’s obligations are to provide benefits for the life of the member, so increases in life expectancy will result in an increase in the Plan’s liabilities. Expected contributions to post-employment benefit plans for the year ending 31 December 2018 are £9.0m. The Company expects to contribute £0.5m. The weighted average duration of the defined benefit obligation is 22 years for the UK Plan and 18 years for the SFM Plan. Expected maturity analysis of the undiscounted pension benefits: Less than a year £m Between 1–2 years £m Between 2–5 years £m 3.8 0.4 4.6 0.5 16.3 1.4 At 31 December 2017 Pension benefit payments – UK Plan – SFM Plan 11. Finance income and costs Bank interest receivable Fair value gain Finance income Bank interest payable Unwinding of discounts on liabilities Net interest on defined benefit pension obligation Fair value loss Finance costs Net finance cost Over 5 years £m 594.4 19.1 Group 2017 £m 2.7 0.1 2.8 (2.1) (0.7) (1.0) (0.3) (4.1) (1.3) Total £m 619.1 21.4 2016 £m 1.4 0.2 1.6 (1.3) (0.6) (0.4) (0.1) (2.4) (0.8) Savills plc Report and Accounts 2017 115 Financial statementsGovernance Strategic reportOverview12. Income tax expense Analysis of tax expense for the year: Current tax United Kingdom: Corporation tax on profits for the year Adjustment in respect of prior years Overseas tax Adjustment in respect of prior years Total current tax Deferred tax Representing: United Kingdom Effect of change in UK tax rate on deferred tax Overseas tax Effect of change in overseas tax rate on deferred tax Adjustment in respect of prior years Total deferred tax (Note 18) Income tax expense Group 2017 £m 14.9 0.5 15.4 23.9 (0.7) 38.6 (3.3) (0.1) (4.7) 1.0 (0.2) (7.3) 31.3 2016 £m 13.0 1.1 14.1 17.5 (1.4) 30.2 (1.2) (0.2) 5.2 – (1.9) 1.9 32.1 The tax on the Group’s profit before income tax differs from the theoretical amount that would arise using the UK weighted average tax rate of 19.25% (2016: 20%) applicable to profits of the consolidated entities as follows: Profit before income tax Tax on profit at 19.25% (2016: 20%) Effects of: Adjustment in respect of prior years Adjustments in respect of foreign tax rates Utilisation of previously unprovided tax losses Expenses and other charges not deductible for tax purposes Tax on joint ventures and associates Effect of change in tax rates on deferred tax Income tax expense Group 2017 £m 112.4 21.6 (0.5) 2.2 (0.4) 9.7 (2.3) 1.0 31.3 2016 £m 99.8 20.0 (2.2) 2.8 (0.7) 14.1 (1.7) (0.2) 32.1 The effective tax rate of the Group for the year ended 31 December 2017 is 27.8% (2016: 32.1%), which is higher (2016: higher) than the UK weighted average applicable rate. The UK corporate tax rate is to reduce to 17% on 1 April 2020. Deferred tax has been determined using the applicable effective future tax rate that will apply in the expected period of utilisation of the deferred tax asset or liability. 116 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017The tax (charged)/credited to other comprehensive income is as follows: Group Company Tax on items that will not be reclassified to profit or loss Deferred tax (charge)/credit on pension actuarial (gains)/losses Tax on items that may subsequently be reclassified to profit or loss Current tax credit/(charge) on employee benefits Current tax (charge)/credit on foreign exchange reserves Current tax credit on retirement benefits Deferred tax on additional pension contributions Deferred tax on pension – effect of tax rate change Deferred tax on employee benefits Deferred tax credit on revaluations of available-for-sale investments Deferred tax credit/(charge) on foreign exchange reserves Tax on items relating to components of other comprehensive income 13. Dividends – Group and Company Amounts recognised as distribution to equity holders in the year: Ordinary final dividend of 10.1p per share (2015: 8.0p) Supplemental interim dividend of 14.5p per share (2015: 14.0p) Interim dividend of 4.65p per share (2016: 4.4p) 2017 £m (2.8) (2.8) 3.1 (0.3) 1.7 (1.7) 0.1 (0.8) 0.1 0.1 2.3 (0.5) 2016 £m 7.2 7.2 2.5 0.1 1.8 (1.8) (0.3) (2.9) 0.2 (0.3) (0.7) 6.5 2017 £m (0.1) (0.1) 0.5 – 0.1 (0.2) – – – – 0.4 0.3 2017 £m 13.5 19.5 6.3 39.3 2016 £m 0.4 0.4 (0.1) – 0.1 (0.1) – (0.3) – – (0.2) 0.2 2016 £m 10.7 18.8 5.9 35.4 In addition, the Group paid £0.9m (2016: £0.9m) of dividends to non-controlling interests. The Board recommends a final dividend of 10.45p (net) per ordinary share (amounting to £14.3m) is paid, alongside the supplemental interim dividend of 15.1p per ordinary share (amounting to £20.6m), to be paid on 14 May 2018 to shareholders on the register at 13 April 2018. These financial statements do not reflect this dividend payable. Under the terms of the Savills plc 1992 Employee Benefit Trust (the ‘EBT’), the Trustees have waived their dividend entitlement for all shares held by the Trust. The total paid and recommended ordinary and supplemental dividends for the 2017 financial year comprises an aggregate distribution of 30.2p per ordinary share (2016: 29.0p per ordinary share). Savills plc Report and Accounts 2017 117 Financial statementsGovernance Strategic reportOverview14. Earnings per share 14.1 Basic and diluted earnings per share Basic earnings per share (‘EPS’) are based on the profit attributable to owners of the Company and the weighted average number of ordinary shares in issue during the year, excluding the shares held by the EBT, 4,819,684 shares (2016: 5,706,307 shares) and the Rabbi Trust, 800,000 shares (2016: nil). For diluted earnings per share, the weighted average number of ordinary shares in issue is adjusted to assume conversion of dilutive potential ordinary shares, being the share options granted to employees where the exercise price is less than the average market price of the Company’s ordinary shares during the year and where performance conditions have been met. The earnings and the shares used in the calculations are as follows: Basic earnings per share Effect of additional shares issuable under option Diluted earnings per share 2017 Earnings £m 80.1 – 80.1 2017 Shares million 136.2 3.0 139.2 2017 EPS pence 58.8 (1.3) 57.5 2016 Earnings £m 66.9 – 66.9 2016 Shares million 137.2 3.0 140.2 2016 EPS pence 48.8 (1.1) 47.7 14.2 Underlying basic and diluted earnings per share Excludes profit on disposals, share-based payment adjustment, impairment and amortisation of goodwill and intangible assets (excluding software), impairment of available-for-sale investment and associate undertaking and restructuring costs. Basic earnings per share Amortisation of acquired intangible assets (excluding software) after tax Impairment of goodwill after tax Share-based payment adjustment after tax Net profit on disposal of available-for-sale investments and joint ventures Restructuring costs after tax Acquisition-related costs after tax Underlying basic earnings per share Effect of additional shares issuable under option Underlying diluted earnings per share 2017 Earnings £m 80.1 2017 Shares million 136.2 2017 EPS pence 58.8 2016 Earnings £m 66.9 2016 Shares million 137.2 2.1 2.3 (1.0) (5.9) 6.0 19.6 103.2 – 103.2 – – – – – – 136.2 3.0 139.2 1.5 1.7 (0.7) (4.3) 4.4 14.4 75.8 (1.7) 74.1 2.2 – (1.8) – 4.7 27.5 99.5 – 99.5 – – – – – – 137.2 3.0 140.2 2016 EPS pence 48.8 1.6 – (1.3) – 3.4 20.0 72.5 (1.5) 71.0 The Directors regard the adjustments on the previous table necessary to give a fair picture of the underlying results of the Group for the year. The adjustment for share-based payment relates to the impact of the accounting standard for share-based compensation. The annual bonus is paid in a mixture of cash and deferred shares and the proportions can vary from one year to another. Under IFRS the deferred share element is amortised to the income statement over the vesting period whilst the cash element is expensed in the year. The adjustment above addresses this by adding to or deducting from profit the difference between the IFRS 2 charge and the effective value of the annual share award in order to better match the underlying staff costs in the year with the revenue recognised in the same period. The gross amounts of the above adjustments (Note 8) are amortisation of acquired intangible assets (excluding software) £3.9m (2016: £4.0m), impairment of goodwill of £2.3m (2016: £nil), share-based payment adjustment £1.2m credit (2016: £2.4m credit), restructuring costs of £7.7m (2016: £5.8m), net profit on disposals of £5.9m (2016: £0.1m), acquisition-related costs of £21.3m (2016: £28.7m). 118 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 201715. Goodwill and intangible assets Cost At 1 January 2017 Additions through business combinations (Note 17.4) Other additions Disposals Exchange movement At 31 December 2017 Accumulated amortisation and impairment At 1 January 2017 Amortisation charge for the year Impairment charge Disposals Exchange movement At 31 December 2017 Net book value At 31 December 2017 Group Company Customer/ business relationships £m Investment and property management contracts £m Goodwill £m Order backlogs £m Brands £m Computer software £m Total £m Total £m 358.1 22.6 26.3 6.8 – 18.8 432.6 57.8 – – (15.2) 400.7 48.3 – 2.3 – (1.2) 49.4 1.5 – – (0.5) 23.6 19.9 0.3 – – (0.4) 19.8 0.9 0.3 1.3 – – (0.1) 27.1 10.3 2.4 – – 0.1 12.8 – – (0.6) 6.5 3.9 1.2 – – (0.4) 4.7 – 8.8 (2.9) (0.3) 61.8 8.8 (2.9) (16.7) – – – 1.3 24.4 483.6 – – – – – – 11.2 3.1 – (2.8) (0.3) 11.2 93.6 7.0 2.3 (2.8) (2.2) 97.9 4.4 – 1.6 (0.2) – 5.8 3.0 0.3 – (0.2) – 3.1 351.3 3.8 14.3 1.8 1.3 13.2 385.7 2.7 The carrying amount of intangible assets with indefinite useful lives totals £3.2m as at 31 December 2017 (2016: £3.4m), which consists of investment management contracts in relation to open-ended funds. All intangible amortisation charges in the year are disclosed on the face of the income statement. The Company’s intangible assets consist of computer software only. Cost At 1 January 2016 Additions through business combinations Other additions Disposals Reclassification from property, plant and equipment (Note 16) Exchange movement At 31 December 2016 Accumulated amortisation and impairment At 1 January 2016 Amortisation charge for the year Disposals Exchange movement At 31 December 2016 Net book value At 31 December 2016 Goodwill £m 311.6 5.3 – – – 41.2 358.1 41.7 – – 6.6 48.3 309.8 Group Investment and property management contracts £m Customer/ business relationships £m Order backlog £m Computer software £m Total £m 20.7 – – – – 1.9 22.6 17.3 0.9 – 1.7 19.9 2.7 21.2 3.3 – – – 1.8 26.3 7.2 1.8 – 1.3 10.3 16.0 5.5 0.1 – – – 1.2 6.8 2.1 1.3 – 0.5 3.9 2.9 16.6 375.6 – 4.7 (4.7) 0.7 1.5 18.8 12.0 2.9 (4.7) 1.0 11.2 8.7 4.7 (4.7) 0.7 47.6 432.6 80.3 6.9 (4.7) 11.1 93.6 Company Total £m 3.9 – 1.1 (0.8) 0.2 – 4.4 3.4 0.4 (0.8) – 3.0 7.6 339.0 1.4 Savills plc Report and Accounts 2017 119 Financial statementsGovernance Strategic reportOverview15. Goodwill and intangible assets continued During the year, goodwill and intangible assets were tested for impairment in accordance with IAS 36. Goodwill and intangible assets are allocated to the Group’s cash-generating units (‘CGUs’) identified according to country of operation and business segment. In most cases, the CGU is an individual subsidiary or operation and these have been separately assessed and tested. A segment-level summary of the allocation of goodwill and indefinite useful life intangible assets is presented below: 2017 United Kingdom Continental Europe Asia Pacific North America Total goodwill and indefinite life intangible assets 2016 United Kingdom Continental Europe Asia Pacific North America Total goodwill and indefinite life intangible assets 15.1 Method of impairment testing Transaction Advisory £m Consultancy £m Property and Facilities Management £m Investment Management £m 26.0 59.6 15.1 147.4 248.1 9.3 16.2 4.7 – 30.2 27.4 8.7 30.6 – 66.7 2.0 5.2 2.3 – 9.5 Transaction Advisory £m Consultancy £m Property and Facilities Management £m Investment Management £m 26.0 32.6 15.8 152.2 226.6 9.3 – 5.0 – 14.3 26.2 6.0 30.6 – 62.8 2.0 5.1 2.4 – 9.5 Total £m 64.7 89.7 52.7 147.4 354.5 Total £m 63.5 43.7 53.8 152.2 313.2 All recoverable amounts were determined based on value-in-use calculations. These calculations use discounted cash flow projections based on financial budgets and strategic plans approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using a terminal value. There was a £2.3m impairment charge recognised against goodwill and intangible assets arising from the annual impairment tests conducted (2016: £nil). 15.2 Assumptions (a) Market conditions In general, the models used assume that the property markets in which the Group operates (which drive its revenue growth) will remain stable. (b) Discount rate The discount rate applied to cash flows of each CGU is based on the Group’s Weighted Average Cost of Capital (‘WACC’). WACC is the average cost of sources of financing (debt and equity), each of which is weighted by its respective use. Key inputs to the WACC calculation are the risk-free rate, the equity market risk premium (the return that Savills shares provide over the risk-free rate), beta (reflecting the risk of the Group relative to the market as a whole) and the Group’s borrowing rates. Group WACC was adjusted for risk relative to the country in which the assets were located. The risk-adjusted discount range of rates used in each region for impairment testing are as follows: 2017 Discount rate range 2016 Discount rate range 10.0% 10.0% 10.0% 10.0% 11.2%–18.1% 11.6%–18.1% 10.0% 10.0% United Kingdom Continental Europe Asia Pacific North America 120 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017(c) Long-term growth rate To forecast beyond the five years covered by detailed forecasts, a terminal value was calculated, using average long-term growth rates. The rates are based on the long-term growth rate in the countries in which the Group operates. The long-term growth rates used in each region for impairment testing are as follows: United Kingdom Continental Europe Asia Pacific North America 15.3 Impairment charge 2017 Long-term growth rate range 2016 Long-term growth rate range 2.0% 1.4%–2.6% 0.8%–5.7% 2.3% 1.5% 1.5% 0.8%–5.7% 2.3% Following impairment testing, a £2.3m charge has been recognised through the income statement (2016: £nil) relating to goodwill on the Group’s Swedish property management business. The Swedish business operates under the European transactional and property management segments. Key assumptions of the discounted cash flow analysis are consistent with the above assumptions in Note 15.2. The residual value of goodwill relating to the Group’s Swedish business is not material. 15.4 Sensitivity to changes in assumptions The level of impairment is a reflection of best estimates in arriving at value-in-use, future growth rates and the discount rate applied to cash flow projections. Nonetheless, there are no CGUs for which management considers a reasonable possible change in a key assumption would give rise to an impairment apart from the Group’s Swedish business, which was partially impaired during the year. Future impairments on goodwill and intangible assets relating to any of the Group’s investments may be impacted by the following factors: Market conditions – the expectations for future market conditions are key assumptions in the determination of the cash flow projections. For the purposes of the impairment tests, management expects the markets to remain stable. Cost base – the cost base assumptions reflect 2017’s costs with limited growth in the fixed cost base going forward. Commissions and profit shares are correlated to the Group’s revenue and profits and the percentage payout. These are assumed to be consistent with existing rates. 16. Property, plant and equipment Group Cost At 1 January 2017 Additions through business combinations (Note 17.4) Additions Disposals Exchange movement At 31 December 2017 Accumulated depreciation and impairment At 1 January 2017 Charge for the year Disposals Exchange movement At 31 December 2017 Net book value At 31 December 2017 Freehold property £m Short leasehold property £m Equipment and motor vehicles £m 0.1 – – – – 0.1 – – – – – 55.4 – 15.8 (0.4) (1.1) 69.7 18.5 5.5 (0.4) (0.1) 23.5 60.8 0.4 7.3 (8.4) (1.8) 58.3 38.1 8.0 (8.4) (1.3) 36.4 Total £m 116.3 0.4 23.1 (8.8) (2.9) 128.1 56.6 13.5 (8.8) (1.4) 59.9 0.1 46.2 21.9 68.2 The Directors consider that the fair value of property, plant and equipment approximates carrying value. Savills plc Report and Accounts 2017 121 Financial statementsGovernance Strategic reportOverview16. Property, plant and equipment continued Group Cost At 1 January 2016 Additions through business combinations Additions Disposals Reclassification to intangible assets (Note 15) Exchange movement At 31 December 2016 Accumulated depreciation and impairment At 1 January 2016 Charge for the year Disposals Exchange movement At 31 December 2016 Net book value At 31 December 2016 Company Cost At 1 January 2017 Additions Disposals At 31 December 2017 Accumulated depreciation and impairment At 1 January 2017 Charge for the year Disposals At 31 December 2017 Net book value At 31 December 2017 Company Cost At 1 January 2016 Additions Disposals Reclassification to intangible assets (Note 15) At 31 December 2016 Accumulated depreciation and impairment At 1 January 2016 Charge for the year Disposals At 31 December 2016 Net book value At 31 December 2016 122 Savills plc Report and Accounts 2017 Freehold property £m Short leasehold property £m Equipment and motor vehicles £m 0.1 – – – – – 0.1 – – – – – 50.0 – 4.4 (0.4) (0.5) 1.9 55.4 13.5 4.8 (0.4) 0.6 18.5 54.9 0.1 8.4 (8.8) (0.2) 6.4 60.8 34.5 7.9 (8.6) 4.3 38.1 Total £m 105.0 0.1 12.8 (9.2) (0.7) 8.3 116.3 48.0 12.7 (9.0) 4.9 56.6 0.1 36.9 22.7 59.7 Freehold property £m Equipment and motor vehicles £m 0.1 – – 0.1 – – – – 0.1 6.6 0.9 (0.3) 7.2 4.8 1.1 (0.3) 5.6 1.6 Freehold property £m Equipment and motor vehicles £m 0.1 – – – 0.1 – – – – 0.1 8.1 0.5 (1.8) (0.2) 6.6 5.4 1.2 (1.8) 4.8 1.8 Total £m 6.7 0.9 (0.3) 7.3 4.8 1.1 (0.3) 5.6 1.7 Total £m 8.2 0.5 (1.8) (0.2) 6.7 5.4 1.2 (1.8) 4.8 1.9 Notes to the financial statements continuedYear ended 31 December 201717. Investments and transactions 17.1 Group – Investments in joint ventures and associates Cost or valuation At 1 January 2017 Additions Disposals Loans advanced Exchange movement At 31 December 2017 Share of profit At 1 January 2017 Group’s share of profit from continuing operations Dividends received Exchange movement At 31 December 2017 Total At 31 December 2017 Cost or valuation At 1 January 2016 Additions Disposals Loans repaid Exchange movement At 31 December 2016 Share of profit At 1 January 2016 Group’s share of profit from continuing operations Dividends received Exchange movement At 31 December 2016 Total At 31 December 2016 Joint ventures Associates Investment £m Loans £m Total £m Investment £m Loans £m 9.3 0.3 (0.1) – (0.3) 9.2 10.4 6.2 (5.3) (1.0) 10.3 – – – 0.6 – 0.6 – – – – – 9.3 0.3 (0.1) 0.6 (0.3) 9.8 10.4 6.2 (5.3) (1.0) 10.3 2.1 0.3 (0.2) – (0.1) 2.1 6.8 3.7 (3.0) – 7.5 0.3 – – – – 0.3 – – – – – Total £m 2.4 0.3 (0.2) – (0.1) 2.4 6.8 3.7 (3.0) – 7.5 19.5 0.6 20.1 9.6 0.3 9.9 Joint ventures Associates Investment £m Loans £m Total £m Investment £m Goodwill £m 8.9 – (0.7) – 1.1 9.3 8.2 5.9 (5.6) 1.9 10.4 19.7 1.2 – – (1.2) – – – – – – – – 10.1 – (0.7) (1.2) 1.1 9.3 8.2 5.9 (5.6) 1.9 10.4 19.7 2.4 0.2 (0.8) – 0.3 2.1 5.7 2.0 (1.9) 1.0 6.8 8.9 0.3 – – – – 0.3 – – – – – 0.3 Total £m 2.7 0.2 (0.8) – 0.3 2.4 5.7 2.0 (1.9) 1.0 6.8 9.2 The Group does not have any joint ventures or associates that are individually material. The joint ventures and associates have no significant liabilities to which the Group is exposed, nor has the Group any significant contingent liabilities or capital commitments in relation to its interests in the joint ventures and associates. Savills plc Report and Accounts 2017 123 Financial statementsGovernance Strategic reportOverviewGroup 2017 £m 20.8 8.8 (5.3) 0.1 0.3 (0.1) 24.6 Group 2017 £m 14.2 2.3 0.1 1.9 0.4 5.7 2016 £m 13.2 12.4 (5.5) – (0.6) 1.3 20.8 2016 £m 10.0 3.0 – 2.4 0.4 5.0 24.6 20.8 Group 2017 £m 16.5 2.0 6.1 24.6 2016 £m 13.0 2.4 5.4 20.8 17. Investments and transactions continued 17.2 Group – Available-for-sale investments At 1 January Additions Disposals Additions through business combinations (Note 17.4) Net fair value gain/(loss) transferred to other comprehensive income Exchange movement At 31 December Available-for-sale investments comprise the following: Unlisted securities UK – equity securities UK – investment funds European – equity securities European – investment funds Asia Pacific – equity securities Asia Pacific – investment funds Available-for-sale investments are denominated in the following currencies: Sterling Euro Other 124 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017At 31 December 2017, the Group held the following principal available-for-sale investments: Investment YOPA Property Ltd (registered in England and Wales)* Vucity Ltd (registered in England and Wales)* Proportunity Ltd (registered in England and Wales) Cordea Savills Dawn Syndication LP (registered in England and Wales) Serviced Land No. 2 LP (registered in England and Wales) Cordea Savills Nordic Retail Fund (registered in Luxembourg) Cordea Savills UK Property Ventures No. 1 LP (registered in England and Wales) Prime London Residential Development Fund (registered in England and Wales) Prime London Residential Development Fund II (registered in England and Wales) Aomi Project TMK (registered in Japan) Greater Tokyo Office Fund (registered in Jersey) Pegaxis Pte Ltd (registered in Singapore) Holding 22.80% 33.33% 5.11% 3.70% 1.97% 11.33% 4.17% 0.86% 1.12% 3.50% 3.25% Principal activity Digital hybrid agency Digital architectural design and planning Digital real estate valuation Investment property fund UK land investment fund Retail investment property fund UK land investment fund London residential development fund London residential development fund Real estate investment Investment property fund 15.00% Digital property management services * The Group holds more than 20% of the equity interest in YOPA Property Ltd and Vucity Ltd, however does not have the power to participate in the financial and operational decisions of these entities, does not have representation on the Board of Directors of these entities and does not participate in major policy-making processes of the entities. As a result, the Group’s investments in YOPA Property Ltd and Vucity Ltd are treated as available-for-sale investments. The Group recognised £nil profit on disposal in the income statement in relation to the part disposal of its investment in YOPA Property Ltd in September 2017, with its shareholding as at 31 December 2017 now at 22.80% (2016: 30.28%), £0.6m profit on disposal of its 1.94% shareholding in the Cordea Savills German Retail Fund and £5.3m profit on disposal of its 19.99% shareholding in SPF Private Clients Limited. Disposals in the year also included capital distributions from the Group’s investments in the Cordea Savills Nordic Retail Fund, Cordea Savills UK Property Ventures No. 1 LP and Serviced Land No. 2 LP The Group does not exert significant influence over these investments, and therefore does not equity account for these investments. These shareholdings are treated as trade investments and held at fair value. The fair value of unlisted securities is based on underlying asset values and price earnings models. The fair value of investment funds is determined by the Fund Manager’s annual audited financial statements. At 31 December 2017 the Group held conditional commitments to co-invest £0.3m (2016: £0.7m) in the Greater Tokyo Office Fund, £0.2m (2016: £0.2m) in the Cordea Savills UK Property Ventures Fund No. 1 LP, and £0.1m in the Prime London Residential Development Fund II (2016: £0.2m). 17.3 Company – Investments in subsidiaries Cost At 1 January 2016 Loans advanced At 31 December 2016 Loans advanced Loans repaid At 31 December 2017 Refer to Note 33 for a full list of the Group’s subsidiaries. Shares in Group undertaking £m Loans to Group undertakings £m 57.2 – 57.2 – – 57.2 52.5 9.0 61.5 8.6 (3.6) 66.5 Total £m 109.7 9.0 118.7 8.6 (3.6) 123.7 Savills plc Report and Accounts 2017 125 Financial statementsGovernance Strategic reportOverview17. Investments and transactions continued 17.4 Acquisitions of subsidiaries The fair values of the assets acquired and liabilities assumed as part of the Group’s acquisitions in the year are provisional and will be finalised within 12 months of the acquisition date. These are summarised below: Property, plant and equipment Intangible assets Deferred tax assets Available-for-sale investments Current assets: Total assets Current liabilities: Trade and other receivables Current income tax receivable Cash and cash equivalents Borrowings Trade and other payables Current income tax liability Employment benefit provision Provisions Non current trade and other payables Non current employment benefit provision Deferred income tax liabilities Net assets acquired Goodwill Purchase consideration Consideration satisfied by: Cash paid Deferred consideration owing at the reporting date Provisional fair value to the Group Aguirre Newman £m Cresa Partners Orange County £m Larry Smith £m Other £m 0.3 3.4 0.1 0.1 25.1 0.1 19.8 48.9 0.1 31.9 0.6 – – 0.9 – 0.8 14.6 40.5 55.1 48.2 6.9 55.1 0.1 – – – 1.1 – – 1.2 – 0.8 – – – – – – 0.4 9.2 9.6 4.7 4.9 9.6 – 0.2 – – 1.6 – 1.1 2.9 – 0.6 – 0.7 – – 0.5 – 1.1 6.0 7.1 6.0 1.1 7.1 – 0.4 – – 0.6 – 0.6 1.6 – 0.4 0.2 – 0.1 – – 0.1 0.8 2.1 2.9 2.3 0.6 2.9 Total £m 0.4 4.0 0.1 0.1 28.4 0.1 21.5 54.6 0.1 33.7 0.8 0.7 0.1 0.9 0.5 0.9 16.9 57.8 74.7 61.2 13.5 74.7 (a) Aguirre Newman SA (‘Aguirre Newman’) On 29 December 2017 the Group acquired 100% of the equity of Aguirre Newman SA, the leading Spanish independent real estate advisory business. The business provides agency, investment, management, architectural, consultancy, valuation, planning, corporate finance and asset management services. Combined with the Group’s existing Spanish business, the Group will benefit from a leading market position across all sectors in Spain and Portugal. Total acquisition consideration has provisionally been determined at £55.1m, with £48.2m settled in cash on completion and the remainder relating to the discounted value of deferred consideration of £6.9m payable in five equal annual instalments from December 2018. A further £15.5m is payable in five equal annual instalments from December 2018, subject to the executive shareholders remaining actively engaged in the business over a period of up to five years. As required by IFRS 3 (revised) these payments will be expensed to the income statement over the relevant period of active engagement. Transaction costs of £1.4m were also expensed as incurred to the income statement. Goodwill of £40.5m and intangible assets of £3.4m relating to brand, customer relationships, customer contracts and order backlog have been provisionally determined. Goodwill is attributed to the experience, reputation and expertise of the fee-earners and is not expected to be deductible for tax purposes. The business was acquired at the end of the financial year, and consequently did not contribute to the Group's revenues or underlying profits. Had the acquisition been made at the beginning of the financial year, the business would have contributed £68.4m of revenues. The fair value of current trade and other receivables is £25.1m and includes trade receivables with a fair value of £23.6m. The gross contractual amount for trade receivables is £24.7m, of which £1.1m is expected to be uncollectible. 126 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017 (b) Cresa Partners Orange County, LP (‘Cresa Partners Orange County’) On 7 February 2017 the Group acquired 100% of the equity interest in Cresa Partners Orange County, LP, expanding the Group’s commercial real estate presence in the region. Total acquisition consideration has provisionally been determined at £9.6m, £4.7m of which was settled on completion and the remainder relating to the discounted value of deferred consideration of up to £4.9m (payable in February 2020 and 2021), subject to achievement of certain income targets. A further £4.7m is payable to certain key staff and is subject to them remaining actively engaged in the business over a period of up to six years; £3.2m was paid during Q1 2017 and the remainder is payable in September 2018. As required by IFRS 3 (revised) these payments will be expensed to the income statement over the relevant period of active engagement. Goodwill of £9.2m has been provisionally determined. Goodwill is attributable to the experience and expertise of key staff and strong industry reputation and is not expected to be deductible for tax purposes. The acquired operations were immediately integrated within the existing business. Consequently, the revenues and profits contributed by the acquired business cannot be separately identified, however are not considered to be material for the Group. The fair value of current trade and other receivables is £1.1m and includes trade receivables with a fair value of £0.3m, of which £nil is expected to be uncollectible. (c) Larry Smith srl (‘Larry Smith’) On 1 July 2017 the Group acquired 100% of the equity interest in Larry Smith srl, a leading shopping centre and out of town management and leasing business based in Italy. Total acquisition consideration has provisionally been determined at £7.1m, £6.0m of which was settled on completion and the remainder relating to deferred consideration of up to £1.1m (payable in July 2019 and 2020), subject to achievement of certain income targets. A further £1.2m is payable in July 2019 and 2020 upon achievement of certain income targets and is deemed to be linked to continued active engagement with the business. Therefore, as required by IFRS 3 (revised) these payments will be expensed to the income statement over the relevant period of active engagement. Transaction costs of £0.5m were also expensed as incurred to the income statement. Goodwill of £6.0m and intangible assets of £0.2m relating to existing management contracts have been provisionally determined. Goodwill is attributable to the experience and expertise of key staff and is not expected to be deductible for tax purposes. The acquired business contributed revenue of £2.7m and underlying operating losses of £0.1m to the Group for the period from acquisition. Had the acquisition been made at the beginning of the financial year, revenue would have been £5.8m and underlying operating profits would have been £0.2m. The fair value of current trade and other receivables is £1.6m and includes trade receivables with a fair value of £1.4m. The gross contractual amount for trade receivables is £1.5m, of which £0.1m is expected to be uncollectible. (d) Other acquisitions During the first half of the year, the Group acquired 100% of the equity of Granville Residential Letting Ltd and Montagu Evans Channel Islands Ltd, the former a residential lettings business based in the South East of the UK and the latter a commercial real estate service provider in Guernsey, expanding the Savills brand across the Channel Islands. In the second half of the year, the Group also acquired 100% of the equity of SB Property Services AS, a property management business based in Prague, Czech Republic. Cash consideration for these transactions amounted to £2.3m. The remainder of the provisionally determined acquisition consideration relates to deferred consideration of £0.6m. A further £1.2m is payable to certain key staff and is subject to service conditions, £0.3m is payable in 2019, £0.7m in 2020 and £0.2m in 2021. As required by IFRS 3 (revised) these payments will be expensed to the income statement over the relevant period of employment. Transaction costs of £0.1m were also expensed as incurred to the income statement. Goodwill of £2.1m and intangible assets of £0.4m relating to existing management contracts have been provisionally determined. Goodwill is attributable to the experience and expertise of key staff and is not expected to be deductible for tax purposes. The acquired businesses contributed revenue of £1.5m and underlying operating profits of £0.1m to the Group for the period from acquisition. Had the acquisitions been made at the beginning of the financial year, revenue would have been £2.9m and underlying operating profits would have been £0.4m. Savills plc Report and Accounts 2017 127 Financial statementsGovernance Strategic reportOverview18. Deferred income tax Deferred income tax assets and liabilities are only offset where there are legally enforceable rights to offset current tax assets against current tax liabilities and when the deferred income tax relates to the same fiscal authority. The deferred tax assets and liabilities are offset when realised through current tax. The deferred income tax assets and liabilities at 31 December, without taking into consideration the offsetting balances within the same jurisdiction, are as follows: The movement on the deferred tax account is shown below: Deferred tax assets – Deferred tax asset to be recovered after more than 12 months – Deferred tax asset to be recovered within 12 months Deferred tax liabilities – Deferred tax liability to be recovered after more than 12 months – Deferred tax liability to be recovered within 12 months Group Company 2017 £m 29.5 7.4 36.9 (2.2) (0.7) (2.9) 2016 £m 29.9 6.6 36.5 (3.1) (0.5) (3.6) 2017 £m 1.5 0.7 2.2 – – – 2016 £m 1.6 0.9 2.5 – – – Deferred tax asset – net 34.0 32.9 2.2 2.5 At 1 January – asset Amount credited/(charged) to the income statement (Note 12) Effect of tax rate change within the income statement (Note 12) Tax credited/(charged) to other comprehensive income – Pension asset on actuarial (gain)/loss – Pension asset on additional contributions – Pension asset – effect of UK tax rate change within other comprehensive income – Employee benefits – Revaluations of available-for-sale investments – Movement on foreign exchange reserves Additions through business combinations (Note 17.4) Exchange movement At 31 December – asset Group Company 2017 £m 32.9 8.2 (0.9) (2.8) (1.7) 0.1 (0.8) 0.1 0.1 (0.8) (0.4) 34.0 2016 £m 30.7 (2.1) 0.2 7.2 (1.8) (0.3) (2.9) 0.2 (0.3) (0.6) 2.6 2017 £m 2.5 – – (0.1) (0.2) – – – – – – 2016 £m 1.8 0.7 – 0.4 (0.1) – (0.3) – – – – 32.9 2.2 2.5 Deferred income tax assets have been recognised for tax loss carry-forwards and other temporary differences to the extent that the realisation of the related tax benefit through future taxable profits is probable. 128 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017As at the reporting date the Group did not recognise deferred tax income tax assets of £1.4m (2016: £0.4m) in respect of losses amounting to £5.9m (2016: £1.2m) that can be carried forward indefinitely against future taxable income. Deferred tax assets – Group At 1 January 2016 Amount credited/(charged) to the income statement (Note 12) Effect of UK tax rate change within income statement (Note 12) Tax charged/(charged) to other comprehensive income (Note 12) Effect of tax rate change charged to other comprehensive income (Note 12) Transfer (from)/to deferred tax assets Exchange movement At 31 December 2016 Amount credited/(charged) to the income statement (Note 12) Effect of tax rate change within income statement (Note 12) Tax charged to other comprehensive income (Note 12) Effect of tax rate change charged to other comprehensive income (Note 12) Transfer to/(from) deferred tax assets Additions through business combinations (Note 17.4) Exchange movement At 31 December 2017 Deferred tax liabilities – Group At 1 January 2016 Amount credited/(charged)to the income statement (Note 12) Tax (charged)/credited to other comprehensive income (Note 12) Additions through business combinations Exchange movement At 31 December 2016 Amount credited to the income statement (Note 12) Effect of tax rate change within the income statement (Note 12) Tax credited to other comprehensive income (Note 12) Additions through business combinations (Note 17.4) Exchange movement At 31 December 2017 Net deferred tax asset At 31 December 2017 At 31 December 2016 Accelerated capital allowances £m Other including provisions £m Tax losses £m Retirement benefits £m Employee benefits £m 0.5 0.8 0.1 – – – – 1.4 0.5 – – – 0.3 – – 2.2 13.4 2.6 0.1 – – (1.7) 1.6 16.0 5.2 (1.0) – – (0.1) 0.1 (0.6) 19.6 9.7 (7.2) – – – – 1.0 3.5 (0.9) (0.2) – – – – 0.1 2.5 3.0 0.1 – 5.4 (0.3) 1.7 0.3 10.2 – 0.1 6.8 1.5 – (2.9) – – – 5.4 2.3 – (4.5) (0.8) 0.1 (0.2) – – 5.7 – – – – 6.9 Accelerated capital allowances £m Other including provisions £m Revaluations £m Intangible assets £m (0.2) 0.1 – – – (0.1) – – – – – (0.6) (0.6) (0.3) – (0.1) (1.6) 0.6 – 0.1 – – (0.1) (0.9) (0.3) – 0.2 – – (0.1) – – 0.1 – – – (1.6) 0.6 – (0.6) (0.2) (1.8) 0.5 0.2 – (0.9) 0.1 (1.9) Total £m 33.4 (2.2) 0.2 2.5 (0.3) – 2.9 36.5 7.1 (1.1) (5.3) 0.1 – 0.1 (0.5) 36.9 Total £m (2.7) 0.1 (0.1) (0.6) (0.3) (3.6) 1.1 0.2 0.2 (0.9) 0.1 (2.9) 34.0 32.9 Savills plc Report and Accounts 2017 129 Financial statementsGovernance Strategic reportOverview18. Deferred income tax continued Deferred tax assets – Company At 1 January 2016 Amount credited to the income statement Tax credited/(charged) to other comprehensive income (Note 12) At 31 December 2016 Amount (charged)/credited to the income statement Tax charged to other comprehensive income (Note 12) At 31 December 2017 Net deferred tax asset At 31 December 2017 At 31 December 2016 19. Trade and other receivables Trade receivables Less: provision for impairment of receivables Trade receivables – net Amounts owed by subsidiary undertakings Other receivables Prepayments and accrued income Accelerated capital allowances £m Other including provisions £m Retirement benefits £m Employee benefits £m 0.1 0.2 – 0.3 – – 0.3 0.5 0.2 – 0.7 (0.4) – 0.3 0.1 – 0.3 0.4 – (0.3) 0.1 1.1 0.3 (0.3) 1.1 0.4 – 1.5 Group Company 2017 £m 391.2 (19.9) 371.3 – 53.0 66.3 490.6 2016 £m 333.2 (19.3) 313.9 – 39.5 66.0 419.4 2017 £m – – – 5.3 0.1 2.5 7.9 Total £m 1.8 0.7 – 2.5 – (0.3) 2.2 2.2 2.5 2016 £m – – – 13.1 0.7 2.7 16.5 The carrying value of trade and other receivables is approximate to their fair value. There is no concentration of credit risk with respect to trade and other receivables as the Group has a large number of clients internationally dispersed with no individual client owing a significant amount. The credit quality of receivables is managed at a local subsidiary level with uncollectible amounts being impaired where necessary. Amounts owed by subsidiary undertakings are unsecured, interest-free and generally cleared within the month. As at 31 December 2017, trade receivables of £280.6m (2016: £232.0m) were neither past due nor impaired and fully performing. As at 31 December 2017, trade receivables of £19.9m (2016: £19.3m) were impaired and provided for. The individually impaired receivables mainly relate to receivables from clients that have been affected by the uncertain economic conditions where funding and completion have been delayed and cash flow has become uncertain. The ageing of these receivables is as follows: Up to 3 months 3 to 6 months Over 6 months Group 2017 £m 1.6 4.9 13.4 19.9 2016 £m 3.4 1.9 14.0 19.3 As at 31 December 2017, trade receivables of £90.7m (2016: £81.9m) were past due but not impaired. These relate to trade receivables which are past due at the reporting date but are not considered impaired as there has not been a significant change in credit quality and the amounts are still considered recoverable. 130 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 201719. Trade and other receivables continued The ageing of these receivables is as follows: Up to 3 months 3 to 6 months Over 6 months The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies: Sterling Euro US dollar Hong Kong dollar Australian dollar Other* Group 2017 £m 69.4 16.1 5.2 90.7 Group 2017 £m 207.6 90.3 54.9 39.7 31.4 66.7 2016 £m 59.1 16.9 5.9 81.9 2016 £m 178.4 65.8 35.3 50.9 39.8 49.2 490.6 419.4 * Other currencies include Chinese renminbi, South Korean won, Singapore dollar, Japanese yen, New Zealand dollar, Indonesian rupiah, Philippine peso, Malaysian ringgit, Macau pataca, New Taiwan dollar, Thailand baht, Polish zloty, Swedish krona and Canadian dollar. Movement on the provision for impairment of trade receivables is as follows: At 1 January Provisions for receivables impairment Receivables written off during the year as uncollectible Unused provisions released Exchange movements At 31 December Group 2017 £m (19.3) (7.2) 2.9 3.0 0.7 (19.9) 2016 £m (15.4) (7.2) 2.4 2.7 (1.8) (19.3) The creation and release of the provision for impaired receivables have been included in other operating expenses in the income statement. The other classes within trade and other receivables do not contain impaired assets. The maximum exposure to credit risk at the reporting date is the carrying value of each class of receivables mentioned above. The Group does not hold any collateral as security. Savills plc Report and Accounts 2017 131 Financial statementsGovernance Strategic reportOverview20. Cash and cash equivalents Cash at bank and in hand Short-term bank deposits Group Company 2017 £m 198.1 10.7 208.8 2016 £m 210.1 13.5 223.6 2017 £m 90.8 – 90.8 2016 £m 88.3 – 88.3 The carrying value of cash and cash equivalents approximates their fair value. The effective interest rate on short-term bank deposits as at 31 December 2017 was 1.35% (2016: 1.21%); these deposits have an average maturity of 53 days (2016: 49 days). Cash subject to restrictions in Asia Pacific amounts to £41.6m (2016: £50.6m) which is cash pledged to banks in relation to property management contracts and cash remittance restrictions in certain countries. These amounts are consolidated. Cash and cash equivalents are denominated in the following currencies: Sterling Hong Kong dollar Euro Chinese renminbi US dollar Japanese yen Australian dollar South Korean won Singapore dollar Other currencies* Group Company 2017 £m 5.1 61.5 56.1 37.9 10.1 8.6 7.7 6.8 4.3 10.7 208.8 2016 £m (6.3) 55.8 49.2 48.6 38.8 6.2 9.3 6.3 7.1 8.6 2017 £m 90.8 – – – – – – – – – 2016 £m 88.2 – – – 0.1 – – – – – 223.6 90.8 88.3 * Other currencies include Canadian dollar, Czech koruna, New Taiwan dollar, Macau pataca, Thai baht, Vietnamese dong, New Zealand dollar, Philippine peso, Polish zloty and Swedish krona. 21. Trade and other payables 21.1 Trade and other payables – current Deferred consideration (Note 21.3) Trade payables Amounts owed to subsidiary undertakings Other taxation and social security Other payables Accruals and deferred income* Group Company 2017 £m 19.3 111.6 – 46.4 46.5 368.9 592.7 2016 £m 59.1 80.9 – 44.8 30.9 334.5 550.2 2017 £m – 1.7 2.4 0.9 – 8.1 13.1 2016 £m – 2.9 2.3 7.2 – 8.9 21.3 * Includes accruals for profit shares. The carrying value of trade and other payables is approximate to their fair value. Amounts due to subsidiary undertakings are unsecured, interest-free and repayable on demand. 132 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 201721.2 Trade and other payables – non-current Deferred consideration (Note 21.4) Other payables 21.3 Deferred consideration – current At 1 January Reclassification from non-current deferred consideration (Note 21.4) Additions through business combinations (Note 17.4) Deferred consideration linked to employment accrued during year Interest unwind Deferred consideration paid Exchange movements At 31 December 21.4 Deferred consideration – non-current At 1 January Reclassification to current deferred consideration (Note 21.3) Additions through business combinations (Note 17.4) Deferred consideration linked to employment accrued during year Interest unwind on discounted deferred consideration Deferred consideration paid Exchange movements At 31 December Group 2017 £m 21.6 14.0 35.6 2016 £m 23.5 21.4 44.9 Company 2017 £m – – – 2017 £m 59.1 16.4 2.2 4.2 0.4 (60.4) (2.6) 19.3 2017 £m 23.5 (16.4) 11.3 6.3 0.3 (2.8) (0.6) 21.6 2016 £m – – – 2016 £m 3.8 42.3 – 17.8 – (6.8) 2.0 59.1 2016 £m 53.0 (42.3) 1.9 2.8 0.6 – 7.5 23.5 Savills plc Report and Accounts 2017 133 Financial statementsGovernance Strategic reportOverview22. Borrowings Current Bank overdrafts Unsecured bank loans due within one year or on demand Non-current Finance leases Group 2017 £m 3.6 106.5 110.1 0.1 0.1 110.2 2016 £m 0.2 35.6 35.8 – – 35.8 The Company does not have any borrowings as at 31 December 2017 and 31 December 2016. In November 2017 the Group increased the multi-currency revolving credit facility (‘RCF’) by £50.0m to £300.0m. The RCF expires on 15 December 2020 and can be increased by an additional £60.0m Accordion facility. As at 31 December 2017 £106.0m (2016: £34.0m) of the £300.0m (2016: £250.0m) RCF was drawn. The remaining unsecured bank loans due within one year or on demand includes a £0.4m working capital loan in Thailand and a £0.1m bank loan in Portugal. The working capital loan in Thailand is payable on demand, denominated in Thailand baht and has an effective interest rate of 4.3%. The bank loan in Portugal is due within one year, denominated in euros and has an effective interest rate of 2.0%. Movements in borrowings are analysed as follows: Opening amount as at 1 January Additional borrowings Borrowings acquired through business combinations (Note 17.4) Repayments of borrowings Foreign exchange Closing amount as at 31 December Group 2017 £m 35.8 184.9 0.1 (110.6) – 110.2 The exposure of the Group’s borrowings to interest rate changes and the contractual repricing dates at the reporting date are: Less than 1 year Between 2 and 5 years The effective interest rates at the reporting date were as follows: Bank overdrafts Bank loans The carrying amounts of borrowings are approximate to their fair value. 134 Savills plc Report and Accounts 2017 Group 2017 £m 110.1 0.1 110.2 Group 2017 % 2.62 1.51 2016 £m 31.4 144.7 0.7 (141.2) 0.2 35.8 2016 £m 35.8 – 35.8 2016 % 7.85 1.27 Notes to the financial statements continuedYear ended 31 December 2017The carrying amounts of the Group’s borrowings are denominated in the following currencies: Sterling Australian dollar Other The Group has the following undrawn borrowing facilities: Floating rate – expiring within 1 year or on demand Floating rate – expiring between 1 and 5 years 23. Derivative financial instruments 2017 Forward foreign exchange contracts – at fair value 2016 Forward foreign exchange contracts – at fair value Interest rate cap contract – at fair value Group 2017 £m 109.4 – 0.8 110.2 Group 2017 £m 33.5 194.2 227.7 2016 £m 34.0 1.4 0.4 35.8 2016 £m 23.2 216.0 239.2 Group Assets £m Liabilities £m 0.1 0.1 0.5 0.5 Group Assets £m Liabilities £m 0.2 0.1 0.3 0.3 – 0.3 The Company does not have any derivative financial instruments as at 31 December 2017 and 31 December 2016. Forward foreign exchange contracts The gross notional principal amounts of the outstanding forward foreign exchange contracts at 31 December 2017 were £94.1m (2016: £52.3m). All contracts mature within one year and are classed as current. Gains and losses on forward foreign exchange contracts are recognised in net foreign exchange gains and losses in the income statement. Interest rate cap contract The interest rate cap contract matures in December 2020. Gains and losses on the interest rate cap are recognised in net finance costs in the income statement. Savills plc Report and Accounts 2017 135 Financial statementsGovernance Strategic reportOverview24. Provisions 24.1 Provisions for other liabilities and charges At 1 January 2017 Additions through business combinations (Note 17.4) Provided during the year Utilised during the year Released during the year Exchange movements Total Less non-current portion Current portion 2016 Current Non-current Total Professional indemnity claims £m Dilapidation provisions £m Onerous leases £m Restructuring provision £m Group total £m 13.3 – 6.4 (6.1) (2.3) – 11.3 6.2 5.1 6.1 – 1.3 – (0.3) (0.1) 7.0 5.6 1.4 0.6 – 2.0 (0.4) (0.2) – 2.0 1.1 0.9 1.9 0.1 3.6 (1.6) (0.1) 0.1 4.0 – 4.0 21.9 0.1 13.3 (8.1) (2.9) – 24.3 12.9 11.4 Company £m 1.9 – – – (1.3) – 0.6 0.6 – Professional indemnity claims £m Dilapidation provisions £m Onerous leases £m Restructuring provision £m Group total £m Company £m 6.2 7.1 13.3 1.7 4.4 6.1 0.4 0.2 0.6 1.9 – 1.9 10.2 11.7 21.9 – 1.9 1.9 (a) Professional indemnity claims These arise from various legal actions, proceedings and other claims that are pending against the Group and are based on reasonable estimates, taking into account the opinions of legal counsel. The nature of the amounts provided in respect of legal actions, proceedings and other claims is such that the extent and timing of cash flows can be difficult to estimate and the ultimate liability may vary from the amounts provided. The non-current portion of these provisions is expected to be utilised within the next two to five years. Included are provisions for claims relating to subsidiaries prior to their disposal. (b) Dilapidation provisions The Group is required to perform dilapidation repairs and in certain instances restore properties to agreed specifications prior to the properties being vacated at the end of their lease term. These amounts are based on estimates of repair and restoration costs at a future date and therefore a degree of uncertainty exists over the future outflows, given that these are subject to repair and restoration cost price fluctuations and the extent of repairs to be completed. The majority of the non-current portion of these provisions is expected to be utilised within the next two to nine years. (c) Onerous leases A provision is recognised where the costs of meeting the obligations under a lease contract exceed the economic benefits expected to be received and is measured as the net least cost of exiting the contract, being the lower of the cost of fulfilling it and any compensation or penalties arising from the failure to fulfil it. The majority of the non-current portion of these provisions is expected to be utilised within the next two to five years. (d) Restructuring provision This provision comprises termination payments to employees affected by restructuring and lease termination penalties. 136 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 201724.2 Employee benefit obligations In addition to the defined benefit obligation pension scheme disclosed in Note 10.2, the following are included in employee benefit obligations: Group At 1 January 2017 Additions through business combinations (Note 17.4) Provided during the year Utilised during the year Exchange movements At 31 December 2017 Total £m 25.0 1.2 9.2 (7.2) (1.0) 27.2 The above provisions relate to holiday pay and long service leave in the UK, Asia Pacific and Continental Europe. Profit shares are included within accruals (Note 21). The Company had £0.1m of employee benefit obligations as at 31 December 2017 (2016: £0.1m), relating to holiday pay and long service leave. The above employee benefit obligations have been analysed between current and non-current as follows: Current Non-current 25. Share capital – Group and Company Authorised and allotted Ordinary shares of 2.5p each: Authorised Issued, called up and fully paid Movement in issued, called up and fully paid share capital: Group 2017 £m 11.2 16.0 27.2 2017 £m 5.1 3.5 2017 Number of shares 2016 Number of shares 202,000,000 202,000,000 141,931,341 139,809,677 At 1 January Issued to direct participants on exercise of options under the Sharesave Scheme Issued to satisfy final instalment of shares due to former Studley, Inc. stockholders in relation to the acquisition in 2014 Issued to satisfy second instalment of shares due to former Studley, Inc. stockholders in relation to the acquisition in 2014 Issued to direct participants under the Performance Share Plan At 31 December 2017 Number of shares 139,809,677 6,891 1,947,976 – 166,797 141,931,341 2016 Number of shares 137,861,283 702 – 1,947,692 – £m 3.5 – – – – 3.5 139,809,677 2016 £m 9.2 15.8 25.0 2016 £m 5.1 3.5 £m 3.4 – – 0.1 – 3.5 Each issued, called up and fully paid ordinary share of 2.5p is a voting share in the capital of the Company, is entitled to participate in the profits of the Company and on winding-up is entitled to participate in the assets of the Company. Savills plc Report and Accounts 2017 137 Financial statementsGovernance Strategic reportOverview25. Share capital – Group and Company continued As at 31 December 2017, the EBT held 4,819,684 shares (2016: 5,706,307 shares) and the Rabbi Trust held 800,000 shares (2016: nil). These shares are held as ‘treasury shares’. Any voting or other similar decisions relating to these shares are taken by the trustees of the EBT and the Rabbi Trust, who may take account of any recommendation of the Company. The EBT waives all of its dividend entitlement. For further details of the EBT and the Rabbi Trust refer to Note 2.21. At the Annual General Meeting (AGM) held on 9 May 2017, the shareholders gave the Company authority, subject to stated conditions, to purchase for cancellation up to 13,967,033 of its own ordinary shares (AGM held on 11 May 2016: 13,786,130). Such authority remains valid until the conclusion of the next AGM or 11 November 2018, whichever is the earlier. 26. Share-based payment The Group operates four equity-settled share-based payment arrangements, namely the Sharesave Scheme, the Performance Share Plan (PSP), the Deferred Share Plan (DSP) and the Deferred Share Bonus Plan (DSBP). The Group recognised total expenses relating to equity- settled share-based payment transactions of £14.5m in 2017 (2016: £13.4m). Of the total share-based payments charge, £0.6m (2016: £0.8m) relates to the Sharesave schemes, £0.6m (2016: £1.1m) relates to PSP schemes, £4.7m (2016: £3.9m) relates to DSP schemes and £8.6m (2016: £7.6m) relates to DSBP schemes. Refer to the Remuneration Report for details of the various schemes, pages 58 to 73. 26.1 Movements in share schemes 2017 number of awards (‘000) Outstanding at 1 January Granted Exercised/cancelled Forfeited/lapsed Outstanding at 31 December Exercisable at 31 December Weighted average exercise price for awards outstanding at end of the year (pence) Weighted average remaining contractual life (years) Weighted average share price at the date of exercise for awards exercised in the year (pence) 2016 number of awards (‘000) Outstanding at 1 January Granted Exercised/cancelled Forfeited/lapsed Outstanding at 31 December Sharesave awards 1,066 – (42) (57) 967 – 666.2 0.5 PSP awards 690 172 (152) (152) 558 – – 1.9 DSP awards 2,333 297 (854) (54) 1,722 – – 1.8 DSBP awards 3,992 1,053 (954) (41) 4,050 – – 1.7 652.6 868.1 912.5 918.2 PSP awards DSP awards DSBP awards Sharesave awards 1,110 80 (73) (51) 490 200 – – 2,251 763 (591) (90) 1,066 690 2,333 3,633 1,521 (1,062) (100) 3,992 – – 1.8 – – 1.7 670.6 722.0 Exercisable at 31 December (‘000) Weighted average exercise price for awards outstanding at end of the year (pence) Weighted average remaining contractual life (years) Weighted average share price at the date of exercise for awards exercised in the year (pence) – 665.7 1.4 665.7 – – 1.3 n/a 138 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 201726.2 Fair value of options For all the DSP and DSBP schemes the fair value of awards is the closing share price before award date. The Actuarial Binomial model of actuaries Lane Clark & Peacock LLP is used to fair value awards granted under the PSP and Sharesave schemes. The key inputs to determine the fair value of the awards granted under the PSP scheme during 2017 are shown below. Performance Share Plan: Awards in the year ended 31 December 2017 Share price at grant date Risk-free rate Volatility of Savills share price Correlation of Savills share price to index Employee turnover 22 May 2017 887.5p 0.4% 25% per annum 46% Zero The expected volatility is measured over the three years prior to the date of grant to match the vesting period of the award. The risk-free rate is the yield on a zero coupon UK government bond at each grant date, with term based on the expected life of the option or award. The fair values of options granted in the period are shown below. Grant DSBP 2017 DSP 2017 DSP 2017 PSP 2017 Grant date 18 April 2017 18 April 2017 18 September 2017 22 May 2017 Deferred period Fair value pence 3 – 4 years 1 – 5 years 3 – 4 years 5 years 929.0 929.0 885.5 728.4 27. Retained earnings and other reserves Share- based payments reserve £m Treasury shares £m Profit and loss account* £m Total retained earnings* £m Capital redemption and capital reserve £m Merger relief reserve £m Foreign exchange reserve £m Revaluation reserve £m Total other reserves £m Balance at 1 January 2017 28.9 (37.9) 204.8 195.8 1.7 23.6 77.6 1.0 103.9 Profit attributable to owners of the Company Other comprehensive income/(loss) Employee share option scheme: – – – Value of services provided 14.5 – – – – Exercise of options – Withdrawal of options Purchase of treasury shares Dividends Shares issued Disposal of available-for-sale investments (10.1) 13.4 (0.1) – – – – – (17.2) – – – 80.1 13.3 – (3.3) 0.1 – (39.3) – – 80.1 13.3 14.5 – – (17.2) (39.3) – – – – – – – – – – – – – – – – 11.3 – Balance at 31 December 2017 33.2 (41.7) 255.7 247.2 1.7 34.9 – (16.1) – 0.5 – (15.6) – – – – – – – – – – (0.5) 61.0 (0.7) 0.8 – – – – 11.3 (1.2) 98.4 * Included within profit and loss account is tax on items taken directly to equity (Note 12) as disclosed above. Savills plc Report and Accounts 2017 139 Financial statementsGovernance Strategic reportOverview27. Retained earnings and other reserves continued Share- based payments reserve £m 23.0 Treasury shares £m Profit and loss account* £m Total retained earnings* Capital redemption reserve £m (26.0) 210.8 207.8 Balance at 1 January 2016 Profit attributable to owners of the Company Other comprehensive (loss)/income Employee share option scheme: – Value of services provided – Exercise of options Purchase of treasury shares Dividends Shares issued Transfer between reserves Transactions with non-controlling interests – – 13.4 (7.5) – – – – – – – – 11.3 (23.2) – – – – 66.9 (28.7) – (3.8) – (35.4) – (1.4) 66.9 (28.7) 13.4 – (23.2) (35.4) – (1.4) (3.6) (3.6) Balance at 31 December 2016 28.9 (37.9) 204.8 195.8 * Included within profit and loss account is tax on items taken directly to equity (Note 12) as disclosed above. Merger relief reserve £m Foreign exchange reserve £m Revaluation reserve £m Total other reserves £m 12.0 25.2 1.6 39.1 – – – – – – 11.6 – – – 52.4 – – (0.6) 51.8 – – – – – – – – – – – – – – – – – – 11.6 1.4 – 23.6 77.6 1.0 103.9 £m 0.3 – – – – – – – 1.4 – 1.7 28. Contingent liabilities In common with comparable professional services businesses, the Group is involved in a number of disputes in the ordinary course of business. Provision is made in the financial statements for all claims where costs are likely to be incurred and represents the cost of defending and concluding claims. The Group carries professional indemnity insurance and no separate disclosure is made of the cost of claims covered by insurance as to do so could seriously prejudice the position of the Group. 29. Operating lease commitments – minimum lease payments The future aggregate minimum lease payments under non-cancellable operating leases are as follows: Amounts due within: Within 1 year Between 1 to 5 years After 5 years Group 2017 £m 51.1 136.8 123.0 310.9 2016 £m 43.9 122.5 124.3 290.7 Company 2017 £m 7.0 28.1 70.3 105.4 2016 £m 7.8 31.4 86.2 125.4 Significant operating leases relate to the various property leases for Savills offices in the UK, Continental Europe, Asia Pacific and North America. There are no significant non-cancellable sub-leases. 140 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 201730. Cash generated from operations Group Company Profit for the year Adjustments for: Income tax (Note 12) Depreciation (Note 16) Amortisation of intangible assets (Note 15) Impairment of goodwill (Note 15) Net profit on disposal of available-for-sale investments and joint ventures Net finance cost/(income) (Note 11) Share of post-tax profit from joint ventures and associates (Note 17.1) Decrease in employee and retirement obligations Exchange movement on operating activities Increase/(decrease) in provisions Charge for share-based compensation (Note 26) Exercise of share options Operating cash flows before movements in working capital (Increase)/decrease in work in progress (Increase)/decrease in trade and other receivables Increase/(decrease) in trade and other payables Cash generated from operations 2017 £m 81.1 31.3 13.5 7.0 2.3 (5.9) 1.3 (9.9) (7.9) (0.2) 2.3 14.5 – 129.4 (0.7) (44.1) 60.5 145.1 2016 £m 67.7 32.1 12.7 6.9 – (0.1) 0.8 (7.9) (6.3) 2.4 (3.0) 13.4 – 118.7 0.3 (17.1) 15.9 117.8 2017 £m 64.0 (2.1) 1.1 0.3 – – (0.8) – (0.5) – (1.3) 2.4 (13.4) 49.7 – 8.6 (8.4) 49.9 2016 £m 80.9 (2.2) 1.2 0.4 – – (1.0) – (0.5) – 0.6 2.4 (11.2) 70.6 – 4.4 (4.7) 70.3 Foreign exchange movements resulted in a £8.9m decrease in current and non-current trade and other receivables (2016: £31.9m increase) and a £16.4m decrease in current and non-current trade and other payables (2016: £56.6m increase). 31. Analysis of cash net of debt 2017 Cash and cash equivalents Bank overdrafts Bank loans Finance leases Cash and cash equivalents net of debt 2016 Cash and cash equivalents Bank overdrafts Bank loans Cash and cash equivalents net of debt At 1 January £m Cash flows £m 223.6 (0.2) 223.4 (35.6) – 187.8 (7.6) (3.4) (11.0) (70.9) – (81.9) Additions through business combinations £m Exchange movement £m At 31 December £m – – – – (0.1) (0.1) (7.2) – (7.2) – – (7.2) 208.8 (3.6) 205.2 (106.5) (0.1) 98.6 At 1 January £m Cash flows £m Exchange movement £m At 31 December £m 182.4 (0.2) 182.2 (31.2) 151.0 9.0 – 9.0 (4.1) 4.9 32.2 – 32.2 (0.3) 31.9 223.6 (0.2) 223.4 (35.6) 187.8 Savills plc Report and Accounts 2017 141 Financial statementsGovernance Strategic reportOverview32. Related party transactions There were no significant related party transactions during the year. (a) Loans to related parties Loans to joint ventures are disclosed in Note 17.1. (b) Company transactions The Company provided corporate function services to its subsidiaries at an arm’s length value of £19.4m (2016: £18.9m). Dividends of £60.0m were received from subsidiaries during the year (2016: £80.0m). Amounts outstanding to and from subsidiaries as at 31 December 2017 are disclosed in Notes 19, 21. 33. Group – Investments In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, partnerships, associates and joint ventures, the registered office and the percentage of equity owned by the Group, as at 31 December 2017, are disclosed below. All subsidiary undertakings are consolidated into the Group financial statements. Unless otherwise stated the share capital is wholly comprised of ordinary shares which are indirectly held by the Company. Fully-owned subsidiary Corporate Real Estate Services Pty Ltd Incoll Group Pty Ltd Incoll Management Pty Ltd Moores Cost Consulting Pty Ltd Savills (ACT) Pty Ltd Savills (Aust) Holdings Pty Ltd Savills (Aust) Pty Ltd Savills (NSW) Pty Ltd Savills (QLD) Pty Ltd Savills (SA) Pty Ltd Savills (TAS) Pty Ltd Savills (VIC) Pty Ltd Savills (WA) Pty Ltd Savills Investment Management (Australia) Pty Ltd Savills Project Management Pty Ltd Savills Project Services (SA) Pty Ltd Savills Property Management (NSW) Pty Ltd Savills Valuations Pty Ltd Savills Canada Inc Savills Studley Services Inc Savills Studley Inc (Canada) Guardian Property Services (Shanghai) Company Ltd Larry Smith Consulting Asia Ltd Savills Property Services (Beijing) Company Ltd Savills Property Services (Chengdu) Company Ltd Savills Property Services (Guangzhou) Company Ltd Savills Property Services (Hengqin) Ltd Savills Property Services (Shanghai) Company Ltd Savills Property Services (Tianjin) Company Ltd Savills Property Services (Zhuhai) Company Ltd Savills Real Estate Valuation (Beijing) Company Ltd Savills Real Estate Valuation (Guangzhou) Company Ltd Country of incorporation Registered office Australia Australia Australia Australia Australia Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 (ii) Australia Level 25, 1 Farrer Place, Sydney, NSW 2000 Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Australia Canada Canada Canada China China China China China China China China China China China Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 36, Gateway, 1 Macquarie Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 Level 25, 1 Farrer Place, Sydney, NSW 2000 181 Bay Street - Suite 200, Toronto, ON M5J 2T3 181 Bay Street - Suite 200, Toronto, ON M5J 2T3 181 Bay Street - Suite 200, Toronto, ON M5J 2T3 Room 220, Block 1, No.100 Jinyu Road, Pu Dong, Shanghai Room 340, 3/F, No.150 Liu Lin Road, Huangpu District, Shanghai 2101 East Tower, Twin Towers, B-12 Jianguomenwai Avenue, Chaoyang District, Beijing 100022 Room 2106, Yanlord Landmark, No.1 Section 2, Renmin South Road, Chengdu 610016 Room 906, R&F Center, No.10 Hua Xia Road, Zhujiang New Town, Guangzhou 510623 Room 105-19233, No. 6 Baohua Road, Hengqin New Area, Zhuhai Unit 212, No.286 Dong Fang Road, Pu Dong, Shanghai Unit 4607, Tianjin World Financial Center, No.2 Dagu North Road, Xiaobailou Street, Heping District, Tianjin Room 2204, 22/F, Tower B, China Overseas Building, Midtown, No. 2021 Jiuzhou West Avenue, Zhuhai Unit 01, 21/F, East Tower, Twin Towers, B-12 Jianguomenwai Avenue, Chaoyang District, Beijing 100022 Room 2105, R&F Center, No.10 Hua Xia Road, Zhujiang New Town, Guangzhou 510623 Unit 07, 21/F, East Tower, Twin Towers, B-12 Jianguomenwai Avenue, Chaoyang District, Beijing 100022 Savills Valuation and Professional Services (BJ) Ltd China 142 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017Fully-owned subsidiary Savills Valuation and Professional Services (GZ) Ltd Shenzhen Guardian Property Management Ltd Swan Property Services (Beijing) Company Ltd Savills CZ s.r.o. SB Property Services a.s. Savills Investment Management ApS Savills Investment Management SAS Piccadilly General Partner GmbH Savills Advisory Services Germany GmbH & Co. KG Savills Advisory Services GmbH Savills Fund Management Holding AG Savills Immobilien Beratungs GmbH Savills Immobilien Beteiligungs GmbH Savills Immobilien Management GmbH Savills Investment Management (Germany) GmbH Country of incorporation Registered office China China China Room 2105, R&F Centre, No.10 Hua Xia Road, Zhujiang New Town, Guangzhou Room 3, Unit A, 5/F, Anlian Plaza, No.4018 Jintian Road, Futian District, Shenzhen 518026 2101 East Tower, Twin Towers, B-12 Jianguomenwai Avenue, Chaoyang District, Beijing 100022 Czech Republic V Celnici 1031/4, 110 00 Prague 1 Czech Republic Vaclavske Namesti 793/36, Nove Mesto, 110 00 Prague 1 Denmark France Germany Germany Germany Germany Germany Germany Germany Germany Østergade 13, 2/F, 1100, København K 54-56 Avenue Hoche, 75008 Paris Rotfeder-Ring 7, D-60327 Frankfurt-am-Main Taunusanlage 19, 60325 Frankfurt-am-Main Taunusanlage 19, 60325 Frankfurt-am-Main Rotfeder-Ring 7, D-60327 Frankfurt-am-Main Taunusanlage 19, 60325 Frankfurt-am-Main Taunusanlage 19, 60325 Frankfurt-am-Main Hardenbergstraße 27, 10623 Berlin Sonnenstrasse 19, Munich Savills Guernsey Ltd Guernsey 22 Smith Street, St Peter Port, Guernsey, GY1 2JQ Asia Protection Security Associates Ltd Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Bridgewater Management Ltd BTHK Property Management Ltd Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong Rooms 805-813, 8/F, Cityplaza One, 1111 King's Road, Taikoo Shing Champion Insurance and Computer Services Ltd Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Dominion Office Centre Ltd East Full Company Ltd Eco-Guardian Ltd Express Engineering Ltd Express Maintenance Services Ltd Gateway Contractors Ltd Greenscape Ltd GRVM Ltd Guard Able Ltd Guardian Care Ltd Guardian Management Services Ltd Guardian Mandarin Management Ltd Guardian Partners Ltd Guardian Property Agencies Ltd Guardian Property Management Ltd Hip Kwan Property Management Ltd Kenda Services Ltd Kwik Park Ltd Larry Smith Asia Ltd Mount Link Services Ltd Quartey Properties Ltd Savills (China) Ltd Savills (Hong Kong) Ltd Savills Asia Pacific Ltd Savills Associates Ltd Savills Building Services Ltd Savills Design Ltd Savills Engineering Ltd Savills Guardian (Holdings) Ltd Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong Unit 1009, 10/F, Chinachem Golden Plaza, 77 Mody Road, Tsim Sha Tsui East, Kowloon Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 23/F, Two Exchange Square, 8 Connaught Place, Central Hong Kong 23/F, Two Exchange Square, 8 Connaught Place, Central (ii) Hong Kong 23/F, Two Exchange Square, 8 Connaught Place, Central Hong Kong Whole Block, No.3 Norfolk Road, Kowloon Tong, Kowloon Hong Kong Rooms 805-813, 8/F, Cityplaza One, 1111 King's Road, Taikoo Shing Hong Kong Rooms 805-813, 8/F, Cityplaza One, 1111 King's Road, Taikoo Shing Hong Kong Rooms 805-813, 8/F, Cityplaza One, 1111 King's Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Savills plc Report and Accounts 2017 143 Financial statementsGovernance Strategic reportOverview33. Group – Investments continued Fully-owned subsidiary Savills India Holding Ltd Savills Indonesia Holding Ltd Country of incorporation Registered office Hong Kong 23/F, Two Exchange Square, 8 Connaught Place, Central Hong Kong 23/F, Two Exchange Square, 8 Connaught Place, Central Savills Investment Management (Hong Kong) Ltd Hong Kong Level 54, Hopewell Centre, 183 Queen's Road East Savills Investment Management Asia Ltd Hong Kong Level 54, Hopewell Centre, 183 Queen's Road East Savills Management Services Ltd Savills Philippines Holding Ltd Savills Project Consultancy Ltd Hong Kong 23/F, Two Exchange Square, 8 Connaught Place, Central Hong Kong 23/F, Two Exchange Square, 8 Connaught Place, Central Hong Kong Rooms 805-813, 8/F, Cityplaza One, 1111 King's Road, Taikoo Shing Savills Property Management Holdings Ltd Hong Kong Rooms 805-813, 8/F, Cityplaza One, 1111 King's Road, Taikoo Shing Savills Property Management Ltd Hong Kong Rooms 805-813, 8/F, Cityplaza One, 1111 King's Road, Taikoo Shing Savills Realty Ltd Savills Regional Services Ltd Savills Residence Ltd Hong Kong 23/F, Two Exchange Square, 8 Connaught Place, Central Hong Kong 23/F, Two Exchange Square, 8 Connaught Place, Central Hong Kong Rooms 805-813, 8/F, Cityplaza One, 1111 King's Road, Taikoo Shing Savills Valuation and Professional Services Ltd Hong Kong 23/F, Two Exchange Square, 8 Connaught Place, Central Security and Safety Ltd Swan Hygiene Services Ltd Swan Pest Control Services Ltd Tarrayon Ltd Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing The Peninsular Centre Retailers Association Ltd Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing FPD Property Services (India) Private Ltd Savills Realty (India) Private Ltd Actium Anateo Ltd HOK Financial Services Liffey Valley Management Ltd Mahon Point Management Ltd Savills Advisory Services (Ireland) Limited India India (ii) Ireland (ii) Ireland Ireland Ireland Ireland Ireland 133/3 Brigade Road (Raheja Chancery Building) Richmond Town, Bangalore, Karnataka 560025 No. 65/6, Sarjapur Ring Road, Agara, Bangalore, Karnataka 560102 33 Molesworth Street, Dublin 2 33 Molesworth Street, Dublin 2 33 Molesworth Street, Dublin 2 33 Molesworth Street, Dublin 2 33 Molesworth Street, Dublin 2 33 Molesworth Street, Dublin 2 Savills Commercial (Ireland) Ltd (ii) Ireland 33 Molesworth Street, Dublin 2 Savills Management Resource Ireland Ltd Savills Residential (Ireland) Ltd White Water (Newbridge) Ltd White Water Management Ltd White Water Residential DAC Larry Smith S.r.l. Savills Italy S.r.l. Savills Asset Advisory Company Ltd Savills Investment Architecture Design GK Savills Japan Company Ltd Greater Tokyo Office Fund (Jersey) GP Ltd Prime London Residential Development Jersey GP Ltd Prime London Residential Development Jersey II GP Ltd Savills (Jersey) Ltd Savills Investment Management (Jersey) Ltd Ireland Ireland Ireland Ireland Ireland Italy Italy Japan Japan Japan Jersey Jersey Jersey Jersey Jersey 33 Molesworth Street, Dublin 2 33 Molesworth Street, Dublin 2 33 Molesworth Street, Dublin 2 33 Molesworth Street, Dublin 2 33 Molesworth Street, Dublin 2 Viale Vittorio Veneto 20, 20124 Milan Via San Paolo 7, 20121 Milan Yurakucho ITOCIA 15/F, 2-7-1 Yurakucho, Chiyoda-ku, Tokyo 100-0006 3/F BPR Place Kamiyacho, 1-11-9 Azabudai, 1 Chome-11 Azabudai, Minato- ku, Tokyo 106-0041 Yurakucho ITOCIA 15/F, 2-7-1 Yurakucho, Chiyoda-ku, Tokyo 100-0006 3/F Walker House, 28-34 Hill Street, St Helier, JE4 8PN 3/F Walker House, 28-34 Hill Street, St Helier, JE4 8PN 3/F Walker House, 28-34 Hill Street, St Helier, JE4 8PN 19 Halkett Place, St Helier, JE2 4WG 3/F Walker House, 28-34 Hill Street, St Helier, JE4 8PN Cordea Savills Italian Opportunities No.2 S.a.r.l. Luxembourg 10, rue C.M. Spoo CS Italian Opportunities No.1 S.a.r.l. Savills IM European Fund V GP S.a.r.l. Savills (Macau) Ltd Savills Project Consultancy (Macau) Ltd Savills Property Management (Macau) Ltd Savills (Myanmar) Ltd Savills B.V. Savills Holdings B.V. 144 Savills plc Report and Accounts 2017 Luxembourg 10, rue C.M. Spoo Luxembourg 10, rue C.M. Spoo Macau Macau Macau Myanmar Suite 1309-1310, 13/F Macau Landmark, 555 Avenida da Amizade Suite 1309-1310, 13/F Macau Landmark, 555 Avenida da Amizade Suite 1309-1310, 13/F Macau Landmark, 555 Avenida da Amizade No. 8, Unit 8-A, Centerpoint Towers, No. 65, Corner of Sule Pagoda Road & Merchant Street, Kyauktada Township, Yangon Netherlands Viñoly Building, Claude Debussylaan 48, Amsterdam 1082 MD Netherlands Viñoly Building, Claude Debussylaan 48, Amsterdam 1082 MD Notes to the financial statements continuedYear ended 31 December 2017Fully-owned subsidiary Country of incorporation Registered office Savills Investment Management B.V. Netherlands Vida Building, Kabelweg 57, 1014 BA Amsterdam Savills (NZ) Ltd Savills (NI) Ltd New Zealand Level 8, 33 Shortland Street, Auckland Central, Auckland, 1010 Northern Ireland 1/F, Lesley Studios, 32-36 May Street, Belfast, BT1 4NZ FPD Management Services Philippines Inc Philippines Sun Life Centre, 5th Avenue Corner Rizal Drive, Bonifacio Global City, Philippines 1634 Savills Investment Management Sp Zoo Savills Property Management Sp Zoo Savills Sp Zoo Aguirre Newman Portugal Consultoria Lda Aguirre Newman Portugal Mediacao Imobiliaria Lda Savills (SEA) Pte Ltd Savills (Singapore) Pte Ltd Savills Asset Management Pte Ltd Savills Investment Management Pte Ltd Savills Property Management Pte Ltd Savills Residential Pte Ltd Savills Valuation & Professional Services (S) Pte Ltd Studley (Singapore) Pte Ltd Savills Asset Management Pte Ltd Poland Poland Poland Portugal Portugal Singapore Singapore Singapore Singapore Singapore Singapore Singapore Singapore Ul. Miła 2, 00-180 Warsaw Ul. Złota 59, 00-120 Warsaw Ul. Złota 59, 00-120 Warsaw Praça Marquês de Pombal, 16 – 7º, 1250163 Lisbon Praça Marquês de Pombal, 16 – 7º, 1250163 Lisbon 30 Cecil Street #20-03 Prudential Tower, 049712 30 Cecil Street #20-03 Prudential Tower, 049712 20 Martin Road #03-01/02 Seng Kee Building, 239070 80 Robinson Road, #02-00, 068898 20 Martin Road #03-01/02 Seng Kee Building, 239070 30 Cecil Street #20-03 Prudential Tower, 049712 30 Cecil Street #20-03 Prudential Tower, 049712 190 Middle Road #15-01 Fortune Centre, 188979 South Korea 13F Seoul Finance Center, 136 Sejong-daero Jung-gu, Seoul Savills Korea Advisors Realty Company Ltd South Korea 15F Tower8, 7 Jongro5-gil Jongno-gu, Seoul Savills Korea Company Ltd South Korea 13F Seoul Finance Center, 136 Sejong-daero Jung-gu, Seoul Aguirre Newman Arquitectura Barcelona SAU Aguirre Newman Arquitectura SAU Aguirre Newman Madrid SAU Savills Aguirre Newman SAU Aguirre Newman Valoraciones y Tasaciones SAU Aguirre Newman Urbanismo SAU Auirre Newman Barcelona SAU Savills Consultores Inmobiliarios SA Savills Investment Management S.L Zaphir Asset Management SLU Loudden Bygg-och Fastighetsservice AB Savills Förvaltning AB Savills Investment Management AB Savills Sweden AB Savills (Taiwan) Ltd Savills Residential Services (Taiwan) Ltd Spain Spain Spain Spain Spain Spain Spain Spain Spain Spain Sweden Sweden Sweden Sweden Taiwan Taiwan Avda. Diagonal 609-615, Barcelona Calle General Lacy 23, 28045 Madrid Calle General Lacy 23, 28045 Madrid Calle General Lacy 23, 28045 Madrid Avda. Diagonal 609-615, Barcelona Calle General Lacy 23, 28045 Madrid Avda. Diagonal 609-615, Barcelona José Abascal, 45 - 1ª planta, 28003 Madrid Calle Velazquez 78 1, 28001 Madrid Calle General Lacy 23, 28045 Madrid Box 6317, 102 35 Stockholm Sergels Torg 12, 111 57 Stockholm Kungsgatan 56, 111 22 Stockholm Sergels Torg 12, 111 57 Stockholm 21/F, No. 68, Sec. 5, Zhong-Xiao East Road, Taipei 110 21/F, No. 68, Sec. 5, Zhong-Xiao East Road, Taipei 110 Savills Valuation & Professional Services (Taiwan) (iii) Taiwan 21/F, No. 68, Sec. 5, Zhong-Xiao East Road, Taipei 110 Savills (Thailand) Ltd Savills Security and Safety Company Ltd Thailand Thailand 990 Abdulrahim Place Building, 26/F, Rama IV Road, Silom Subdistrict, Bang Rak District, Bangkok 990 Abdulrahim Place Building, 26/F, Rama IV Road, Silom Subdistrict, Bang Rak District, Bangkok Blair Kirkman LLP Buckleys Estate Agents Ltd Chesterfield & Co (Rentals) Ltd Christopher Rowland Ltd Collier & Madge Holdings Ltd Collier & Madge plc Cordea Savillls SLP GP Ltd Cordea Savillls SLP II LP Cordea Savillls SLP LP Cordea Savills Investments Ltd GBR Phoenix Beard Ltd GBR Phoenix Beard Group Ltd United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom Wemyss House, 8 Wemyss Place, Edinburgh, EH3 6DH United Kingdom 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ United Kingdom Wemyss House, 8 Wemyss Place, Edinburgh, EH3 6DH United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD Savills plc Report and Accounts 2017 145 Financial statementsGovernance Strategic reportOverview33. Group – Investments continued Fully-owned subsidiary GBR Phoenix Beard Holdings Ltd GBR Phoenix Beard Residential Ltd GBR Property Consultant Ltd Granville Residential Ltd Grosvenor Hill Ventures Ltd GTOF Co-Investment GP LLP GTOF Co-Investment LP Country of incorporation Registered office United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom Citypoint, 65 Haymarket Terrace, Edinburgh, Scotland, EH12 5HD United Kingdom Citypoint, 65 Haymarket Terrace, Edinburgh, Scotland, EH12 5HD Hanover Facilities Management Ltd United Kingdom 33 Margaret Street, London, W1G 0JD Hepher Dixon Ltd United Kingdom 33 Margaret Street, London, W1G 0JD Holden Matthews Estate Agents Ltd United Kingdom 33 Margaret Street, London, W1G 0JD Humphriss & Ryde Ltd Jago Dean PR Ltd United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD LIBRA Housing Advisory Services Ltd United Kingdom 33 Margaret Street, London, W1G 0JD Mansfield Elstob Main Ltd United Kingdom 33 Margaret Street, London, W1G 0JD Moor House Management Services Ltd United Kingdom 33 Margaret Street, London, W1G 0JD Optic Asset Management Ltd PCA Holdings Ltd United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD PCA Management Consultants Limited United Kingdom 33 Margaret Street, London, W1G 0JD Phoenix Beard Landscaping Ltd Phoenix Beard Manpower Ltd Phoenix Beard Trustees Ltd Portnalls Ltd United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD Prime London Residential Development Co-Investment GP LLP United Kingdom 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ Prime London Residential Development Co-Investment II GP LLP United Kingdom 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ Prime London Residential Development Co-Investment II LP United Kingdom 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ Prime London Residential Development Co-Investment LP United Kingdom 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ Prime London Residential Development GP LLP United Kingdom 33 Margaret Street, London, W1G 0JD Prime London Residential Development II GP LLP United Kingdom 33 Margaret Street, London, W1G 0JD Prime Purchase Ltd Rickitt Grant & Company Ltd S F Securities Ltd Savillls IM SLP II GP LLP United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 50 Lothian Road, Festival Square, Edinburgh, EH3 9WJ Savillls IM UK Income and Growth General Partner LLP United Kingdom 33 Margaret Street, London, W1G 0JD Savills (Europe) Ltd Savills (L&P) Ltd Savills (Overseas Holdings) Ltd Savills (UK) Ltd United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD Savills Advisory Services (L&P) Ltd United Kingdom 33 Margaret Street, London, W1G 0JD Savills Advisory Services Ltd Savills Asset Warehouse 1 Ltd Savills Asset Warehouse 2 Ltd Savills Capital Advisors Ltd Savills Commercial (Leeds) Ltd Savills Commercial Ltd Savills Finance Holdings plc Savills Financial Services Ltd Savills Holding Company Ltd Savills IM Dawn GP Ltd Savills IM Holdings Ltd Savills IM Investco Ltd United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD (i) United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD Savills IM SLP General Partner LLP United Kingdom Wemyss House, 8 Wemyss Place, Edinburgh, EH3 6DH Savills IM SLP III GP LLP United Kingdom Citypoint, 65 Haymarket Terrace, Edinburgh, Scotland, EH12 5HD 146 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017Fully-owned subsidiary Savills IM SLP III LP Savills IM UK One Ltd Country of incorporation Registered office United Kingdom Citypoint, 65 Haymarket Terrace, Edinburgh, Scotland, EH12 5HD United Kingdom 33 Margaret Street, London, W1G 0JD Savills IM UK Property Ventures No.1 GP Ltd United Kingdom 33 Margaret Street, London, W1G 0JD Savills IM UK Two Ltd United Kingdom 33 Margaret Street, London, W1G 0JD Savills Investment Management (UK) Ltd United Kingdom 33 Margaret Street, London, W1G 0JD Savills Investment Management LLP United Kingdom 33 Margaret Street, London, W1G 0JD Savills Investment Management Overseas Holdings Ltd United Kingdom 33 Margaret Street, London, W1G 0JD Savills Italy Holding Ltd Savills Lending Solutions Ltd Savills Management Resources Ltd Savills Nominee Company Ltd Savills Telecom Ltd Serviced Land No.1 GP Ltd Serviced Land No.2 GP Ltd Serviced Land No.2 JV GP Ltd Smith Woolley Ltd Stratland Management Ltd United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD United Kingdom 33 Margaret Street, London, W1G 0JD The London Planning Practice Ltd United Kingdom 33 Margaret Street, London, W1G 0JD Wellington Holdings Ltd BTR Capital Advisors I LLC BTR Capital Advisors II Inc BTR Capital Advisors III Inc Gravitas Lease Audit Services LLC Gravitas Real Estate Solutions LLC Kelly, Legan & Gerard Inc Savills (L&P) Inc Savills America Ltd United Kingdom 33 Margaret Street, London, W1G 0JD United States 399 Park Avenue - 11/F, New York, NY 10022 United States 399 Park Avenue - 11/F, New York, NY 10022 United States 399 Park Avenue - 11/F, New York, NY 10022 United States 399 Park Avenue - 11/F, New York, NY 10022 United States 399 Park Avenue - 11/F, New York, NY 10022 United States 399 Park Avenue - 11/F, New York, NY 10022 United States Unex House, 132-134 Hils Road, Cambridge CB2 8PA United States 399 Park Avenue - 11/F, New York, NY 10022 Savills Investment Management (USA) Inc United States 251 Little Falls Drive, Wilmington, DE 19808 Savills Investment Management Inc United States 251 Little Falls Drive, Wilmington, DE 19808 Savills LLC Savills Studley (GA) Inc Savills Studley Inc United States 399 Park Avenue - 11/F, New York, NY 10022 United States 399 Park Avenue - 11/F, New York, NY 10022 United States 399 Park Avenue - 11/F, New York, NY 10022 Savills Studley Occupier Services Inc United States 399 Park Avenue - 11/F, New York, NY 10022 Savills Studley Securities LLC United States 399 Park Avenue - 11/F, New York, NY 10022 SSOC LLC Studley Asia Holdings United States 399 Park Avenue - 11/F, New York, NY 10022 United States 399 Park Avenue - 11/F, New York, NY 10022 Studley Gravitas Real Estate Solutions LLC United States 399 Park Avenue - 11/F, New York, NY 10022 The Great Studley Stamp Company Savills Vietnam Company Ltd United States 399 Park Avenue - 11/F, New York, NY 10022 Vietnam 6/F, Sentinel Place building, 41A Ly Thai To, Hoan Kiem District, Hanoi City Savills plc Report and Accounts 2017 147 Financial statementsGovernance Strategic reportOverview33. Group – Investments continued Subsidiaries of which the Group owns less than 100% Savills Belux Group SA % owned Country of incorporation Registered office 99.90 Belgium Avenue Louise 81, 1050 Brussels Savills Property Services (Shenzhen) Company Ltd 85.00 China Unit A, 5/F Anlian Plaza, No.4018 Jintian Road, Futian District, Shenzhen 518026 Savills SA Savills Valuation SAS 99.97 France 21 Boulevard Haussmann 75009, Paris 99.97 France 21 Boulevard Haussmann, 75009 Paris Savills Fund Management GmbH 94.00 Germany Rotfeder-Ring 7, D-60327 Frankfurt-am-Main Savills Investment Management (KVG) GmbH 94.90 Germany Rotfeder-Ring 7, D-60327 Frankfurt-am-Main Absolute Result Ltd 80.20 Hong Kong 23/F, Two Exchange Square, 8 Connaught Place, Central Savills Billion Property Management Ltd 80.00 Hong Kong Rooms 805-813, 8/F, Cityplaza One, 1111 King's Road, Taikoo Shing Savills Showcase Ltd 65.00 Hong Kong Rooms 805-813, 8/F, Cityplaza One, 1111 King's Road, Taikoo Shing PT Savills Consultants Indonesia 80.40 Indonesia Indonesia Stock Exchange Building, Tower I, Lt. 12, Jl. Jend. Sudirman, Kav. 52-53, Senayan, Kebayoran Baru, Jakarta Selatan Savills Investment Management SGR S.p.A 75.00 Italy Via San Paolo 7, 20121 Milan Savills Investment Management (Luxembourg) S.à.r.l. 94.90 Luxembourg 10, rue C.M. Spoo Savill Asset and Property Management BV 90.25 Netherlands Viñoly Building, Claude Debussylaan 48, Amsterdam 1082 MD Savills Agency BV Savills Consultancy BV Savills Investments BV 90.25 Netherlands Viñoly Building, Claude Debussylaan 48, Amsterdam 1082 MD 90.25 Netherlands Viñoly Building, Claude Debussylaan 48, Amsterdam 1082 MD 90.25 Netherlands Viñoly Building, Claude Debussylaan 48, Amsterdam 1082 MD Savills Nederland Holdings BV 90.25 Netherlands Viñoly Building, Claude Debussylaan 48, Amsterdam 1082 MD Savills Retail BV Tagis BV 90.25 Netherlands Viñoly Building, Claude Debussylaan 48, Amsterdam 1082 MD 90.25 Netherlands Viñoly Building, Claude Debussylaan 48, Amsterdam 1082 MD Tagis Property Management BV 90.25 Netherlands Viñoly Building, Claude Debussylaan 48, Amsterdam 1082 MD SGDN Ltd Joint Ventures 51.00 United Kingdom Stuart House, City Road, Peterborough, PE1 1QF % owned Country of incorporation Registered office Anlian Savills Property Management (Shenzhen) Ltd 25.5 China Unit B02(b), 19/F,Anlian Plaza, No.4018, Jintian Road, Futian District, Shenzhen Beijing BHG Savills Retail & Property Management Company Ltd Beijing CCP & Savills Property Services Management Company Ltd Beijing China Railway Savills Property Management 30.00 China Room 107, Block 1, No 208, Lane 4, North Xiangyun Road, Daxing District, Beijing 25.00 China A6 West Da Wang Road, Chaoyang District, Beijing Services Company Ltd 49.00 China Room 926, 15 Guang An Road, Feng Tai District, Beijing Beijing Financial Street Savills Property Management Company Ltd 30.00 China B1/F, Tong Tai Building, 33 Financial Street, West District, Beijing Beijing Haizhi Savills Property Management Company Ltd 40.00 China Room 0006, 1/F, 18 Zhong Guan Cun Avenue, Haidian District, Beijing Beijing Jiaming Savills Property Management Company Ltd 35.00 China B2 Floor, No. 27 East 3rd Ring Rd North, Chaoyang District, Beijing Beijing Oriental Savills Asset Management Company Ltd 30.00 China Unit 303, 3/F No, 9 West Street Wangfujing, Dongcheng District, Beijing Beijing Tianrun Savills Property Management Company Ltd 49.00 China Unit 3501A, 35/F, No. 8 Jianguomenwai Dajie, Chaoyang District, Beijing Beijing Zhaotai Savills Property Services Company Ltd 30.00 China B1 Floor, 11 Fenghui Yuan, Tai Ping Avenue, Xicheng District, Beijing Beijing Zhong Bao Savills Property Management Company Ltd 10.00 China 603 China Life Tower, 16 Chao Wai Street, Chaoyang District, Beijing COSCO FPDSavills Property Development Company Ltd 25.00 China East Kang Qiao Road No.1, Nanhui District, Shanghai Everbright Savills Property Management Company Ltd 45.00 China Room E-266, 3/F, Ru Shan Road No.227, Pilot Free Trade Zone, Shanghai Fuzhou Hengli & Savills Property Management Company Ltd 45.00 China Unit B, 4/F Zhongliu City, No.171, Hu Dong Road, Gu Lou District, Fuzhou 148 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017Joint Ventures % owned Country of incorporation Registered office Gohigh Savills (Shanghai) Property Management Company Ltd 49.00 China Guangzhou Nansi & Savills Property Management Company Ltd 49.00 China Savills BM Property Services Company Ltd 40.00 China Savills Raycom Property Management (Beijing) Company Ltd 30.00 China Shanghai No.1 and FPDSavills Property Management Company Ltd Shanghai Poly Savills Property Management Company Ltd Shanxi Zhidi Savills Property Services Company Ltd Shenzhen Qianhai Savills Property Services Company Ltd 51.00 China 30.00 China 30.00 China 40.00 China Suzhou Industial Park Wanrun & FPD Savills Property Management Company Ltd 45.00 China Tianjin TEDA Savills Property Services Company Ltd 10.00 China Room 203D, 2/F, No. 21, Lane 596 Middle Yanan Road, Jingan District, Shanghai Room 1304, Feng Ze Dong Road No.106, Nan Sha Area, Guangzhou Room 115, No.53, Lane 749, Middle Tianmu Road, Zhabei District, Shanghai B1-023 Raycom Center, 2 South Road, Ke Xue Yan, Haidian District, Beijing Room 308-C, No.727, Zhangjiang Rd, Zhangjiang Town, Pudong District, Shanghai N24/F, 528 South Pu Dong Road, Pu Dong, Shanghai 4/F, block 3, No.42 Xing Shan Temple, Xi’an City Unit 201, A Tower, No.1, Qian Wan Road, Qianhai Shengan Cooperation District, Shenzhen 2/F, International Building, No.2 Suzhou Avenue West, Suzhou industrial Park 8/F, B Building, No. 21 Hongda Street, Tianjin Economy & Technology Development Zone Wuhan Yuexiu Savills Property Services Company Ltd 40.00 China Room 5-2, No 198 Hanzheng Street, Qiaokou District, Wuhan Zhongzheng Savills Property Management (Beijing) Co Ltd 49.00 China Zhuhai Hengqin Savills Assets Operation Management Unit 16-04C, 16/F, Building 8, No, 91 Yard, Jianguo Road, Chaoyang District, Beijing Company Ltd Greenmile Ventures Ltd Greenwall Gateway Ltd Jiayi Savills Property Services Ltd G.E.S. Holdings Ltd G.E.S. Ltd Savills Science Ltd 51.00 China Room 105-1460, No. 6 Baohua Road, Hengqin new area, Zhuhai 50.00 Hong Kong P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands 50.00 Hong Kong 7/F, Cityplaza One, 1111 King’s Road, Taikoo Shing 51.00 Hong Kong 23/F, Two Exchange Square, 8 Connaught Place, Central 50.00 Macau 50.00 Macau Alameda Dr. Carlos D'Assumpcao, No. 181 - 187, Edf. Kong Fai Com. 7/F, K - P Alameda Dr. Carlos D'Assumpcao, No. 181 - 187, Edf. Kong Fai Com. 7/F, K - P 50.00 United Kingdom 33 Margaret Street, London, W1G 0JD Savills plc Report and Accounts 2017 149 Financial statementsGovernance Strategic reportOverview33. Group – Investments continued Associates SAS Riviera Estates Guardian Home Ltd KSH Guardian Property Management Ltd Lippo-Savills Property Management Ltd Savills Taiping Property Management Ltd % owned Country of incorporation Registered office 44.40 40.00 50.00 50.00 45.00 France 11 Avenue Jean Medecin, 06000, Nice Hong Kong Flat G&H, 55/F, Block 3, Metro Town, Tseung Kwan O, New Territories Hong Kong 7th Floor, Cityplaza One, 1111 King’s Road, Taikoo Shing Hong Kong Room 2301, 23/F, Tower One, Lippo Centre, 89 Queensway Hong Kong Rooms 805-813, 8/F, Cityplaza One, 1111 King's Road, Taikoo Shing Yuen Sang Property Management Company Ltd 50.00 Hong Kong 7th Floor, Cityplaza One, 1111 King’s Road, Taikoo Shing Cordea Nichani India Advisers Private Ltd Savills (Johor) Sdn Bhd Savills (KL) Sdn Bhd Savills (Malaysia) Sdn Bhd Savills (Penang) Sdn Bhd Savills (Project Management) Sdn Bhd Rootcorp Ranganatha Ltd Monaco Real Estates SARL Huttons Asia Pte Ltd 25.00 45.00 45.00 45.00 45.00 45.00 25.00 51.00 48.00 India Malaysia Malaysia Malaysia Malaysia Malaysia Mauritius Monaco Ground Floor Front, 19 Kumarakrupa Road, Bangalore 560001 No. 2 Jalan Raja Abdullah, Off Jalan Sultan Ismail, 50300 Kuala Lumpur No. 2 Jalan Raja Abdullah, Off Jalan Sultan Ismail, 50300 Kuala Lumpur No. 2 Jalan Raja Abdullah, Off Jalan Sultan Ismail, 50300 Kuala Lumpur No. 2 Jalan Raja Abdullah, Off Jalan Sultan Ismail, 50300 Kuala Lumpur No. 2 Jalan Raja Abdullah, Off Jalan Sultan Ismail, 50300 Kuala Lumpur 4/F, Raffles Tower, 19 Cybercity, Ebene 10 Ter Boulevard Princesse Charlotte Singapore 3 Bishan Place, #02-01 CPF Bishan Building, S 579838 (i) Directly owned by Savills plc. (ii) Both ordinary and redeemable shares owned by the Group. (iii) Partnership interest. The total non-controlling interest at the end of the year is £1.5m (2016: £1.4m). The non-controlling interests in respect of the above subsidiaries that the Group does not own a holding of 100% are not considered to be individually material. There were no material transactions with non-controlling interests during the year. Refer to Note 20 for details on restrictions on the Group’s ability to access cash in the Group’s Asia Pacific operating subsidiaries. 150 Savills plc Report and Accounts 2017 Notes to the financial statements continuedYear ended 31 December 2017Shareholder information Key dates for 2018 Annual General Meeting Financial half year end Announcement of half year results 8 May 2018 30 June 2018 9 August 2018 Website Visit our investor relations website www.savills.com for full up-to-date investor relations information, including the latest share price, recent Annual and Half Year Reports, results presentations and financial news. Shareholder enquiries For shareholder enquiries please contact our Registrars, Equiniti (see below). For general enquiries please call our Shareholder Services helpline on: 0371 384 2018 (overseas holders need to call +44 (0)121 415 7047. Lines are open from 8.30am to 5.30pm, Monday to Friday, excluding bank holidays). For further administrative queries in respect of your shareholding, please access our Registrars’ website at www.shareview.co.uk Electronic communications If you would prefer to receive shareholder communications electronically in future, including your Annual and half-yearly reports and notices of meetings, please visit our Registrars’ website, www.shareview.co.uk and follow the link to ‘Register for e-communications’ under the Shareholder Services section. Half Year Report Like many other listed public companies, we no longer circulate printed Half Year Reports to shareholders. Rather, Half Year results’ statements are published on the Company’s website. We believe that this is of benefit to those shareholders who do not wish to be burdened with such paper documents, and to the Company, as it is consistent with our target of saving printing and distribution costs. Professional advisers and service providers Solicitors CMS Cameron McKenna LLP Cannon Place 78 Cannon Street London EC4N 6AF Registrars Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA Auditor PricewaterhouseCoopers LLP 1 Embankment Place London WC2N 6RH Joint Stockbrokers UBS Investment Bank 1 Finsbury Avenue London EC2M 2PP Numis Securities Ltd The London Stock Exchange Building 10 Paternoster Square London EC4M 7LT Principal Bankers Barclays Bank PLC 1 Churchill Place London E14 5HP Savills plc Report and Accounts 2017 151 Financial statementsGovernance Strategic reportOverviewCautionary note regarding forward-looking statements Certain statements included in this Annual Report are forward- looking and are therefore subject to risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied because they relate to future events. These forward-looking statements include, but are not limited to, statements relating to the Company’s expectations. Forward- looking statements can be identified by the use of relevant terminology including the words: ‘believes’, ‘estimates’, ‘anticipates’, ‘expects’, ‘intends’, ‘forecasts’, ‘plans’, ‘goal’, ‘target’, ‘aim’, ‘may’, ‘will’, ‘would’, ‘could’ or ‘should’ or, in each case, their negative or other variations or comparable terminology and include all matters that are not historical facts. They appear in a number of places throughout this Annual Report and include statements regarding our intentions, beliefs or current expectations and those of our Officers, Directors and employees concerning, amongst other things, our results of operations, financial condition, liquidity, prospects, growth, strategies and the businesses we operate. Other factors that could cause actual results to differ materially from those estimated by the forward-looking statements include, but are not limited to: – Global economic business conditions; – Monetary and interest rate policies; – Foreign currency exchange rates; – Equity and property prices; – The impact of competition, inflation; – Changes to regulations, taxes; – Changes to consumer saving and spending habits; and – Our success in managing the above factors. Consequently, our actual future financial condition, performance and results could differ materially from the plans, goals and expectations set out in our forward-looking statements. Accordingly, no assurance can be given that any particular expectation will be met and readers are cautioned not to place undue reliance on forward-looking statements which speak only at their respective dates. The Company undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise. 152 Savills plc Report and Accounts 2017 Savills plc 33 Margaret Street London W1G 0JD T: +44 (0)20 7499 8644 www.savills.com Registered in England No. 2122174 S a v i l l s p l c 2 0 1 7 R e p o r t a n d A c c o u n t s 

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