Financial Review

The key financial information for the year was as follows:

• Revenue of £568.5m (2007: £650.5m).
• Underlying profit before tax £33.2m (2007: £85.5m).
• Underlying earnings per share 18.1p (2007: 46.1p).
• Continued investment in the business through acquisitions, investment in recruiting new teams and opening new offices.
• Cost savings of £22m achieved.
• New £80m long-term facility completed October 2008.
• £45.7m net cash at 31 December 2008 (2007: £77.5m).

During the year we completed small acquisitions both in the UK (in aggregate £0.8m (2007: £12.0m)), and overseas (in aggregate £15.1m (2007: £31.5m)).

On 12 June 2008, the Group disposed of its 50% stake in Infinergy Limited to our joint venture partner in that business. The sale proceeds were £23.0m of which £13.0m was received during the year and £10.0m is due in December 2009. The final payment includes interest of £1m and is underwritten by bank guarantees. Profit on disposal before tax net of associated costs was £16.9m.

At the year-end, the Group had cash and cash equivalents of £75.3m (2007: £110.7m) and borrowings of £29.6m (2007: £33.2m). The borrowings represent the outstanding £20.9m of the term loan taken out to finance the acquisition of Savills US in 2007 which will be repaid in equal installments up to maturity in 2012, and £8.7m in respect of loan notes payable in respect of businesses previously acquired by the Group. The Group's cash flow profile is highly seasonal, with significant cash outflows in the second quarter of the year for dividends, taxation and staff bonuses. The cash outflow in 2008 in particular reflects the payment of the high level of bonuses earned in 2007 that were paid. The Group cash outflow was £5.5m during 2008 (2007: cash generated £102.8m).

The Group retains cash balances throughout the year in a number of subsidiaries. This reflects various factors including: fiscal - minimising withholding tax on remittance where future investment is anticipated; commercial - where cash is required to support commercial contracts; regulatory - where our regulated businesses have minimum capital requirements; and where there are minority shareholders. This position remains under review to ensure the Group has the optimal capital structure.

Overall, the Group has low financial gearing which the Board believes is appropriate given the transactional nature of many of its revenue streams and that the business is people based with a low tangible assets base.

Existing net cash balances, available bank facilities and expected cash flows for the year provide the Group with the resources to fund operating and investment activities. At the year end the Group had undrawn facilities of £102.2m (2007: £16.8m). During the year a three year, £80m facility (which matures in October 2011) was put in place.

The underlying tax charge has fallen to £12m from £26.9m in 2007, a decrease of £14.9m. The underlying tax rate is 36.1%(2007: 31.5%), an increase of 4.6%. This increase is mainly due to the £1.8m impact (2007: £2.1m) of the continued fall in the share price below the fair value at the date of grant of share-based incentives. This accounts for 5.5 percentage points of the increased underlying tax charge. The lower overseas tax rates offset the effect of any permanent disallowables.

Basic loss per share was 9.3p (2007: earnings of 45.5p). Adjusting for exceptional items, profit on disposals, share-based payments, amortisation of intangibles and impairment of goodwill and available-for-sale investments, underlying basic earnings per share were 18.1p (2007: 46.1p).

The Board is recommending a final dividend of 3.0p, making 9.0p for the full year.

The Group uses a number of key performance indicators (KPIs) to measure its performance and highlight the impact of management actions. These KPIs are outlined in KPIs. The Group continues to review the mix of KPIs to ensure that these best measure our performance against our strategic objectives, in both financial and non-financial areas.

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 the light of developing regulation, accounting standards and practice. Compliance with these policies is mandatory for all Group companies and is reviewed regularly by the GEB and Board.

Treasury policies and objectives

The Group Treasury policy is designed to reduce the financial risks faced by the Group, which primarily relate to funding and liquidity, interest rate exposure and currency rate exposures. The Group does not engage in trades of a speculative nature. The Group 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. Further details of financial instruments are provided in Note 24 (PDF 3.5mb) of these Report and Accounts.

Interest rate risk

The Group finances its operations through a mixture of retained profits and bank borrowings, at both fixed and floating interest rates.

Liquidity risk

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. These requirements will be met with our existing cash balances, loan facilities and expected cash flows for the year.

Foreign currency risk

Our policy is for each business to borrow in local currencies where possible. The Group does not actively seek to hedge risks arising from foreign currency transactions due to their non-cash nature and the high costs associated with such hedging.

Net finance income in the year was £2.5m (2007: £2.1m), reflecting surplus cash held on deposit and a currency fair value gain on the US loan repayment, offset by a full year of interest on the US loan.

Minority interests
Minority interests decreased to £2.4m (2007: £5.9m) reflecting losses in Europe and the US offset by profits within the Cordea Fund Management business.

Share capital
During the year ended 31 December 2008, no shares were issued to participants in the Savills Executive Share Option Scheme (2001 Scheme) or to participants in the Savills Sharesave Scheme. No shares were issued to the QUEST. No shares were repurchased for cancellation during the year (2007: 3.5m). The total number of ordinary shares in issue at 31 December 2008 was 131.8m (2007: 131.8m).

Net assets
Net assets at 31 December 2008 were £211.0m compared to £223.6m as at 31 December 2007. Goodwill and intangibles remained in line with the previous year, as impairment charges made in 2008 were offset by foreign currency movements and additional acquisitions.

Pension scheme
In common with the vast majority of defined benefit schemes operated by UK companies, the funding level of the Plan deteriorated during the year as asset values and interest rates fell. The deficit at year-end amounted to £24.6m (2007: £10.0m). We have engaged with the Plan Trustee to review the options. The next formal actuarial valuation of the Plan is due at April 2010.

In preparing this Review of Operations and Financial Review, whilst we have provided a detailed management commentary on our markets, activities and prospects, all forward looking statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that will occur in the future.