Risks and Uncertainties Facing the Business

The property markets in which the Group operates are cyclical and may change for a number of reasons; for example, economic cycles, interest rates, and supply and demand of property in the market at any one time. The limited availability of financing witnessed globally during 2008 served significantly to reduce the volume of property market transactions and consequently the performance of our transaction focused operations.

In addition, the limited availability of financing, combined with a worsening general economic outlook, is negatively impacting real estate values. This has the potential of reducing the value of the co-investment we make with our fund management clients and the fees we generate based upon the performance of the investments made by the funds we manage.

Whilst the Group’s diversity of product and geographic spread has helped to reduce the impact on the business of the market conditions witnessed in 2008, it cannot mitigate the overall risk to earnings. We are therefore, committed to an ongoing programme of cost reduction initiatives whilst continuing to invest selectively in our businesses where new opportunities present themselves.

It is inherently difficult to predict when property transaction volumes will recover due to their dependence on wider macroeconomic conditions, but we recognise the need to continue to respond rapidly to changes in our operating environment. Our continual monitoring of market conditions and review of market changes against our Group strategy, is supported by the quarterly reforecasting undertaken by all of our businesses.

The markets in which the Group operate remain highly competitive and we need to ensure that we continue to reflect the changing and increasingly global needs of our clients. This need drives our strategy to continue to grow geographically and to add greater diversity to the services offered by the Group. This strategy has served us well in our currently unsettled markets. For example, we have established a new Corporate Finance team, Savills Capital Advisors, in London, and are now better positioned to support our clients with their real estate financing and debt structuring needs.

This ongoing development of our geographic capabilities is aligned with our focus on further developing the service capabilities in the major global markets in which we operate. In the current market we have been selective about office openings, adding new offices in Mexico, Germany and China in 2008.

We talk more about these developments in detail in the Group Strategy

Savills is a global brand with an excellent reputation in the markets in which it operates. We recognise that our brand strength is vital to maintaining market share and expanding into new markets. To this end, we have a brand management programme in place to ensure the brand’s positioning, identity and personality is clearly and consistently promoted.

We recognise that our ability to attract, develop, motivate and retain people with the right skills to deliver our strategy is fundamental to the future success of our business. Whilst we pride ourselves in our reputation for excellence as an employer and having an incentivisation structure that rewards outperformance, we recognise that this is an area in which we must continually improve.

Key developments during 2008 included the launch of a global set of Savills Values, that support our vision for the Group and what it means to work here, and the implementation of talent management and development programmes across a number of our businesses. We talk more about these developments in detail in the People section in Our Responsibilities

The success of any business providing professional advice is dependent on the quality and integrity of its people. Professional opinions provided in good faith may be open to challenge resulting in claims against the Group. The risk of claims against the Group inevitably increases during times of challenging market conditions.

We are also required to meet a broad range of regulatory compliance requirements in each of themarkets inwhichwe operate. For example: in the UK, the Financial Services Authority (FSA) regulates the conduct of our Savills Private Finance, Savills Capital Advisors and Cordea Savills businesses; and The Royal Institution of Chartered Surveyors (RICS) regulates a number of the services we provide through our Commercial and Residential businesses.

Finally, we have a number of key statutory obligations including the protection of the health, safety and welfare of our employees and others affected by our activities.

All areas relating to professional, regulatory and statutory compliance have benefited by the update of our Group Policy Framework in 2008 which defines the compliance standards we expect fromour businesses. In support of this Framework each of our businesses have their own regulatory and statutory compliance resources in place 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 other assurance providers. In addition, the development of a common set of values for our business operations worldwide, reinforces the behaviour we expect from our people with regards integrity and our adherence to the highest standards of professional ethics. These values are outlined in Our Responsibilities.

Our continued geographic expansion means that our success depends in part on understanding and responding to the changing political and legislative conditions in the many countries around the world in which we do business.

Extensive market research and due diligence is conducted whenever we enter new markets and the requirements of the Group Risk Management Policy, specifically the need to regularly evaluate the key risks to our business objectives, extend to all of our businesses globally.

For all areas of financial risk we have an established financial control environment with clear responsibilities for operational and finance teams at all levels of the Group. In addition, during 2008 we successfully secured new committed banking facilities until 2011. Overall, the Group is run with low financial gearing which the Board believes is appropriate given the transactional nature of many of its revenue streams and its tangible asset base.

The key financial risks and uncertainties are covered in Financial Review.