Savills plc - Investor relations

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FINANCIALResults for the YearGroup turnover increased by 7% from £282.3m to £301.7m. Group profitbefore tax increased from £20.4m to £35.3m and basic EPS increased from15.1p to 39.2p. Financial highlights for the year include:• Excluding sale of trading properties, impairment and amortisation ofgoodwill the basic EPS was 39.8p in 2003 compared to 31.3p in 2002.• The Group operating margins, excluding sale of trading properties,increased from 10.4% to 11.7% in 2003.• Operating profits from acquisitions of £0.4m was attributable to theacquisition of a majority interest in FPDSavills Nederland BV.• Profits of £4.7m were generated from the sale of trading propertiesduring the period compared to £1.3m in 2002.• During the year the Group decided to write down the remaining goodwillin it's associate undertaking Trammell Crow Savills Limited to a nil value,at a cost of £1.2m. Together with operating losses and amortisation thetotal losses from associate undertakings was £1.6m in 2003.• During the year the Group sold shares held in the London StockExchange for a consideration of £0.5m which were carried at nil cost.Acquisitions and DisposalsDuring the year we have completed a number of acquisitions and disposalsof businesses or interests in ventures, both in the UK and overseas including:• On 31 March 2003, FPDSavills International BV increased its shareholdingin FPDSavills (Australia) Pty Ltd from 78.5% to 91% for a total considerationof £1.8m. Goodwill on acquisition of £1.4m was capitalised.• On 12 September 2003 Savills (Overseas Holdings) Limited acquiredthe remaining minority interest (47.2%) of FPDSavills ImmobilienBeteiligungs-GmbH for a consideration of £5.9m. The goodwill arisingon acquisition was £5.2m. A further £1.5m of deferred contingentconsideration is potentially payable in September 2005. This has notbeen recognised at 31 December 2003.• On 11 September 2003 Savills (Overseas Holdings) Limited, increasedits shareholding in FPDSavills Nederland BV from 40% to 61%, for acash consideration of £0.5m. Goodwill of £0.5m arose on acquisition.• On 30 June 2003, the Group disposed of The Mill Discount DepartmentStore at book value for a total consideration of £9.5m, of which £0.5m isdeferred and will be paid in two equal instalments in December 2004 and2005.Treasury Activities and PoliciesThe Group's treasury operations are co-ordinated and managed in accordancewith policies and procedures approved by the Board. They are designed toreduce the financial risks faced by the Group, which primarily relate to fundingand liquidity, interest rate exposure and currency rate exposures.The Group's financial instruments comprise borrowings, some cash and liquidresources and various other items such as trade debtors and trade creditorsthat arise directly from its operations. The Group does not engage in trades ofa speculative nature.Further details of financial instruments are provided in Note 18 to theAccounts. The Board reviews and agrees policies for managing each of theabove-mentioned risks. These have remained unchanged during the yearunder review and are summarised below.Interest Rate RiskThe Group finances its operations through a mixture of retained profits andbank borrowings, at both fixed and floating interest rates. It then uses interestrate caps and swaps, when appropriate, to manage its exposure to interestrate fluctuations. At the year end, 53% of the Group's borrowings were atfloating rates. The Group has no set policy with regard to the proportion ofdebt it maintains at fixed rates of interest.Liquidity RiskThe Group prepares an annual funding plan approved by the Board whichsets out the Group's expected financing requirements for the next 12 months.Short-term flexibility is achieved through overdraft facilities. At the year-end,57% of the Group's borrowings were due to mature in more than five years'time.Foreign Currency RiskOur policy is for each business to borrow in local currencies where possible.The Group does not actively seek to hedge risks arising from foreign currencytransactions due to their non-cash nature and the high costs associated withsuch hedging.BorrowingThe Group retains substantial short-term money market facilities with its22
REVIEWROBERT MCKELLARbankers of £19.0m which are currently not utilised. The purpose of thesefacilities is to provide working capital for the core Group businesses. Inaddition, loan facilities are used within Grosvenor Hill Ventures Limited tofinance specific property projects. These loans are project specific andwithout recourse to the parent company.Net InterestNet interest payable is £0.2m (2002 - £0.4m). Higher operating cashflowsreduced the net interest payable.TaxationThe effective taxation rate decreased to 35.2% of the profit before taxcompared with 49.6% during the year to 31 December 2002. This reflectsdisallowable amortisation and goodwill, overseas losses where no tax relief isassumed, higher corporate tax rates in continental Europe, offset by a lowerrate of tax for Hong Kong.Minority InterestsThe Minority Interest share of profits decreased to £0.8m (2002 - £1.7m)following the acquisition by the Group of the remaining 47.2% in FPDSavillsImmobilien Beteiligungs-GmbH which represents our continental Europeanbusiness in Germany, France and Spain.Earnings and DividendBasic earnings per share amounted to 39.2p (2002 - 15.1p). Adjusted Basicearnings per share excluding sale of trading properties, impairments andamortisation of goodwill amounted to 39.8p (2002 - 31.3p).The Board is recommending a final dividend of 10.0p (net), making 13.6p forthe full year, a 33% increase on last years 10.2p. The dividend will be paid on12 May 2004 to shareholders on the register at 13 April 2004.Share CapitalDuring the year ended 31 December 2003, 28,000 shares were issued toparticipants in the Savills plc United Kingdom Executive Share Option Schemeand 165,087 to participants in the Savills Sharesave Scheme. A further153,884 shares were issued to the QUEST. During the year ended31 December 2003, 2,130,000 shares were re-purchased for cancellation.The total number of Ordinary Shares issued at 31 December 2003 was61.4m (2002-63.2m). Since the year-end, 100,000 shares werere-purchased for cancellation as at 2 March 2004.for cash flows including taxation, dividends, investments and capitalexpenditure (see below), produced a net increase in cash of £10.4m. At31 December 2003, the Group's cash at bank and on short term depositamounted to £71.9m. This was deposited with banks and financialinstitutions with top credit ratings for periods not exceeding six months, tomatch known outgoings.The Group continues to operate a centralised treasury function, which is nota separate profit centre but purely provides a service to the operatingcompanies.Investments and Capital ExpenditureCash outflow from Group investments and capital expenditure amounted to£10.7m.Intellectual PropertyNo value is attributed in the Group balance sheet to internally generatedintangibles such as brand name or intellectual property rights.New Accounting StandardsFull adoption of Financial Reporting Standard 17 - "Retirement Benefits", (FRS17) issued in November 2000 by the Accounting Standards Board whichreplaces SSAP 24 "Accounting for pension costs", has been deferred by theASB until periods beginning on or after 1 January 2005. In accordance withthe transitional arrangements of FRS 17, certain additional disclosures areincluded in Note 7 on pages 52 to 54.The table in Note 7 illustrates that if FRS 17 had been fully in force as at31 December 2003, the net worth for the Group would have been reducedby £17.9m (2002 - £17.7m) as a result of a shortfall in the scheme's funding.The Board is reviewing a number of alternative options for providingemployee pension benefits due to the increasing economic risk anduncertainty that determine the pension valuations going forward.Cash Flow and LiquidityNet cash inflow from operating activities totalled £60.6m which, after allowingRobert McKellar, Finance Director23
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Savills plc - Investor relations

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