Savills plc 2012 Annual Report - (PDF) - Investor relations

Group Chief Financial Officer’s reportFinancial reviewcontinuedCapital and shareholders’ interestsThe movement in non-controlling interests of £1.8m to£0.6m (2011: negative £1.2m) reflect the acquisition of theoutstanding 25% stake in our US operation. During the yearended 31 December 2012, 0.7m new shares were allotted toparticipants exercising their options under the Sharesave Schemeand the Executive Share Option Scheme (2001). No shares wererepurchased for cancellation (2011: nil). The total number ofordinary shares in issue at 31 December 2012 was 133.3m(2011: 132.6m).Savills Pension SchemeThe funding level of the Savills Pension Scheme, which is closedto future service based accrual, improved during the year as aresult of the rise in asset values. Increased contributions andinvestment returns were partially offset by an increase in thevaluation of long term liabilities as a result of the expectedcontinuation of low interest rates into the future. The plan deficitat the year end amounted to £27.9m (2011: £35.6m).Net assetsNet assets as at 31 December 2012 were £233.1m(2011: £204.4m). This movement reflected increased receivablesand cash balances derived from the Group’s trading performancetogether with reduced borrowings and provisions for retirementand employee benefit obligations.Business developmentDuring the year the Group made its final payment under the 2007contract to acquire its US business and further increased itsshareholding in Savills Vietnam under pre-existing deferredconsideration arrangements. In January 2012 the Groupacquired Gresham Down Capital Partners LLP, a specialistCentral London investment and asset management business fortotal consideration of £3.0m, of which £1.6m was paid in the year.Also in January 2012 Cordea Savills acquired IPAM, a Germanreal estate asset management company for total considerationof £3.1m, of which £2.3m was paid during the year. Theseacquisitions, together with the payment of deferred considerationon previous transactions resulted in the Group investing a total of£21.5m net of cash acquired (2011: £12.4m) in the year.Key performance indicatorsThe Group uses a number of key performance indicators (KPIs) tomeasure its performance and review the impact of managementstrategies. These KPIs are detailed under the Key PerformanceIndicators section of the Review of operations on pages 16 and 17.The Group continues to review the mix of KPIs to ensure thatthese best measure our performance against our strategicobjectives, in both financial and non-financial areas.Treasury policies and objectivesThe Group Treasury policy is designed to reduce the financial risksfaced by the Group, which primarily relate to funding and liquidity,interest rate exposure and currency rate exposures. The Groupdoes not engage in trades of a speculative nature and only usesderivative financial instruments to hedge certain risk exposures.The Group’s financial instruments comprise borrowings, cash andliquid resources and various other items such as trade receivablesand trade payables that arise directly from its operations. Surpluscash balances are generally held with A+ rated banks and theGroup places surplus deposits with AAA rated institutional moneymarket funds.Interest rate riskThe Group finances its operations through a mixture of retainedprofits and bank borrowings, at both fixed and floating interestrates. Borrowings issued at variable rates expose the Group cashflow to interest rate risk, which is partially offset by cash held atvariable rates. Borrowings issued at fixed rates expose the Groupto fair value interest rate risk. Group policy is to maintain at least70% of its borrowings in fixed rate instruments.Liquidity riskThe Group prepares an annual funding plan which is approvedby the Board and sets out the Group’s expected financingrequirements for the next 12 months. These requirements areordinarily expected to be met through existing cash balances,loan facilities and expected cash flows for the year.Foreign currencyThe Group operates internationally and is exposed to foreignexchange risks. As both revenue and costs in each location aregenerally denominated in the same currency, transaction relatedrisks are relatively low and generally associated with intra groupactivities. Consequently, the overriding foreign currency riskrelates to the translation of overseas profits and losses into sterlingon consolidation. The Group does not actively seek to hedge risksarising from foreign currency translations due to their non-cashnature and the high costs associated with such hedging. The netimpact of foreign exchange rate movements in 2012 was a £0.6mdecrease in revenue (2011: £3.1m increase) and an increase of£0.6m in underlying profit (2011: £0.1m decrease).Simon ShawGroup Chief Financial OfficerFinancial policies and risk managementThe Group has financial risk management policies which coverfinancial risks considered material to the Group’s operations andresults. These policies are subject to continuous review in lightof developing regulation, accounting standards and practice.Compliance with these policies is mandatory for all Groupcompanies and is reviewed regularly by the Board.26Savills plc Report and Accounts 2012