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

These include:– IFRS 1, ‘First time adoption’, on repeated application ofIFRS 1, effective for accounting periods beginning on orafter 1 January 2013.– IAS12, ‘Income taxes’, on recovery of underlying assets,more specifically, of investment properties, effective foraccounting periods beginning on or after 1 January 2013.– IAS 16, ‘Property, plant and equipment’, on classificationof spare parts, effective for accounting periods beginningon or after 1 January 2013.– IFRIC 20, ‘Stripping costs in the production phase of asurface mine’, effective for accounting periods beginningon or after 1 January 2013.Use of non-GAAP measuresThe Group believes that the consistent presentation of Underlyingprofit before tax, Underlying effective tax rate, Underlying basicearnings per share and Underlying diluted earnings per shareprovides additional useful information to shareholders on theunderlying trends and comparable performance of the Group overtime. They are used by Savills for internal performance analysisand incentive compensation arrangements for employees. Theseterms are not defined terms under IFRS and may therefore not becomparable with similarly titled profit measures reported by othercompanies. They are not intended to be a substitute for, orsuperior to, GAAP measures.The term ‘underlying’ refers to the relevant measure of profit,earnings or taxation being reported excluding the following items:– Amortisation of intangible assets.– Impairment of goodwill and intangible assets.– Impairment of investment in available-for-sale investments,joint ventures or associated undertakings.– The difference between IFRS 2 charges related to in yearprofit related performance compensation subject to deferraland the opportunity cash cost of such compensation (refer toNotes 7 and Note 13(b) for further explanation).– Restructuring costs.– Significant acquisition costs related to business combinations– Profits or losses on disposals of subsidiaries, investments inavailable-for-sale investments, joint ventures and associatedundertakings.– Exceptional items which are disclosed separately due to theirsize or incidence.A reconciliation between GAAP items and underlying results areset out in notes 7 and 13 (b).The underlying effective tax rate represents the underlyingeffective income tax expense expressed as a percentage ofunderlying profit before tax. The underlying effective income taxexpense is the income tax expense excluding the tax effect of theadjustments made to arrive at underlying profit before tax.3. Financial risk managementFinancial risk factorsThe Group’s activities expose it to a variety of financial risks.The Group has in place a risk management programme thatseeks to limit the adverse effects on the financial performanceof the Group. Occasionally, the Group uses financial instrumentsto manage foreign currency and interest rate risk.The treasury function is responsible for implementing riskmanagement policies applied by the Group and has a policy andprocedures manual that sets out specific guidelines on financialrisks and the use of financial instruments to manage these.Foreign exchange riskThe Group operates internationally and is exposed to foreignexchange risks primarily with respect to the Euro, Hong Kongdollar and US dollar. Foreign exchange risk arises from futurecommercial transactions, recognised assets and liabilities andnet investments in foreign operations. The Group may financesome overseas investments through the use of foreign currencyborrowings. 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; howeverwhen there is a material committed foreign currency exposure theforeign exchange risk will be hedged.The sensitivity analysis has been prepared for the major currenciesto which the Group is exposed. The movements in these currenciesover the last three years has been considered and it has beenconcluded that a 5 – 10% movement in rates is a reasonablebenchmark.For the year ended 31 December 2012, if the average currencyconversion rates against Sterling for the year had changed with allother variables held constant, the Group post tax profit for the yearwould have increased or decreased as shown below:Movement of currency against Sterling£m –10% –5% +5% +10%2012Estimated impact on post-tax profitEuro 0.8 0.4 (0.5) (1.0)Hong Kong dollar (0.8) (0.4) 0.4 0.9US dollar 0.2 0.1 (0.1) (0.3)Estimated impact on components of equityEuro 4.0 2.1 (2.3) (4.9)Hong Kong dollar (10.3) (5.4) 6.0 12.6US dollar (0.5) (0.3) 0.3 0.62011Estimated impact on post-tax profitEuro 0.6 0.3 (0.3) (0.7)Hong Kong dollar (0.8) (0.4) 0.4 0.9US dollar 0.2 0.1 (0.1) (0.2)Estimated impact on components of equityEuro 3.7 1.9 (2.1) (4.5)Hong Kong dollar (8.1) (4.3) 4.7 10.0US dollar 0.7 0.4 (0.4) (0.9)Our business Our governance Our resultsSavills plc Report and Accounts 2012 73