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

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Notes to the financial statementsYear ended 31 December 2012continued4. Critical accounting estimates and management judgementsCritical accounting estimates and assumptionsEstimates and judgements are continually evaluated and arebased on historical experience, current market conditions andother factors including expectations of future events that arebelieved to be reasonable under the circumstances. Actual resultsmay differ from these estimates. Changes in accounting estimatesmay be necessary if there are changes in circumstances onwhich the estimate was based, or as a result of new informationor more experience. The estimates and assumptions that have asignificant risk of causing a material adjustment to the carryingamounts of assets and liabilities within the next financial year arediscussed below.Pension benefitsThe present value of the defined benefit pension obligationsdepends on a number of factors that are determined on anactuarial basis using a number of assumptions including thediscount rate. Any changes in these assumptions will impact thecarrying amount of pension obligations. The Group determines theappropriate discount rate at the end of each year. In determiningthe appropriate discount rate, the Group considers the interestrates of high-quality corporate bonds that are denominated in thecurrency in which the benefits will be paid and that have terms tomaturity approximating the terms of the related pension liability.Other key assumptions for pension obligations are based in parton current market conditions. Additional information is disclosedin Note 9.Income taxesThe Group is subject to income taxes in numerous jurisdictions.Judgement is required in determining the provision for incometaxes. There are transactions and calculations for which theultimate tax determination is uncertain. Where the final taxoutcome of these matters is different from the amounts that wereinitially recorded, such differences will impact the income tax anddeferred tax provisions in the period in which such determinationis made.Deferred taxesThe recognition of deferred tax assets is based upon whetherit is probable that sufficient and suitable taxable profits will beavailable in the future, against which the reversal of temporarydifferences can be deducted. Recognition, therefore, involvesjudgement regarding the future financial performance of theparticular legal entity or tax group in which the deferred tax assethas been recognised, especially with regard to the extent thatfuture taxable profits will be available against which losses canbe utilised. Additional information is disclosed in Note 17.Estimated impairment of assetsThe Group tests annually whether goodwill has suffered anyimpairment. All other assets are tested for impairment where thereare indicators of impairment.The recoverable amounts of cash-generating units have beendetermined based on value-in-use calculations. The use of thismethod requires the estimate of future cash flows expected toarise from the continuing operation of the cash-generating unitand the choice of a suitable discount rate in order to calculate thepresent value. Actual outcomes could vary significantly from theseestimates. The estimates used in these financial statements arecontained in Note 14.Valuation of intangible assets and useful lifeThe Group has made assumptions in relation to the potentialfuture cash flows to be determined from separable intangibleassets acquired as part of business combinations. Thisassessment involves assumptions relating to potential futurerevenues, appropriate discount rates and the useful life of suchassets. These assumptions impact the income statement overthe useful life of the intangible asset.ProvisionsThe Group and its subsidiaries are party to various legal claims.Provisions made within these financial statements are containedin Note 24(a). Additional claims could be made which might notbe covered by existing provisions or by insurance as detailedin Note 28.Critical judgements in applying the entity’s accounting policiesThe application of the Group’s accounting policies may requiremanagement to make judgements, apart from those involvingestimates, that can affect the amounts recognised in theconsolidated financial statements. Such judgements include:Award of options and deferred shares to employeesThe Group applies judgement in deciding the proportion of theavailable bonus pool to be awarded to employees under itslong‐term share-based incentive scheme. The Group’s currentpolicy is to deduct from the bonus pool an amount equal to themarket value of the share price on the date of award. Under IFRS,the value of award is spread over the vesting period and chargedto the income statement. The charge to the income statement iscurrently higher than the market value of shares to be awarded.Fair value of options granted to employeesThe Group uses the Binomial Model in determining the fair value ofoptions granted to employees under the Group’s various schemesas detailed in the Remuneration report. Information on suchassumptions is contained in Note 26. The alteration of theseassumptions may impact charges to the income statement overthe vesting period of the award.76 Savills plc Report and Accounts 2012
5. Segment analysisOperating segments reflect internal management reporting to the Group’s chief operating decision maker, defined as the GroupExecutive Board (GEB). The operating segments are determined based on differences in the nature of their services. Geographicallocation also strongly affects the Group and both are therefore disclosed. The reportable operating segments derive their revenueprimarily from property related services. Refer to the Group overview on page 2 and the Segmental reviews on pages 17 to 22 for furtherinformation on revenue sources.Operations are based in four main geographical areas. The UK is the home of the parent Company with segment operations throughoutthe region. Asia Pacific segment operations are based in Hong Kong, Macau, China, Korea, Japan, Taiwan, Thailand, Singapore,Vietnam and Australia. Continental Europe segment operations are based in Germany, France, Spain, Netherlands, Belgium, Sweden,Italy, Ireland and Poland. America segment operations are based in New York. The sales location of the client is not materially differentfrom the location where fees are received and where the segment assets are located.Our business Our governance Our resultsWithin the UK, commercial and residential activities are managed separately. Other geographical areas, although largely commercialbased, also provide residential services, in particular Hong Kong, China, Vietnam, Singapore, Australia and Thailand.The GEB assesses the performance of operating segments based on a measure of underlying profit before tax which adjusts reportedpre-tax profit by profit on disposals, share-based payment adjustment, restructuring costs, amortisation and impairment of goodwilland intangible assets (excluding software) and impairment of available-for-sale investments, joint ventures or associated undertakings.Segmental assets and liabilities are not measured or reported to the GEB, but non-current assets are disclosed geographically onpage 78.The segment information provided to the GEB for revenue and profits for the year ended 31 December 2012 is as follows:2012TransactionAdvisory£mConsultancy£mProperty andFacilitiesManagement£mInvestmentManagement£mRevenueUnited Kingdom – commercial 60.4 104.2 65.2 23.5 0.1 253.4– residential 97.0 28.1 20.6 – – 145.7Total United Kingdom 157.4 132.3 85.8 23.5 0.1 399.1Continental Europe 29.6 12.3 28.3 – – 70.2Asia Pacific – commercial 98.4 27.6 186.5 – – 312.5– residential 18.5 – – – – 18.5Total Asia Pacific 116.9 27.6 186.5 – – 331.0America 6.1 – – – – 6.1Total revenue 310.0 172.2 300.6 23.5 0.1 806.4Underlying profit/(loss) before taxUnited Kingdom – commercial 7.0 8.7 5.8 3.6 (8.6) 16.5– residential 14.7 3.7 2.4 – – 20.8Total United Kingdom 21.7 12.4 8.2 3.6 (8.6) 37.3Continental Europe (6.0) (0.5) (0.5) – – (7.0)Asia Pacific – commercial 14.6 2.9 10.5 – – 28.0– residential 4.6 – – – – 4.6Total Asia Pacific 19.2 2.9 10.5 – – 32.6America (2.1) – – – – (2.1)Underlying profit/(loss) before tax* 32.8 14.8 18.2 3.6 (8.6) 60.8Other£mTotal£mSavills plc Report and Accounts 2012 77
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LondonCommercial property in Centra
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10 Savills plc Report and Accounts
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Chairman’sstatementRevenue growth
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Our strategy1. Commitment to client
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Segmental reviewsThe Savills Group
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Abercrombie& Fitch,Hong KongWe advi
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Segmental reviewscontinuedProperty
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Group ChiefFinancialOfficer’s rep
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Page 36 and 37: Board of Directors1 2 34 5 671. Pet
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Page 46 and 47: Other statutory informationcontinue
Page 48 and 49: Remuneration reportcontinuedOvervie
Page 50 and 51: Remuneration reportcontinuedFuture
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Page 56 and 57: Remuneration reportcontinued2013 an
Page 58 and 59: Remuneration ReportcontinuedOrdinar
Page 60 and 61: Directors’ responsibilitiesThe Di
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Page 64 and 65: Consolidated and Company statements
Page 66 and 67: Company statement of changes in equ
Page 68 and 69: Notes to the financial statementsYe
Page 114 and 115: Shareholder informationKey dates fo
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