Savills Regulatory News (SVS)

9 August 2018

Savills plc

("Savills" or "the Group")

RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2018

Savills plc, the international real estate advisor, today announces its unaudited results for the six months ended 30 June 2018.

Key Financial Information

· Group revenue up 2% (5% in constant currency*) to £727.8m (H1 2017: £714.4m)

· Group underlying profit** before tax down 12% (10% in constant currency) to £42.4m (H1 2017: £48.1m)

· Group profit before tax down 18% to £26.7m (H1 2017: £32.4m)

· Underlying basic earnings per share 23.4p (H1 2017: 25.7p)

· Basic earnings per share 13.8p (H1 2017: 16.1p)

· Interim dividend up 3% to 4.8p per share (H1 2017: 4.65p)

* Revenue and underlying profit for the period are translated at the prior period exchange rates to provide a constant currency comparative.

** Underlying profit before tax ('underlying profit') is calculated on a consistently reported basis in accordance with Note 3 to the Interim Financial Statements.

Highlights

· UK Residential Transaction business grew both revenue and profit during the period. Overall Transaction Advisory revenue flat, impacted by a slowdown in activity in the UK commercial market.

· Strong growth from Continental Europe, both organic and through the integration of Aguirre Newman in Spain.

· Property and Facilities Management revenue up 7%, Consultancy revenue up 4%.

· Continued expansion and investment through acquisitions and recruitment. In particular, the acquisition of the Cluttons Middle East business providing access to a new region for the Group.

· Savills Investment Management revenue declined, as anticipated, reflecting the late stage of the liquidation of the German Open Ended Funds. £0.7bn capital raised during the period and period end AUM up 1% at €16.2bn.

· Board's expectations for the full year remain unchanged.

Commenting on the results, Jeremy Helsby, Group Chief Executive of Savills plc, said:

"In the face of some challenging market conditions, Savills has delivered a resilient first half performance reflecting our geographic diversity, breadth of operations, recent business investment activity and the strength of our UK residential business.

In line with our overall growth strategy, we have continued to invest across the business, which has affected profits in the short term. During the period we completed the acquisition of Cluttons Middle East, providing Savills a strategic platform for growth in this region. In addition, in the UK we further enhanced our leading property management platform announcing the acquisition of the third party property management portfolio of 'Broadgate Estates' from British Land. 

Continued growth in our less transactional businesses, significant overseas earnings and strong shares in many of our most important transactional markets position Savills well to weather fluctuations in markets and to capitalise on the opportunities which we expect to emerge over time.

We have a robust pipeline of activity for the second half, despite an environment of escalating political and economic uncertainty, and we continue to anticipate that our performance for the full year will be in line with the Board's expectations."

For further information, contact:

Business review

The following table sets out Group revenue and underlying profit by operating segment:

The following table sets out Group revenue and underlying profit by geographical area:

Overview

The Group's results for the six months to 30 June 2018 comprise revenue growth of 2% (5% in constant currency) to £727.8m (H1 2017: £714.4m). Underlying profit was £42.4m, 12% lower than the first half of 2017 (H1 2017: £48.1m) (10% decline in constant currency). Currency had a negative impact on Group performance decreasing revenue by £20.8m and underlying profit by £1.1m. Statutory profit before tax, including deferred consideration provisions and acquisition and restructuring costs was £26.7m, 18% lower than the first half of 2017 (H1 2017: £32.4m).

At the beginning of the year we anticipated some tempering of the strong transaction volumes of recent times and this was evident in the UK and certain Asian commercial markets in H1 2018. However, a resilient performance in our UK residential transaction business and robust organic growth in the Continental European business, including the benefits of recent business acquisitions (primarily Aguirre Newman), underpinned a better than anticipated performance in the first half of the year.

We continue to execute our business development plans with incremental acquisitions and team hires. We expanded our platform to a new region through the acquisition of Cluttons Middle East, which will be integrated in to the Continental Europe and Middle East business. In addition, the integrations of Aguirre Newman and Larry Smith both proceeded as planned and we continued to invest in the development of a new business in the Czech Republic, which now provides a full service offering to commercial clients. In the UK, we announced the acquisition of the third party property management portfolio 'Broadgate Estates' from British Land and Porta Planning LLP, a planning and development consultancy business based in London. Furthermore, we continued to invest and support the Capital Markets team in New York. During its first full year of operation the net costs of this business continued to affect profits in North America as a whole. Finally, we have recently announced the proposed acquisition of a 25% interest in DRC Capital LLP ('DRC'), a leading European investment advisor of real estate debt funds; this transaction is an exciting opportunity to add real estate debt to our portfolio of income-focused real estate investment products.

The Group's underlying profit margin was affected by expenditure on a number of these investment activities and the reduction in activity in some of our key commercial transaction markets, declining to 5.8% (H1 2017: 6.7%).

Current factors affecting Real Estate Markets

In recent years increasing levels of geopolitical uncertainty have driven a steady shift towards income-producing assets and in a low interest rate environment, the secure yield has made real estate a primary asset in this class. In the London office market, the first half of 2018 saw nearly £9.0bn of transactions, 71% of which were to non-domestic investors. Many of these investors, while they accept that occupational risk has increased due to Brexit, still see the UK as comparatively secure in a global context. Weaker sterling and relatively higher yields have maintained overseas investor interest in UK real estate. As interest rates rise, we should expect some tempering of investment activity in coming periods.

In Continental Europe prospects remain favourable for real estate with significant investor interest in both core markets in Northern Europe and more value add opportunities in southern markets. In Asia Pacific, cross-border capital flows remain robust although low yields and rising US interest rates are having an impact on investor sentiment and debt levels in parts of the region are expected to come under greater scrutiny. The net effect is likely to be reduced deal volumes. In the US, softness within a handful of markets, including Houston, Silicon Valley and New Jersey, created headwinds and reduced national occupancy growth but projections for economic growth remain strong and the expanding technology sector should promote further activity over the coming quarters.

Transaction Advisory

Overall, our Transaction Advisory revenues remained stable in comparison to H1 2017 (3% growth in constant currency). Underlying profits of our Transaction Advisory business decreased by 20% (18% in constant currency) to £19.7m during the period (H1 2017: £24.6m), reflecting a decline in activity in some of our key commercial markets.

UK Commercial

UK Commercial Transaction fee income decreased 14% to £33.9m (H1 2017: £39.4m), reflecting a quiet start in a commercial investment market with greater uncertainty and a relative lack of stock when compared with a strong comparative period. UK commercial property investment volumes declined by 4% in the first half of 2018, to £27.1bn, with retail assets particularly affected. However there was an improvement in demand for assets in the second quarter of the year, although bid/offer spreads have widened. Markets outside London were more resilient with the same volume invested in the first half of 2018 versus 2017. International investors continue to remain very active across the UK, accounting for 40% of commercial property acquisitions in the first half of this year.

In the occupier markets, London office take up was flat on the comparable period with an 8% increase in the City offset by a decline in the West End market. Take up in the regional UK markets was also stable, the exception being a significant (c.33%) increase in leasing activity for logistics assets.

The reduced revenues led to a decline in underlying profits for the UK Commercial Transaction business to £2.8m (H1 2017: £4.5m).

UK Residential

Despite continued challenging market conditions the UK Residential Transaction business grew revenue by 6% to £58.2m (H1 2017: £55.0m). In the second hand agency business, revenues benefited from a growth in our average sales value, offsetting a fall in the number of exchanges. Savills overall transaction volumes were down by 7% in London and 10% in the regional markets; however the average value of London residential property sold by Savills in the period was up 16% to £3.2m (H1 2017: £2.7m) and regionally up 3% to £1.2m (H1 2017: £1.1m).

New development sales revenue increased by 17%, reflecting the strength of our sales teams across the UK and growth in average transaction value of 9% together with a 10% increase in the number of units reserved during the period.

Ongoing political and economic uncertainty created by the negotiations to leave the EU make it difficult to predict market volumes for the rest of the year.

Our more institutional residential transaction teams in the PRS and social housing sectors also performed well during the period. 

As a result of the above factors, underlying profits in the UK residential transaction business increased by 17% to £6.3m (H1 2017: £5.4m).

Asia Pacific Commercial

Commercial Transaction fee income in Asia Pacific decreased by 12% (6% in constant currency) to £59.7m (H1 2017: £67.6m). This was driven by a decline in market volumes in Japan, China and Australia, relative to a very strong comparable period and in part due to delayed timing of completions. Indeed, the pipeline going in to the second half of 2018 remains healthy for these regions. South Korea and Hong Kong delivered a robust performance, reflecting advice on some significant transactions and our leading share in those markets.

Overall, underlying profits from the Asia Pacific commercial transaction business fell to £5.7m (H1 2017: £9.7m).

Asia Pacific Residential

Residential Transaction fee income in Asia Pacific decreased by 12% to £17.7m (H1 2017: £20.1m) (8% in constant currency). The reduction in revenue was primarily caused by the impact of Government restrictions over foreign ownership of assets in Australia and continued pricing pressure. The rest of the region performed in line with expectations.

Underlying profits in the region declined 7% to £2.7m (H1 2017: £2.9m).

Continental Europe and the Middle East

In Continental Europe and the Middle East, transaction fee income increased by 57% to £41.5m (H1 2017: £26.4m) (54% in constant currency). The December 2017 acquisition of Aguirre Newman in Spain contributed significantly to the increase. On an organic basis (excluding acquisitions), revenue grew by 23%, with strong performances by investment teams in Ireland, Germany and the Netherlands. The significant revenue growth delivered a first half profit of £1.6m (H1 2017: £0.9m loss) for the Continental Europe and Middle Eastern transactional business and an underlying profit margin of 3.9%. Underlying profits continue to be affected by ongoing investment in the business.

North America

Our North American revenue decreased by 3% (5% increase in constant currency) to £100.3m (H1 2017: £103.6m). There were stronger performances across the main occupier markets in the United States, with a solid pipeline of activity for the second half.

The investment in a Capital Markets team in New York in 2017 has begun to deliver fee income, however the continued investment in this team alongside the cost impact of recent team lifts and investment in the platform directly affected underlying profits of the North American business, which declined to £0.6m (H1 2017: £3.0m).

Property and Facilities Management

Our Property and Facilities Management business increased global revenues by 7% (10% in constant currency) to £263.7m (H1 2017: £246.6m). Savills total area under management increased by 2% to 1.89bn sq ft (H1 2017: 1.86bn sq ft), primarily due to the acquisitions made in Continental Europe and the Middle East since H1 2017. On a constant currency basis, all regions delivered revenue growth.

Acquisitions since H1 2017, primarily Aguirre Newman, drove the significant growth in revenues in the Continental European and Middle Eastern business. Organic revenue growth in this business was 9%, reflecting robust performances in Sweden and Ireland. Reported revenues in Asia Pacific decreased 1% however on a constant currency basis revenues were up 5%, with notable performances in Hong Kong, South Korea and Vietnam. UK Commercial and Residential Management revenues grew on H1 2017, with growth of 11% and 8% respectively. However underlying profits for the UK business remained flat, reflecting revenue growth in lower margin business and the impact of platform investment for the next stage of growth.

Underlying profit for the Property and Facilities Management business increased by 25% to £12.8m (H1 2017: £10.2m).

Consultancy

Consultancy fee income increased in the period by 4% (5% in constant currency) to £125.8m (H1 2017: £121.0m).

Acquisitions since H1 2017, in particular Aguirre Newman, contributed significantly to revenue growth in Continental Europe. Organic revenue growth in this region was 12%, with strong performances in Spain and Germany. In the UK, underlying profit was up 6%, with strong growth from the housing and development teams. Asia Pacific revenues were down 6% (2% down in constant currency); a robust H1 performance in Singapore following an increase in en bloc valuation activity was offset by small reductions in valuations activity throughout the rest of the region.

Underlying profit increased in the Consultancy business by 6% to £10.8m (H1 2017: £10.2m), with an improved underlying profit margin of 8.6% (H1 2017: 8.4%).

Investment Management

Revenue from Investment Management decreased by 20% to £27.0m (H1 2017: £33.6m). As expected, transaction volumes reduced in comparison with H1 2017 to £1.1bn (H1 2017: £2.6bn) due to the tail off of disposals from the portfolio of liquidating German Open Ended Funds. New capital inflows into funds and mandates were comparable to H1 2017 at £0.7bn. During the period we launched the Japan II Fund, which was a record first close for Savills Investment Management. Assets under management increased by 1% to €16.2bn (H1 2017: €16.0bn).

Underlying profits for Investment Management decreased by 56% to £2.9m (H1 2017: £6.6m), reflecting the above mentioned reduced transactional revenues during the first half of the year.

Unallocated revenue and cost

The unallocated segment represents other costs, expenses and net interest not directly allocated to the operating activities of the Group's business segments. These are stated net of revenue earned centrally. The H1 increase in unallocated net costs of 9% to £3.8m (H1 2017: £3.5m) reflects the receipt of dividends from a trade investment of the Group and transactional income recognised in H1 2017, which were not repeated in H1 2018.

Acquisition and restructuring costs

During the period the Group incurred an aggregate restructuring charge of £2.8m (H1 2017: £1.8m) and acquisition related costs of £10.7m (H1 2017: £13.3m). The restructuring charge relates principally to the integration of Aguirre Newman (2017 acquisition) into the Continental Europe and Middle Eastern business. Current period acquisition related costs consisted of £1.5m of transaction related costs and £2.2m in respect of Savills Investment Management's 2014 acquisition of Merchant Capital. In addition, there was a £7.0m charge for future consideration payments which are contingent on the continuity of recipients' employment in the future. A significant portion of this charge relates to the 2017 acquisition of Aguirre Newman.

Earnings, financial strength and dividends

The Group's underlying profit margin in the period was 5.8% (H1 2017: 6.7%), primarily reflecting the lower proportion of higher margin commercial transactional business in the period, the lag effect of recent team lifts and the continued investment in the business. Basic earnings per share for the six months to 30 June 2018 decreased by 14% to 13.8p (H1 2017: 16.1p). Underlying earnings per share decreased 9% to 23.4p (H1 2017: 25.7p).

The impact of foreign exchange movements on the translation of profits from our overseas businesses resulted in a decrease in underlying profit of £1.1m.

At 30 June 2018, net debt was £94.6m (30 June 2017: £1.4m net cash). This decrease was driven primarily by acquisition related payments since 30 June 2017, in particular the acquisitions of Aguirre Newman in December 2017 and Cluttons Middle East in May 2018 and deferred payments in relation to the Studley (May 2014) and Smiths Gore (May 2015) acquisitions. At 30 June 2018 the Group had cash balances of £158.6m (30 June 2017: £179.7m) less borrowings of £253.2m (30 June 2017: £178.3m), with £293.7m of credit facilities remaining available for utilisation (30 June 2017: £96.4m).

During the period, the Group raised £150.0m long term debt via a private note placement into the US institutional market. The average tenor is 10.2 years at a weighted average fixed interest rate of 3.18%. The proceeds were used to pay down the majority of the Group's outstanding balances on its existing £360.0m revolving credit facility to balance the Group's exposure to short term interest rate fluctuations in coming years.

The Board has declared an interim dividend of 4.8p per share (2017: 4.65p). The performance of the Group's Transaction Advisory businesses will be taken into account in the consideration of any proposed final ordinary and supplemental interim dividends alongside the results for the full year.

The interim dividend of 4.8p per share will be payable on 3 October 2018 to shareholders on the register on 7 September 2018.

Principal risks and uncertainties

The key risks and uncertainties relating to the Group's operations remain largely consistent with those disclosed in the Group's Annual Report and Accounts 2017. These are listed below, please refer to pages 25 to 29 thereof or to our investors' page on www.savills.com for further details on each risk:

· Economic / country risks, particularly the impact of a global economic downturn;

· Achieving the right market positioning in response to the needs of our clients;

· Recruitment and retention of high-calibre staff;

· Reputational and brand risk;

· Legal risk;

· Failure or significant interruption to our IT systems causing disruption to client service;

· Business conduct;

· Changes in the regulatory environment; and

· Acquisition / integration risk.

In addition, further specific risks which might affect the outlook for the second half are disclosed in the Summary and outlook statement below.

Summary and outlook

In the face of some challenging market conditions, Savills has delivered a resilient first half performance reflecting our geographic diversity, breadth of operations, recent business investment activity and the strength of our UK residential business.

In line with our overall growth strategy, we have continued to invest across the business, which has affected profits in the short term. During the period we completed the acquisition of Cluttons Middle East, providing Savills a strategic platform for growth in this region. In addition, in the UK we further enhanced our leading property management platform announcing the acquisition of the third party property management portfolio of 'Broadgate Estates' from British Land. 

Continued growth in our less transactional businesses, significant overseas earnings and strong shares in many of our most important transactional markets position Savills well to weather fluctuations in markets and to capitalise on the opportunities which we expect to emerge over time.

We have a robust pipeline of activity for the second half, despite an environment of escalating political and economic uncertainty and we continue to anticipate that our performance for the full year will be in line with the Board's expectations.

Jeremy Helsby Nicholas Ferguson CBEGroup Chief Executive Chairman

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors confirm that this condensed consolidated interim financial statements have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and that the interim management report includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8, namely:

The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors of Savills plc are listed in the Company's Report and Accounts for the year ended 31 December 2017. A list of current Directors is maintained on the Savills plc website: www.savills.com.

By order of the Board

Jeremy Helsby, Group Chief Executive

Simon Shaw, Group Chief Financial Officer

8 August 2018

Forward-Looking Statements

The financial information contained in this announcement has not been audited. Certain statements made in this announcement are forward-looking statements. Undue reliance should not be placed on such statements, which are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future results in forward-looking statements.

The Company accepts no obligation to publicly revise or update these forward-looking statements or adjust them to future events or developments, whether as a result of new information, future events or otherwise, except to the extent legally required.

Independent review report to Savills plc

Report on the condensed consolidated interim financial statements

Our conclusion

We have reviewed Savills plc's interim financial statements (the 'interim financial statements') in the results for the half year of Savills plc for the 6 month period ended 30 June 2018. Based on our review, nothing has come to our attention that causes us to believe that the interim financial statements are not prepared, in all material respects, in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

What we have reviewed

The interim financial statements comprise:

· the condensed interim consolidated statement of financial position as at 30 June 2018;

· the condensed interim consolidated income statement and condensed interim consolidated statement of comprehensive income for the period then ended;

· the condensed interim consolidated statement of cash flows for the period then ended;

· the condensed interim consolidated statement of changes in equity for the period then ended; and

· the explanatory notes to the interim financial statements.

The interim financial statements included in the results for the half year have been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union and the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

As disclosed in note 2 to the interim financial statements, the financial reporting framework that has been applied in the preparation of the full annual financial statements of the Group is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

Responsibilities for the interim financial statements and the review

Our responsibilities and those of the directors

The results for the half year, including the interim financial statements, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the results for the half year in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority.

Our responsibility is to express a conclusion on the interim financial statements in the results for the half year based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of complying with the Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's Financial Conduct Authority and for no other purpose. We do not, in giving this conclusion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What a review of interim financial statements involves

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.

A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and, consequently, does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

We have read the other information contained in the results for the half year and considered whether it contains any apparent misstatements or material inconsistencies with the information in the interim financial statements.

PricewaterhouseCoopers LLP

Chartered Accountants

8 August 2018

London

Savills plc

Condensed interim consolidated income statement

for the period ended 30 June 2018

Notes 1 to 19 are an integral part of these condensed interim financial statements.

Savills plc

Condensed interim consolidated statement of comprehensive income

for the period ended 30 June 2018

Notes 1 to 19 are an integral part of these condensed interim financial statements.

Savills plc

Condensed interim consolidated statement of financial position

at 30 June 2018

* See Note 3 for details about changes in accounting policies and resulting prior period restatement and Note 12 for prior period restatement of goodwill.

Notes 1 to 19 are an integral part of these condensed interim financial statements.

Savills plc

Condensed interim consolidated statement of changes in equity

for the period ended 30 June 2018

Notes 1 to 19 are an integral part of these condensed interim financial statements.

Savills plc

Condensed interim consolidated statement of cash flows

for the period ended 30 June 2018

Notes 1 to 19 are an integral part of these condensed interim financial statements.

NOTES

1. General information

The Company is a public limited company incorporated and domiciled in England and Wales. The address of its registered office is 33 Margaret Street, London W1G 0JD.

This condensed consolidated interim financial information was approved for issue by the Board of Directors on 8 August 2018.

This condensed consolidated interim financial information does not comprise statutory financial statements within the meaning of section 434 of the Companies Act 2006. Statutory financial statements for the year ended 31 December 2017 were approved by the Board of Directors on 14 March 2018 and delivered to the Registrar of Companies. The auditors' report on these accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under section 498 of the Companies Act 2006.

This condensed consolidated interim financial information has been reviewed, not audited.

2. Basis of preparation

This condensed consolidated interim financial information for the half-year ended 30 June 2018 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim financial reporting' as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 31 December 2017, which have been prepared in accordance with IFRSs as adopted by the European Union.

Going concern

The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its agreed facilities. Having reassessed the principal risks, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the interim financial information.

3. Accounting policies

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2017, as described in those financial statements.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.

Equity investments

Classification of equity investments at fair value through other comprehensive income (FVOCI)

The Group has made an irrevocable election at initial recognition for certain equity investments to be classified as FVOCI. Changes in fair value are recognised through other comprehensive income rather than profit or loss. Dividends from these investments are recognised in profit or loss. When such investments are disposed or become impaired, the accumulated gains and losses, recognised in other comprehensive income, are reclassified to retained earnings and will not be recycled to the income statement.

Accounting policy applied prior to 1 January 2018

Under IAS 39 (prior to transition to IFRS 9), these investments were categorised as available-for-sale investments and were stated at fair value, with changes in fair value being recognised in other comprehensive income. When such investments were disposed of or became impaired, the accumulated gains and losses, previously recognised in other comprehensive income, were recognised in the income statement.

Trade receivables

Trade receivables are recognised initially at their transaction price and subsequently measured at amortised cost less provision for impairment. Receivables are discounted where the time value of money is material.

The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which permits the use of the lifetime expected loss provision for all trade receivables.

Accounting policy applied prior to 1 January 2018

Under IAS 39 (prior to transition to IFRS 9), a provision for impairment of trade receivables was established when there was objective evidence that the Group would not be able to collect all amounts due according to the original terms of the receivables. The amount of the provision was the difference between the asset's carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

The carrying amount of the asset was reduced through the use of an allowance account, and the amount of the loss was recognised in the income statement within 'other operating expenses'. When a trade receivable was uncollected, it was written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off were credited against 'other operating expenses' in the income statement.

Revenue

Costs of obtaining a contract

In the Investment Management business the Group pays placement fees to third parties for sourcing new investors and equity for a fund. These costs are capitalised and amortised on a straight-line basis over the life of the fund, consistent with the pattern of transfer of service to which the asset relates.

Adoption of standards, amendments and interpretations to standards

Standards, amendments and interpretations endorsed by the EU and mandatorily effective for the first time for the financial year beginning 1 January 2018 relevant to the Group are as follows:

· IFRS 9, 'Financial instruments', replaces the provisions of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liabilities; derecognition of financial instruments; impairment of financial assets and hedge accounting. IFRS 9 also significantly amends other standards dealing with financial instruments such as IFRS 7 Financial Instruments: Disclosures. In accordance with the transitional provisions in IFRS 9 (7.2.15), comparative figures have not been restated and continue to be accounted for in accordance with the Group's previous accounting policy. 

The transition to IFRS 9 did not have a material impact on the Group's opening retained earnings, as a result a reconciliation of retained earnings is not required.

The only reclassification adjustment upon transition to IFRS 9 relates to the Group's available-for-sale investments, which have been reclassified to financial assets through other comprehensive income (following the Group's decision to apply the irrevocable election available in IFRS 9). This reclassification did not have an impact on the carrying value of these financial assets and only impacts the accounting treatment in future periods when these investments are disposed of. 

· IFRS 15, 'Revenue from contracts with customers' ('IFRS 15'), establishes a principles based approach for revenue recognition and is based on the concept of recognising revenue for obligations only when they are satisfied and the control of goods or services is transferred. It applies to all contracts with customers, except those in the scope of other standards. The implementation of IFRS 15 resulted in some refinement in the timing of recognition of investment management performance fees and the amortisation period for contract costs.

In accordance with transition provisions in IFRS 15 the new rules have been adopted using the simplified retrospective transition method. The transition to IFRS 15 did not have a material impact on the Group's opening retained earnings, as a result a reconciliation of retained earnings is not required. There have however been a number of balance sheet reclassifications upon transition to IFRS 15 as follows:

· Contract assets recognised in relation to consulting contracts were previously presented as work in progress.

· Contract liabilities recognised which were previously presented in trade and other payables as deferred revenue.

In addition to the above, the December 2017 goodwill and trade and other payables balances have been restated by a further £2.0m. See Note 12 for details. 

Use of non-GAAP measures

The Group believes that the consistent presentation of underlying profit before tax, underlying effective tax rate, underlying basic earnings per share and underlying diluted earnings per share provides additional useful information to shareholders on the underlying trends and comparable performance of the Group over time. The 'underlying' measures are also used by Savills for internal performance analysis and incentive compensation arrangements for employees. All the adjustments made to the GAAP measures are considered exceptional and/or non-operational in nature. These terms are not defined terms under IFRS and may therefore not be comparable with similarly-titled profit measures reported by other companies. They are not intended to be a substitute for, or superior to, GAAP measures.

The term 'underlying' refers to the relevant measure of profit, earnings or taxation being reported excluding the impact (pre and post-tax where applicable) of the following items:

· amortisation of acquired intangible assets (excluding software);

· the difference between IFRS 2, 'Share-based Payment' ('IFRS 2'), charges related to outstanding bonus-related deferred share awards and the estimated value of the current year bonus pool expected to be allocated to deferred share awards (refer to Note 7 for further explanation);

· items that are considered exceptional by size or nature including restructuring costs, impairments of goodwill, intangible assets and investments and profits or losses arising on disposals of subsidiaries and other investments; and

· significant acquisition costs related to business combinations.

The underlying effective tax rate represents the underlying income tax expense expressed as a percentage of underlying profit before tax. The underlying income tax expense is the income tax expense excluding the tax effect of the adjustments made to arrive at underlying profit before tax and other tax effects related to these adjustments.

Underlying basic earnings per share and underlying diluted earnings per share both utilise the underlying profit after tax measure instead of GAAP earnings. The weighted average number of shares remain the same as the GAAP measure.

A reconciliation between GAAP and underlying measures are set out in Note 7 (underlying profit before tax) and Note 10b) (underlying basic earnings per share and underlying diluted earnings per share).

The Group also refers to revenue and underlying profit on a constant currency basis which are both non-GAAP measures. Constant currency results are calculated by translating the current year revenue and underlying profit using the prior year exchange rates. This measure allows the Group to assess the results of the current year compared to the prior year, excluding the impact of foreign currency movements.

4. Estimates

The preparation of interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements for the year ended 31 December 2017, with the exception of changes in estimates that are required in determining the provision for income taxes.

5. Financial risk management

Financial risk factors

The Group's activities expose it to a variety of financial risks including foreign exchange risk, interest rate risk, credit risk and liquidity risk. The condensed interim financial statements do not include all financial risk management information and disclosures as required in the annual financial statements; they should be read in conjunction with the Group's annual financial statements as at 31 December 2017. There have been no changes in any risk management policies since the year end.

Fair value estimation

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

- Quoted prices (unadjusted) in active markets for identical assets and liabilities (Level 1).

- Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).

- Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).

The following table presents the Group's assets and liabilities that are measured at fair value at 30 June 2018:

The following table presents the Group's assets and liabilities that are measured at fair value at 31 December 2017:

There were no transfers between levels of the fair value hierarchy in the period.

There were no changes in valuation techniques during the period.

The fair value of all other financial assets and liabilities approximate their carrying amount.

Valuation techniques

Level 1 instruments are those whose fair values are based on quoted market prices.

Level 2 instruments include investment funds, the fair value of these funds are based on underlying asset values determined by the Fund Manager's audited annual financial statements. The fair value of other unlisted investments also included as Level 2 are based on price earnings models and historical cost information.

If one or more of the significant inputs is not based on observable market data, the instrument is included in Level 3. The Group has no Level 3 instruments.

6. Segment analysis

Operating segments reflect internal management reporting to the Group's chief operating decision maker, defined as the Group Executive Board (GEB). The GEB assesses the performance of operating segments based on a measure of underlying profit before tax which adjusts reported pre-tax profit by profit/(loss) on disposals, share-based payment adjustment, significant restructuring costs, acquisition-related costs, amortisation of acquired intangible assets (excluding software) and impairments.

The Other segment includes revenue, costs and other expenses at holding company and subsidiary levels, which are not directly attributable to the operating activities of the Group's business segments.

A reconciliation of underlying profit before tax to reported profit before tax is provided in Note 7.

7. Underlying profit before tax

The Directors seek to present a measure of underlying performance which is not impacted by exceptional items or items considered non-operational in nature. This measure is described as 'underlying' and is used by management to assess and monitor performance.

The adjustment for share-based payments relates to the impact of the accounting standard for share-based compensation. The annual bonus is paid in a mixture of cash and deferred shares and the proportions can vary from one year to another. Under IFRS the deferred share element is amortised to the income statement over the vesting period whilst the cash element is expensed in the year. The adjustment above addresses this by adding to or deducting from profit the difference between the IFRS 2 charge in relation to outstanding bonus-related share awards and the estimated value of the current year bonus pool to be awarded in deferred shares. This adjustment is made in order to better match the underlying staff cost in the year with the revenue recognised in the same period.

During the period, the Group disposed of Savills Asset Management Co. Ltd., a South Korean asset management company, resulting in a £0.1m profit. The profit in the period ended 30 June 2017 related to the disposal of the Group's equity investment in the Cordea Savills German Retail Fund.

Restructuring costs includes costs of integration activities in relation to significant business acquisitions. Costs in the period ended 30 June 2018 relate primarily to the 2017 acquisition of Aguirre Newman in Spain. Costs in the period ended 30 June 2017 relate primarily to the 2015 acquisition of Smiths Gore in the UK and Savills Investment Management's acquisition of SEB, also in 2015.

Acquisition related costs consist of £1.5m of transaction related costs (30 June 2017: £nil) and £2.2m in respect of Savills Investment Management's 2014 acquisition of Merchant Capital (30 June 2017: £1.4m). In addition, there was a £7.0m charge for future consideration payments which are contingent on the continuity of recipients' employment in the future (30 June 2017: £11.9m). For the period ended 30 June 2018 a significant portion of this charge relates to the Aguirre Newman acquisition. For the period ended 30 June 2017 a significant portion of the charge related to the Studley acquisition.

8. Income tax expense

The income tax expense has been calculated on the basis of the statutory rates in each jurisdiction adjusted for any disallowable charges.

The forecast Group effective tax rate is 29.2% (30 June 2017: 31.5% and 31 December 2017: 27.8%), which is higher (30 June 2017 and 31 December 2017: higher) than the UK standard effective annual rate of corporation tax of 19% (30 June 2017 and 31 December 2017: 19.25%). This reflects permanent disallowable expenses, including acquisition costs. The Group underlying effective tax rate was 24.5% (30 June 2017: 26.6% and 31 December 2017: 25.8%).

9. Dividends

The Board has declared an interim dividend for the six months ended 30 June 2018 of 4.8p per ordinary share (30 June 2017: 4.65p) to be paid on 3 October 2018 to shareholders on the register on 7 September 2018. The interim dividend has not been recognised in these interim financial statements. It will be recognised in equity in the year to 31 December 2018.

10(a). Basic and diluted earnings per share

10(b). Underlying basic and diluted earnings per share

11. Cash (used in)/generated from operations

12. Acquisition of subsidiaries

Cluttons International Holdings Limited and Cluttons Management Limited (collectively 'Cluttons Middle East')

On 31 May 2018 the Group acquired 100% of the equity interest in Cluttons Middle East, establishing the Group's first wholly owned business in the region.

Total acquisition consideration is provisionally determined at £21.1m, £17.5m of which was settled on completion and the remainder relating to the discounted value of deferred consideration of up to £3.6m, payable on the first, second and third anniversaries of completion.

Acquisition-related costs of £0.9m have been expensed as incurred to the income statement.

The fair value exercise is in progress and goodwill of £17.4m has been provisionally determined. Goodwill is attributable to the experience and expertise of key staff and strong industry reputation and is not expected to be deductible for tax purposes.

The acquired business contributed revenue of £1.1m and underlying profit of £0.2m to the Group for the period from 1 June 2018 to 30 June 2018. Had the acquisition been made at the beginning of the financial year, revenue would have been £6.6m and underlying profit would have been £1.0m.

Due to the timing of the acquisition, the fair values of the assets acquired and liabilities assumed are provisional and will be finalised within 12 months of the acquisition date. These are summarised below:

The fair value of trade and other receivables is £4.5m and includes trade receivables with a fair value of £2.6m. The gross contractual amount for trade receivables is £2.7m, of which £0.1m is expected to be uncollectible.

Other acquisitions during the period

During the period, the Group also acquired 100% of Central Management Solutions Limited, an urban-centre management company based in the UK. Cash consideration paid was £0.8m. A further £0.3m is subject to service conditions and will be expensed to the income statement over the period of service. Goodwill of £0.4m has been provisionally determined.

Update to provisional fair value of prior period acquisition

During the period, the total acquisition consideration payable for the Aguirre Newman acquisition on 29 December 2017 was finalised, with an additional £2.0m of consideration paid. This adjustment is considered a measurement period adjustment in accordance with IFRS 3 and as a result the prior period comparatives have been restated by increasing goodwill arising on the acquisition by £2.0m, with a corresponding increase in trade and other payables to recognise additional deferred consideration as at 31 December 2017.

13. Transactions with non-controlling interests

During the year, the Group undertook the following transactions with non-controlling interests:

(a) Acquisitions of additional interest in subsidiaries

Under IFRS 10, transactions with non-controlling interests must be accounted for as equity transactions, therefore no goodwill has been recognised. Acquisition costs related to this transaction were not significant.

In April 2018, the Group acquired an additional 25% of the shares in its Italian investment management business, Savills Investment Management SGR ("SIMSGR"), for a net consideration of £3.0m, with £2.6m paid on completion. This takes the Group's shareholding in the entity to 100%. The carrying amount of SIMSGR's net assets on the date of acquisition was £5.0m. The Group recognised a decrease in non-controlling interest of £1.2m. The amount charged to retained earnings in respect of the transaction was £1.8m.

14. Retirement and employee benefit obligations

Defined benefit plans

The Group operates two defined benefit plans.

The Pension Plan of Savills (the 'UK Plan') is a UK-based plan which provided final salary pension benefits to some employees, but was closed with regard to future service-based benefit accrual with effect from 31 March 2010. From 1 April 2010, pension benefits for former members of the UK Plan are provided through the Group's defined contribution Personal Pension Plan.

The Savills Fund Management GMBH Plan (the 'SFM Plan') is a Germany-based plan which provides final salary benefits to 17 active employees and 97 former employees. The plan is closed to future service-based benefit accrual.

Significant actuarial pension assumptions are detailed in the Group's Annual Report and Accounts 2017 and are the same as at 31 December 2017 except for the following:

The amounts recognised in the statement of financial position are as follows:

Section 5.2 of the SFM Plan Trust Deed provides the Trustor (Savills Fund Management GmbH, Savills Fund Management Holding AG, and Savills Investment Management (Germany) GmbH respectively) with an unconditional right to a refund of surplus assets assuming the full settlement of plan liabilities in the event of a plan wind-up. Furthermore, in the ordinary course of business neither Trustor nor Trustee have any rights to unilaterally wind up, or otherwise augment the benefits due to members of the scheme. Based on these rights, any net surplus in the scheme is recognised in full.

The amount recognised within the income statement in relation to the UK Plan for the period ended 30 June 2018 is a net interest cost of £0.2m (30 June 2017: £0.5m, 31 December 2017: £1.0m).

The amount recognised within the income statement in relation to the SFM Plan for the period ended 30 June 2018 is a current service cost of £nil (30 June 2017: £0.1m, 31 December 2017: £0.1m).

Included in retirement and employee benefit obligations is £30.0m relating to holiday pay and long service leave (30 June 2017: £28.0m, 31 December 2017: £27.2m).

15. Borrowings

Movements in borrowings are analysed as follows:

The Group has the following undrawn borrowing facilities:

In April 2018, the Group increased the multi-currency revolving credit facility ('RCF') by £60.0m to £360.0m. The RCF expires on 15 December 2020. As at 30 June 2018 £102.5m (30 June 2017: £175.0m, 31 December 2017: £106.0m) of the RCF was drawn.

In June 2018, the Group raised £150.0m through the issue of 7, 10 and 12 year private placement fixed rate notes.

16. Related party transactions

As at 30 June 2018, there were no loans outstanding to associates and £1.5m of loans outstanding to joint ventures (30 June 2017: £0.1m of loans outstanding to joint ventures, 31 December 2017: £0.6m loans outstanding to joint ventures and £0.3m loans outstanding to associates).

There were no material related party transactions during the period. All related party transactions take place on an arm's-length basis under the same terms as those available to other customers in the ordinary course of business.

17. Contingent liabilities

In common with comparable professional services businesses, the Group is involved in a number of disputes in the ordinary course of business. Provision is made in the financial statements for all claims where costs are likely to be incurred and represents the cost of defending and concluding claims. The Group carries professional indemnity insurance and no separate disclosure is made of the cost of claims covered by insurance as to do so could seriously prejudice the position of the Group.

18. Seasonality

A significant percentage of revenue is seasonal which has historically caused revenue, profits and cash flow from operating activities to be lower in the first half and higher in the second half of each year. The concentration of revenue and cash flow in the fourth quarter is due to an industry-wide focus on completing transactions toward the calendar year end.

19. Events after the balance sheet date

DRC Capital LLP ('DRC')

On 26 July 2018, the Group announced the proposed acquisition by Savills Investment Management of a 25% interest in DRC, a leading European investment advisor of real estate debt funds. In addition, the partners of DRC have granted Savills Investment Management a call option to acquire the remaining 75% interest in DRC on the third anniversary of the completion of the initial transaction. DRC is a specialist real estate debt investment advisor with current AUM of £2.0bn comprising a series of High Yield, Senior and Whole Loan funds. Subject to regulatory approvals, the transaction is expected to close in the third quarter of 2018.

SHAREHOLDER INFORMATION

Like many other listed public companies, Savills no longer issues a hard copy of the Interim Statement to shareholders.

This announcement together with the attached financial statements and notes may be downloaded from the investor relations section of the Company website at www.savills.com.