Mar 16, 2023

03/16/2023 | 04:13am EDT Message : Group performance ahead of expectations despite challenging markets Savills plc, the international real estate advisor, today announces its preliminary results for the year ended 31 December 2022. Key financial highlights Underlying* profit before tax decreased 18% to £164.6m (2021: £200.3m) Reported profit before tax decreased 16% to £153.9m (2021: £183.1m) Underlying basic EPS down 19% to 94.9p (2021: 116.5p); reported basic EPS down 17% to 87.0p (2021: 104.9p) Aggregate proposed final and supplementary interim dividends of 29.0p (2021: 28.35p, together with a one off special dividend of 27.05p) Net cash** £307.4m (2021: £340.7m) Underlying profit before tax ('underlying profit') is an alternative performance measure used to assess the performance of the Group. It is calculated on a consistently reported basis in accordance with Note 3 to this Preliminary Statement. Net cash reflects cash and cash equivalents net of borrowings and overdrafts in the notional pooling arrangement (see Note 8). Key operating highlights Transactional Advisory revenues up 4% despite challenging market conditions, particularly in H2; Residential Transaction revenue down 2%. Less transactional businesses, in aggregate 60% of Group revenue, continued to perform well with revenue up 9%. Property and Facilities Management revenue up 13%, Consultancy revenue up 4%. Savills Investment Management revenue up 1%, Assets under Management ('AUM') up marginally from £21.9bn to £22.1bn. Commenting on the results, Mark Ridley, Group Chief Executive, said: "Performance in 2022 was slightly ahead of our expectations despite challenging markets. More importantly, perhaps, the Group's performance was substantially ahead of the 2019 'pre-COVID' comparative period. The strength of our less transactional businesses, primarily Consultancy and Property Management, helped underpin the Group's performance overall. "In the year ahead, challenging macro conditions are expected to continue with inflation and interest rates remaining in focus for some time. As a result, the speed at which individual investment markets adjust to the cost of debt is uncertain, although certain markets, such as the UK, are recalibrating faster than in the past, and will be helped by the lack of development supply and an overall trend to sustainability. We would also expect that the release of COVID restrictions in Greater China paves the way for progressive improvement in real estate markets in the region. "We have started 2023 broadly in line with our expectations. However, it is clear that, at this stage, predictions for the full year are characterised by a wide range of possible outcomes; we believe that H1 2023 will be more challenging than its 2022 comparative; however, we expect progressive improvement through the second half of the year. 2024 should see more positive conditions for real estate market activity and Savills is both retaining its bench strength and investing in advance of such recovery." 1 The analyst presentation will be held at 9.30am today by webinar. For joining instructions please contact nrichards@savills.com. A recording of the presentation will be available from noon Results The Group traded well in 2022, against a backdrop of geopolitical, economic, logistical (supply chain) and, in some locations, continued COVID-related challenges. The Group's revenue increased by 7% to £2.3bn (2021: £2.15bn), substantially driven by the performance of our property management business. We had anticipated a reduction in profits compared with 2021 due both to the progressive return of certain discretionary costs (travel, entertainment and marketing events) as markets unlocked post-COVID, and as a result of staff cost inflation. In the event, and despite significant challenges in many transactional markets, underlying profit for the year decreased by 18% to £164.6m (2021: £200.3m), reflecting an underlying profit margin of 7.2% (2021: 9.3%). To put this into pre-COVID context, underlying profit was 15% ahead of 2019 (£143.4m), which represented an underlying profit margin of 7.5% for that pre-pandemic year. The Group's reported profit before tax decreased by 16% to £153.9m (2021: £183.1m). The Group continued to maintain a strong liquidity position with net cash (cash and cash equivalents net of borrowings and overdrafts in the notional pooling arrangements) of £307.4m at year end (2021: £340.7m). Overview Since the end of Q1 2022, real estate markets across the Globe have been increasingly challenged by geopolitical events, macro-economic issues and the associated policy responses. Despite this, the Group performed ahead of its previous expectations for the year and substantially ahead of the 2019 'pre-COVID' comparative period. Overall, our Transaction Advisory revenue increased 4% year-on-year and our less transactional businesses of Consultancy and Property Management grew revenue by 4% and 13% respectively. Although not immune from market volatility (particularly in respect of some Consultancy service lines), these businesses performed well and their strength helped underpin Savills performance overall. In the Transactional businesses, the rapid rise in actual and anticipated debt costs, through the second half of the year in particular, represented a significant challenge to which commercial investment markets have had to adjust. This, together with inflationary pressures globally, also reduced the volume of leasing transactions, although in a number of markets the drive for sustainability and improved amenity ensured that Grade A office activity, in particular, remained relatively robust. One highlight in the year was the relative strength of the prime residential markets which, particularly in the UK, helped to mitigate the effect of volume declines in commercial transaction activity. The Investment Management business traded marginally ahead of our expectations although deployment of capital was inevitably reduced, given the uncertain market conditions, and valuation adjustments reduced performance fee income year-on-year as anticipated. The majority of the effect of quarterly portfolio valuation adjustments is, however, likely to be felt in 2023. Overall, we were pleased with progress in the first full year of Savills Investment Management's relationship with Samsung life Insurance and the consequent launch of a number of new fund products in these market conditions. Discretionary costs (travel, entertainment and marketing events), which reduced significantly during the pandemic, increased overall in line with our expectations as marketing activity, entertainment and travel normalised post-pandemic. Meanwhile employment costs increased substantially as expected, reflecting inflationary pressures. The combination of these factors resulted in a decrease to the Group underlying profit margin to 7.2% (2021: 9.3%). The impact of the above factors on the Group underlying profit margin decreased reported profit before tax by 16% to £153.9m (2021: £183.1m), representing a 6.7% reported pre-tax profit margin (2021: 8.5%). Currency movements in the year increased revenue by £69.4m, underlying profit by £1.7m and reported profit before taxation by £1.5m. 3 Market conditions 2022 started strongly in virtually all markets which had largely released COVID-related restrictions. The war in Ukraine, inflation and the rising interest rate cycle began to affect transaction markets in Q2, initially in the smaller lot sizes of both capital and leasing transactions, as investors and corporates began to factor inflation and rising debt costs into their decisions. As a consequence, the volume of global real estate investment activity declined substantially in 2022, with the majority of the reduction occurring in the final quarter as cumulative interest rate rises and wage inflation began to bite. That said, in the UK especially, markets have been quicker to recalibrate than has been the case historically. We anticipate that this will continue with markets progressively normalising from the end of Q2 2023. In the UK, the housing market remained stronger for longer than anticipated, with the prime London housing markets particularly resilient. The international nature of the prime London market, with lower dependence upon mortgage financing relative to the wider markets and attractive valuations in a global context, should partially mitigate the effect of further volume reductions in the residential market overall. In Europe, 2022 was characterised by a progressively reduced flow of capital into real estate and weakening valuations due to the impact of interest rate rises on historically low yields. In certain markets such as Germany, utility inflation and weakened export markets (eg China) significantly reduced both investment and corporate leasing demand during the period. In the Asia Pacific region market conditions varied with the majority being affected by rising interest rates. The major exception was Japan, where continued low interest rates ensured a strong investment market. Finally, in Greater China, COVID related restrictions significantly affected market activity for the majority of the period. In North America Q1 2022 showed strong volumes in capital and leasing transactions. Thereafter the pace of interest rate increases significantly dampened demand. Sustainability in real estate During 2022 the key focus for the Group continued to be minimising our impact on the environment by delivering continuous improvement against our targets relating to the nine material Sustainable Development Goals and reducing carbon emissions. During the year we remained committed to the Science-Based Targets Initiative to deliver our carbon reduction goals, consistent with a no greater than 1.5°C temperature increase, to achieving Scope 1 and 2 net zero by 2030 and net zero in our value chain (ie Scope 3, including assets under the Group's discretionary control) by 2040. We have made tangible reductions in carbon in 2022 with our absolute Scope 1 and 2 'market-based' emissions totalling 6,679 tonnes CO2e, which is a 17.9% (1,454 tonnes CO2e) reduction against the 2019 base year. Across the Group we continue to implement practical initiatives to improve the environmental performance of the workspaces we occupy, including in the design of new offices, retrofitting of existing ones, and the active management of the whole estate. We have adopted a new green lease and fit-out guide as a basis for engagement with the Group's landlords including a transition towards renewable energy tariffs and the use of electric vehicles where market availability allows. Looking forwards we aim to improve upon our Green House Gas ('GHG') data sets for all three scopes, whilst also undertaking further tangible carbon reduction actions consistent with our Net Zero Transition Plan. Following some significant progress on the ESG agenda this year, we aim to enhance our ability to support both our people and our communities in the year ahead. 4 Business development Savills strategy is to be a leading multi-sector property advisor in the key markets in which we operate. Our global strategy is delivered locally by our experts on the ground with flexibility to adapt quickly to changes in circumstances and opportunities. They are supported by our global cross-border investment, residential and occupier services specialists. We continuously monitor opportunities to acquire complementary businesses, teams or individuals to enhance our strong core business. During the year we completed the acquisition of several businesses and continued to undertake significant organic growth initiatives across the business. The Group acquired workplace technology specialist BrickByte GmbH in Germany, enhancing Savills ability to respond to increasing client demand for technology-enabled workplace consulting in this market. In Indonesia, the Group acquired a full service property business to bolster our offering in the region. Savills Investment Management acquired Pitmore 1 Limited, a UK development and build-to-rent specialist, and a majority interest in Simply Affordable Homes LLP, a registered provider of affordable housing; both transactions were part of the continued expansion of our European Living Platform in Savills Investment Management. The Group also acquired a majority interest in AMS Maintenance Services Pte Limited and Solute Pte Limited, a facilities management group in Singapore, enhancing the property and integrated facilities management platform in the region. Focus on technology Technology is an important focus for the Group, and we continue to benefit from the investments we have made both internally and externally, through Grosvenor Hill Ventures, across the world. As we build our insight and data capabilities through our local, regional and global network of specialists, this allows us to ensure that individual teams have the resources they require to continue to deliver market leading advice to clients, while benefitting from the network effect of centralisation driving innovation and efficiencies. Workthere, our flexible office brokerage, continues to grow and had a record year as occupiers sought increased flexibility. We continue to invest in both brokerage and technology within the business to ensure ever increased efficiency and data collection as we expand our footprint. Our digitally enabled auction business within the UK continues to go from strength-to-strength, taking significant market share during the year. In February 2022 we acquired the trade and assets of Cureoscity Limited, the tenant experience platform. This connects occupiers, asset owners and property and facilities managers, primarily focused on multi-let office buildings. Post-acquisition we have further deployed the technology into our own property management portfolio, and on a stand-alone basis the business continues to win new mandates from third party managed buildings. Through Grosvenor Hill Ventures we have continued to support our portfolio businesses and we also participated in the Series A funding round of ThirdFort Limited, a platform which improves the customer experience by digitising many aspects of the increasingly onerous compliance process in real estate transactions. Board On 15 December 2022 Marcus Sperber was appointed to the Board as an additional independent Non- Executive Director. I am delighted that Marcus has joined the Board and we are already benefitting from his extensive global real estate experience as we further grow our business. In addition, having been Chairman since May 2016, I plan to retire from the Board towards the end of this year. A search for a new Board Chair is underway and we will update further in due course. Dividends An interim dividend of 6.6p per share (2021: 6.0p) amounting to £8.9m was paid on 5 October 2022, and a final ordinary dividend of 13.4p per share (2021: 12.75p) is recommended, making the ordinary dividend 20.0p per share for the year (2021: 18.75p). A supplemental interim dividend of 15.6p per share (2021: 15.6p) is declared, based upon the underlying performance of our Transaction Advisory business. Taken together, the ordinary and supplemental interim dividends comprise an aggregate distribution for the year of 35.6p per share, representing an increase of 3.6% on the 2021 aggregate ordinary and supplemental dividend of 34.35p. In 2021 we also declared a special dividend of 27.05p. 5