Savills : Half Year Results for the six months to 30 June 2022

11 August 2022

Savills plc

('Savills' or 'the Group')

RESULTS FOR THE HALF YEAR ENDED 30 JUNE 2022

STRONG PERFORMANCE COMFORTABLY AHEAD OF PRE-PANDEMIC LEVELS

Savills plc, the international real estate advisor, today announces its unaudited results for the six months ended 30 June 2022.

Key Financial Information

• • Group revenue £1,037.4m, up 11% (9% in constant currency*) (H1 2021: £932.6m)
  • Group underlying profit** before tax £59.2m (H1 2021: £66.1m)
  • Group profit before tax £50.4m (H1 2021: £63.3m)
  • Underlying basic earnings per share** 32.4p (H1 2021: 35.8p)
  • Basic earnings per share 26.8p (H1 2021: 34.2p)
  • Interim dividend of 6.6p (H1 2021: 6.0p)
  • Net cash*** £149.0m (H1 2021: Net cash £106.7m)
• 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') and underlying basic earnings per share ('underlying EPS') are calculated on a consistently reported basis in accordance with Note 3, Note 8 and Note 11(b) to the Interim Financial Statements.
• Net cash reflects cash and cash equivalents net of borrowings and overdrafts in the notional pooling arrangement (see Note 13 and 18).

Trading performance - Key highlights

• Transaction Advisory revenues up 14%
• Commercial Transaction revenue increased 26% overall with growth across all regions
• Residential Transaction Advisory revenue down 11%; UK residential markets performed well albeit with anticipated reduction in activity levels
• Less transactional businesses, performed well in aggregate with revenue up 9%
• Property and Facilities Management revenue up 8%, Consultancy revenue up 6%
• Savills Investment Management revenue significantly ahead with Assets under Management ('AUM') up 9% to €26.5bn (£22.8bn)

Commenting on the results, Mark Ridley, Group Chief Executive of Savills plc, said:

"2022 has presented a number of heightened macro-economic, geopolitical, and, in some locations, continued Covid- related risks to investors, corporates and to many people's personal lives. I am delighted with the responses of our people and our clients to doing business in challenging circumstances and specifically in respect of their support for Ukraine.

"Despite staff cost inflation and the anticipated increase in discretionary costs, we have performed well so far this year, in line with the Board's expectations. With our strong balance sheet, we are continuing to undertake a variety of business development activities across the Group to enhance our service to clients worldwide.

"With inflation driving interest rates up globally, a new experience for many market participants, real estate markets began to adjust in the second quarter. We expect that process to continue through the second half of the year. However, there remains significant investor interest in the secure income characteristics of real estate and occupiers are progressively focussing on improving the sustainability characteristics of their portfolios as well as creating environments in which staff can thrive.

"At this stage it is too early to predict with any accuracy the potential impact of the political and economic environment on real estate transaction volumes globally, although clearly the risk is towards a short term reduction in activity as markets adjust to, inter alia, rising debt cost. Notwithstanding this risk, given our performance to date and having previously taken a cautious view of likely transactional performance in 2022, at this stage the Board's expectations for the year as a whole remain unchanged."

For further information, contact:
Savills	020 7409 8030
Mark Ridley, Group Chief Executive
Simon Shaw, Group Chief Financial Officer
Tulchan Communications	020 7353 4200
Mark Burgess
Elizabeth Snow

The analyst presentation will be held at 9.30am today by webinar. For joining instructions please contact [e-mail]. A recording of the presentation will be available from noon at www.ir.savills.com.

Overview

The Group has traded well so far in 2022 against a backdrop of geopolitical, economic, practical (supply chain) and, in some cases, Covid-related challenges.

In the six months to 30 June 2022, Savills delivered revenue of £1,037.4m, an increase of 11% (9% in constant currency) on the comparable period (H1 2021: £932.6m). Underlying profit was £59.2m, 10% lower than the first half of 2021 (H1 2021: £66.1m) (11% lower in constant currency) in line with our expectations. The Group's underlying profit margin was 5.7% (H1 2021: 7.1%). This reflects staff cost inflation and the anticipated progressive return to higher levels of marketing, travel and entertainment/events related expenditure compared with abnormally low levels in 2021.

Strong underlying growth compared with the Group's pre-pandemic performance is illustrated by the fact that H1 2022 revenue and underlying profit were 22% and 54% respectively ahead of the equivalent performance for H1 2019 (H1 2019 revenue: £847.0m, H1 2019 underlying profit: £38.4m and H1 2019 underlying profit margin: 4.5%).

The Group continues to maintain a strong liquidity position with net cash of £149.0m at period end (H1 2021: £106.7m).

Reported profit before tax, including employment-linked deferred consideration provisions and transaction-related and restructuring costs was £50.4m (H1 2021: £63.3m).

Market conditions

Q1 2022 started strongly in virtually all "non-Covid affected" markets. The war in Ukraine, inflation and the rising interest rate cycle began to affect transaction markets in Q2, initially in the smaller lot sizes, both capital and lease transactions, as investors and corporates started to factor inflation and rising debt cost into their decisions. As is customary, this has manifested itself in significant bid/offer spreads in the market across most real estate sub sectors.

The transaction volume of commercial properties in Asia Pacific fell by 30% year-on-year in H1 2022. The Omicron variant has undermined the ongoing recovery of the regional economy, with lockdown restrictions across the region, which were especially severe in the major cities in China. It is expected that economic growth in the region will gather momentum in H2 2022, as lockdown restrictions ease.

In Europe, the investment market had a strong start to the year but volumes in Q2 declined on the same period last year given the geopolitical and economic backdrop. This has been particularly marked in Germany.

The US is seeing both pockets of strength and some headwinds across the commercial real estate markets. Most pandemic-related concerns have subsided with all business and economic restrictions lifted. The office market recovery remains slow, but there is positive momentum and ample opportunity for occupiers given current dynamics. H1 2022 office leasing volumes were 35% higher than that seen at H1 2021, with a stronger performance in Q1 versus Q2, again as a result of growing economic concern for the remainder of the year.

Residential markets, particularly in the UK, have remained relatively buoyant in the first half of 2022 despite increasing economic headwinds. Activity in the prime housing markets remained particularly robust, despite constrained levels of publicly available stock. However, price growth has begun to moderate in response to the rising cost of debt in particular.

Business development during the period

The Group has continued to focus on the strategic development of the business, enabled by the Group's strong balance sheet. In the first half of this year, we completed the acquisition of several businesses and continue to undertake significant organic growth initiatives across the platform. In May, the Group acquired workplace specialist BrickByte in Germany, enhancing Savills ability to respond to increasing client demand for workplace consulting in this market. In Indonesia, the Group acquired a full service property business to bolster our service offering in the region (see Note 14).

Technology continues to be an important focus for the Group, and we continue to benefit from the investment we have made both internally and externally, through Grosvenor Hill Ventures, across the globe and from our own digital transformation programmes. In February, we completed the acquisition of UK-based workplace experience platform Cureoscity (see Note 14). This provides a digital platform which connects and enhances smart building capabilities and access control with modules that improve occupier experience and engagement. Since this acquisition, the platform is being rolled out across our property management portfolio.

Through Grosvenor Hill Ventures, our technology investment subsidiary, we have continued to support our portfolio business and we also participated in the Series A funding round of ThirdFort, a platform which improves the customer experience by digitising many aspects of the core compliance tasks for the industry.

Business review

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

	Revenue		H1 2022		H1 2021	Change
		£m		£m
	Transaction Advisory	413.2	362.0	14%
	Consultancy	184.3	173.4	6%
	Property and Facilities Management	386.1	359.0	8%
	Investment Management	53.8	38.2	41%
	Group revenue	1,037.4	932.6	11%
	Underlying profit		H1 2022		H1 2021	Change
		£m		£m
	Transaction Advisory	22.7	29.1	(22%)
	Consultancy	14.6	18.8	(22%)
	Property and Facilities Management	18.6	19.2	(3%)
	Investment Management	10.3	7.1	45%
	Unallocated cost	(7.0)	(8.1)	n/a
	Group underlying profit		59.2		66.1	(10%)

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

	Revenue		H1 2022	H1 2021	Change
		£m	£m
	UK	439.2	417.4	5%
	Asia Pacific	311.7	287.2	9%
	CEME	138.1	114.0	21%
	North America	148.4	114.0	30%
	Group revenue		1,037.4	932.6	11%
	Underlying profit		H1 2022	H1 2021	Change
		£m	£m
	UK	48.1	53.1	(9%)
	Asia Pacific	18.0	24.0	(25%)
	CEME	(1.7)	(4.1)	n/a
	North America	1.8	1.2	50%
	Unallocated cost	(7.0)	(8.1)	n/a
	Group underlying profit		59.2	66.1	(10%)

Revenue growth of 11% was driven by a combination of normal growth (9%) in the less transactional service lines, a 26% improvement in commercial transaction revenues and the anticipated reduction in activity in residential markets.

As anticipated, this shift in revenue from residential to commercial transactions affected UK profits period-on-period. More generally, profits were impacted globally by significant growth in staff costs after two years of effective stasis. Furthermore, as anticipated, other expense lines including marketing, events, travel and entertainment increased by between 50% and 115% period-on-period as these activities, which were extremely limited in H1 2021, had largely normalised by H1 2022, albeit in some cases at lower than pre-Covid levels.

Transaction Advisory

	Revenue		H1 2022	H1 2021	Change
		£m	£m
	UK	151.4	142.7	6%
	Asia Pacific	80.4	74.3	8%
	CEME	49.1	39.9	23%
	North America	132.3	105.1	26%
	Total		413.2	362.0	14%

Our Transaction Advisory revenues increased by 14% over H1 2021 (12% in constant currency), with strong revenue growth in North America and CEME. Underlying profit decreased to £22.7m as a result of both the mix of revenues and the inflationary cost increases referenced above (H1 2021: £29.1m).

UK Commercial

UK Commercial Transaction fee income increased 44% to £55.6m (H1 2021: £38.5m), with significant growth in both investment and leasing activity.

The first six months of 2022 saw an initial strong recovery in commercial property investment activity, followed by the beginnings of a slowdown as geo-political and economic events affected investor confidence. Occupational market trends were more resilient, with office leasing volumes in both central London and the key regional cities increasing over the comparable period, albeit activity was still focused on larger lot sizes with good sustainability characteristics.

Logistics markets remained strong with a record level of take-up through the first half of 2022.

Increased revenue resulted in an improved underlying profit margin of 17.8% (H1 2021: 13.5%) and underlying profit

of £9.9m (H1 2021: £5.2m).

UK Residential

In line with our expectations, after the abnormally positive market conditions of 2021, revenue from Savills UK residential business declined by 8% to £95.8m (H1 2021: £104.2m), which was a resilient performance against the backdrop of much reduced stock availability and rising interest rates.

In the second hand agency business, Savills overall transaction volumes exchanged were down 22% in London and 39% in the regional markets following a record performance in H1 2021. The average value of London and regional residential property sold by Savills in the period was higher at £2.2m (H1 2021: £1.9m) and £1.4m (H1 2021: £1.2m) respectively.

Revenue from the sale of New Homes improved 7% on H1 2021. This reflected significant growth in the average lot size transacted as a result of increased exposure to London transactions largely offsetting a reduction in activity in markets outside the capital.

Finally, our Operational Capital Markets business, which advises on the Private Rented Sector ('PRS'), Student and other institutional residential markets, delivered 38% revenue growth period-on-period as a consequence of some individually large transactions in this sector of high investment demand.

Underlying profits in the UK residential transaction business decreased to £13.6m (H1 2021: £20.5m).

Asia Pacific Commercial

Commercial Transaction fee income in Asia Pacific increased by 18% (same in constant currency) to £71.2m (H1 2021: £60.5m). Strong performances in Japan, Singapore, South Korea and Vietnam more than offset significantly reduced revenue in mainland China, which was largely due to continued Covid-related restrictions there for much of the period. Indeed, collectively mainland China and Hong Kong represented 28% of the Asia Pacific region's commercial transaction revenue during the period, which contrasts significantly with our position a decade ago when they represented in excess of 65%.

Overall the Asia Pacific commercial transaction business delivered a stable underlying profit for the period of £7.4m (H1 2021: £7.4m).