Last checked at 25 Jun 2020 07:00
25 June 2020
SAVILLS PLC
("Savills" or "the Company")
Trading update
Ahead of its "virtual" Annual General Meeting (AGM) to be held at 9,30am today at the offices of Savills Chelmsford, Parkview House, Victoria Road South, Chelmsford, Essex CM1 1BT, Savills plc, the international real estate advisor issues a Trading Update and further information on the actions it is taking in response to the Covid-19 outbreak.
· Less Transactional businesses have continued to perform well but Covid-19 has had a significant impact on global real estate market volumes
· Net debt at 30 June 2020 expected to be significantly lower than at 30 June 2019 (£139m net debt)
· Overall Group Full Year performance will be highly dependent upon extent to which regional transactional markets recover in H2
Mark Ridley, Chief Executive, commented:
"I would firstly like to thank all of our staff globally for the exceptional work delivered for our clients throughout this unprecedented and challenging period. The steps we have taken over the last decade to strengthen our business have prepared us well for these uncertain times. We continue to ensure we have the appropriate balance in our business through the growth of our less transactional service lines. We have a strong balance sheet and are taking steps to mitigate the impact of the pandemic across our business. We continue to focus on keeping our employees safe and maintaining a first class service to our clients. Although the short term outlook remains difficult accurately to predict, we are confident in the strength and resilience of our global, diversified business."
Covid-19 has had a significant impact on the World's real estate markets. As a global business Savills has had to navigate market disruption from its origin in the Asia Pacific region through its progressive spread across the world. The impact of lock downs, including the prohibition on site viewings, has significantly reduced the volume of transactional activity which could be conducted.
Our Less Transactional businesses of Consultancy and Property Management have performed well to date, with improved revenue and profitability over the comparable period in 2019 partially mitigating the effect of reduced transactional activity.
Our internal Covid-19 liquidity focused model assumed that Q2, which is the period in which the significant majority of our H1 profit is generated in normal market conditions, would be the period in which the most extreme effect of the pandemic would manifest itself on the Group. It is too early to determine whether that assumption is correct; however, thus far every region has comfortably outperformed its Covid-19 liquidity model projections. This is due in part to stronger revenues and in part to the mitigating actions we have taken. It is therefore highly encouraging that during the period to date Savills has traded profitably, albeit as expected at a materially reduced level year-on-year.
As a consequence of the cash impact of the Savills trading performance and mitigating actions taken, our half year net debt position is on course to be substantially reduced in comparison with the same period last year (H1 2019: £139m net debt), with substantial unutilised facilities available to the Group as needed.
Trading Update
In the Asia Pacific region, we experienced the most significant impact in the early part of the period with lockdowns in Greater China (including Hong Kong), Japan, Korea, Australia and Singapore substantially reducing advisory activity. As a number of these countries emerged from lockdown through Q2, we have seen clear signs of recovery in activity, particularly in Korea, Mainland China and Hong Kong, albeit off a low base. Throughout the period our substantial Property and Facilities Management business in the region has performed well.
In the UK, our performance has been very resilient despite significant reductions in transactional activity during lock down. This is due to the strength and breadth of our less transactional businesses in an environment where clients of all types have needed high quality advice and property management services. We have also concluded a number of significant transactions which generally reflected the strength of our pipeline coming into 2020. Since the recent lifting of estate agency restrictions in England, we have seen substantial increases in all measures of activity in our Residential Transaction business, although it is too early to determine the relative effects of the realisation of pent-up demand built over the lock down period and new business through genuinely improved sentiment.
In Continental Europe and the Middle East, where Savills is more dependent upon transactional activity, we have benefited from a strong pipeline in Germany, Spain, the Netherlands and Belgium, which collectively partially mitigated the effect of reduced transaction volumes across the region.
In North America, where the Group is substantially dependent upon leasing activity by corporate occupiers, our business performance has been significantly affected by lock downs, particularly in the major metropolis markets of New York, Chicago and San Francisco. In general, Occupier decisions around office space are being delayed in favour of shorter term roll over of current arrangements. Our US Government advisory business and our Logistics business have been two positive exceptions to this general trend.
Savills Investment Management has performed largely in line with the same period last year with management fee growth mitigating the reduction in performance fees period on period. We have benefited from being one of the largest managers of logistics assets in Europe, a sector which remains much in demand by investors. In addition DRC Capital, the real estate debt manager in which we hold a 25% interest, is performing well in a market which is conducive to debt investment strategies.
Covid-19 Mitigating Actions
Our primary concern has been the well-being of our staff, clients and suppliers both in respect of our own businesses and, as a substantial Property Manager, in respect of the occupiers and users of the portfolio under our management. Such activities and advice have become ever more important as we have overcome the specific issues enabling a return to work. Today, over 90% of our offices around the world are open and either working on a rota system or fully staffed.
Similar to our approach during the Global Financial Crisis in 2008/9 ("GFC"), in an environment where the outlook is constantly changing, for reasons outside our control, and thus where traditional near term forecasting is extremely compromised, we have focused on liquidity and cash management and have evaluated our actions against a live Covid-19 liquidity model.
Overarching this, we have adopted the same principle as in the GFC, which is to maintain our staffing levels to ensure that we can continue to provide comprehensive, high quality, timely real estate advice in circumstances where clients have needed it more than ever. This is only possible because of our conservative financing structure and is designed both to minimise the impact on staff and to position the Group to outperform in the recovery phases as they emerge across the regions in which we operate.
Examples of specific actions taken include:
· Senior Management salary cuts for 2020 of 20% across the Group; |
· Reductions in discretionary expenditure; |
· Reductions and deferment of Capital Expenditure save in respect of long term data and digitisation projects; |
· Cancellation of the 2019 Final Dividend and the postponement of any decision on shareholder distributions until our likely 2020 outcome and the trajectory of recovery becomes clearer; and |
· Limited acceptance of Government Support Schemes, restricted to those business lines expressly prevented from operating during lockdown, principally our UK Residential Transaction business. The majority of team members have now returned from furlough. |
We have continued to focus on growing our business across all our regions, primarily through recruitment of individuals and teams who are attracted to our culture, our proprietary Global network, and the opportunities that it creates, and our relative financial security.
Outlook
Whilst our Less Transactional businesses have provided a solid platform for the Group during the pandemic, our overall performance for the year will be highly dependent upon the extent to which regional transactional markets recover in the second half. The wider context for real estate investment is largely positive with the expectation of low interest rates for longer and continued, or enhanced, investor demand for income reflected in increased allocation to Real Asset backed strategies.
As a consequence of Covid-19, the environment remains highly uncertain, chiefly in respect of expected recovery trajectories across the world and the risk of second wave outbreaks causing further lock downs. In addition, it is unclear how significantly the longer term economic impact of Covid-19 will weigh on corporate and investor sentiment.
We are confident in the Group's capability to withstand all modelled scenarios for the year and to continue to execute our growth strategies and deliver a profitable performance in 2020. However, given the wide range of potential outcomes at this stage, it is not currently possible to provide meaningful guidance for the year.
Notwithstanding Covid-19, Savills is well positioned to serve our clients, win new business and take advantage of expansion opportunities as they arise.
We anticipate announcing interim results for the six months to 30 June on 6 August 2020.
For further information, contact:
Savills 020 7409 8934
Mark Ridley, Group Chief Executive
Simon Shaw, Group Chief Financial Officer
Tulchan Communications 020 7353 4200
David Allchurch
Elizabeth Snow