TIDMSVS
RNS Number : 9916Q
Savills PLC
25 June 2020
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 (GBP139m 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: GBP139m 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
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END
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