Savills plc (LON:SVS) has announced its preliminary results for the full year ended 31 December 2023.
Resilient performance in challenging markets driven by the Group’s less transactional service lines
Summary results:
| 31-Dec-23 | 31-Dec-22 | Change | |
| Group revenue | £2.24bn | £2.30bn | (3)% |
| Underlying profit before tax* | £94.8m | £164.6m | (42)% |
| Reported profit before tax | £55.4m | £153.9m | (64)% |
| Underlying basic EPS* | 55.1p | 94.9p | (42)% |
| Reported basic EPS | 30.0p | 87.0p | (66)% |
| Proposed final ordinary dividend | 20.8p | 20.0p | 4% |
| Total dividend per share | 22.8p | 35.6p | (36)% |
| Net cash** | £157.3m | £307.4m | (49)% |
* Underlying profit before tax (‘underlying profit’) and underlying basic EPS are alternative performance measures used to assess the performance of the Group. Underlying profit is calculated on a consistently reported basis in accordance with Note 3 to this Preliminary Statement. Underlying EPS is calculated using underlying profit, with the weighted average number of shares remaining the same as the GAAP measure.
** Net cash reflects cash and cash equivalents net of borrowings and overdrafts in the notional pooling arrangement (see Note 8).
Key highlights:
· Robust performance of the less transactional businesses, representing 65% of Group revenue, which grew 7%, underpinning overall Group performance
· Property Management and Consultancy businesses performed well with revenues increasing 11% to £899.5m and 4% to £459.8m, respectively
· Savills Investment Management revenue decreased 6%. Assets under management (‘AUM’) was stable at £22.1bn (2022: £22.1bn). $1bn commitment from Samsung Life largely awaiting deployment
· Global Transactional Advisory revenues, in aggregate 35% of Group revenue, decreased 17%, reflecting significantly reduced capital and leasing market volumes globally
· Global Residential revenues declined 19% as markets normalised, following high levels of post pandemic activity, and adapted to higher interest rates
· Depth and breadth of team retained throughout the Group to maintain high levels of client service
· Strong net cash position provides resilience and enables continued business development activity
Commenting on the results, Mark Ridley, Group Chief Executive, said:
“Savills resilient performance in 2023 highlights the diversity and strength of our global business. In the context of extremely challenging real estate markets, which saw the lowest levels of transaction volumes for a decade, our less transactional businesses have provided a solid platform for the Group with a resilient and growing earnings stream.
“Current economic and geopolitical conditions remain uncertain and although we expect this to continue for some time, most markets appear to be past the moment of peak uncertainty. There are some early signs of underlying market improvements, which should set the course for a broader recovery during the second half of the year and into 2025.
“Our policy of retaining our core bench strength, enabled by our strong balance sheet, positions the Group well for the future.”
The analyst presentation will be held at 9.30am today by webinar. For joining instructions please contact [email protected]. A recording of the presentation will be available from noon at www.ir.savills.com.
Chair’s statement
Results overview
Savills strength across its less transactional service lines continued to provide a resilient earnings stream, underpinning Savills overall performance in a global real estate market challenged by significantly reduced transactional activity. The Group’s revenue decreased by 3% to £2.2bn (2022: £2.3bn), 2% down on a constant currency basis. Although not immune to market volatility (particularly in respect of some Consultancy service lines), the strength of our less transactional businesses underpinned Savills performance overall, growing revenue by 7% to £1.5bn. Prime drivers of performance were Consultancy and Property Management, which performed well, growing revenue by 4% and 11% respectively.
The Group’s Transactional business experienced a 17% drop in revenue during the year as global market conditions remained extremely subdued for longer than anticipated at the start of 2023. This was the primary cause of the 42% reduction in the Group’s underlying profit of £94.8m (2022: £164.6m), representing an underlying profit margin of 4.2% (2022: 7.2%).
Our Investment Management business traded in line with our expectations, although deployment of capital was inevitably reduced given lack of price transparency in most of its target markets. At the year end, Savills Investment Management had significant investment ‘dry powder’ for both real estate equity and debt opportunities, including Samsung Life having committed its first $1bn to support a number of products.
As a result of the challenging market conditions during 2023, the real estate services industry as a whole undertook a number of rounds of cost reduction and reorganisation actions. In line with our strategy during the global financial crisis of 2008, as well as more recently through the pandemic, and supported by our strong financial position; Savills continued to maintain its core bench-strength around the world, ensuring we provided the highest level of service to our clients throughout the year and remain well positioned for market recovery.
We did, however, review the global business for locations or service lines where the anticipated time frames for market recovery remain protracted. This resulted in selective restructuring of certain transactional and related support teams and resulted in one-off costs of £13.9m being incurred.
The costs of this restructuring led Group’s reported profit before tax to decrease by 64% to £55.4m (2022: £153.9m), representing a pre-tax profit margin of 2.5% (2022: 6.7%).
The Group continued to maintain a positive liquidity position with net cash (cash and cash equivalents net of borrowings and overdrafts in the notional pooling arrangements) of £157.3m at year end (2022: £307.4m).
Currency movements in the year decreased revenue by £14.4m, underlying profit by £0.7m and reported profit before taxation by £1.1m.
Market conditions
Throughout the year, real estate markets across the globe were challenged by significantly increased interest rates, geopolitical events and, on a more asset-specific level, uncertainties over the future role of offices and the valuation of existing stock in the era of sustainability. These factors, together with certain location-specific issues, significantly reduced capital transaction volumes in global markets to their lowest levels for a decade. In addition, economic uncertainty led to delays in corporate occupiers committing to new leasing activity in many markets.
The value recalibration process took time to catalyse market liquidity, with the majority of lending banks continuing to extend existing loan terms. The consequence of this was that global market conditions remained extremely subdued for longer than originally anticipated at the start of 2023.
However in Q4 2023, we began to see lenders start to exercise their security rights. This began to have a positive effect on market activity towards the year end and should be a catalyst for improved volumes in 2024.
The rate at which individual investment markets are recalibrating varies around the globe; however, it appears that the UK prime Commercial market has re-priced to a point where it represents value, particularly for assets with strong sustainability credentials, for which there is significant occupier demand. In addition, our Prime residential business has performed well, particularly in central London. As anticipated a year ago, residential markets outside London were more subdued as volumes reverted to more normal levels of activity after the abnormally large volumes transacted post-pandemic.
In Europe, investment transaction volumes reached their lowest levels since the eurozone debt crisis. The slowing of investment activity quarter-by-quarter was a widespread trend across all European countries and major asset classes, with the office sector continuing to face the most significant reduction in volume.
In the Asia Pacific region, property investment volumes overall fell by 33% in 2023. China experienced increasing debt-related difficulties amongst the major domestic developers in addition to the macro trends affecting manufactured supply to international markets. Other markets in the region were affected by the sharply higher cost of borrowing, with significant volume declines in the mature markets of Australia and South Korea. Hong Kong was one of two markets which recorded only a single digit decline, however this was off an already very low base with volumes still 70% below their previous peak in 2018.
In North America, the office market remained sluggish as economic uncertainty, questions over the return to offices, particularly in the major metropolitan markets of the East and West Coast, and slowing employment growth caused corporates to delay major leasing decisions, pending greater clarity.
Business development
Savills has continued to focus on the strategic development of the business and improving our service offering to clients; this has been enabled by the Group’s strong balance sheet. In the first half of the year, we progressed our strategy of expanding our Global Prime Residential services with the acquisition of agencies in Italy (BeLiving Srl) and Portugal (Predibisa, Sociedade de Mediaçāo Imobiliária, Lda). The Group also acquired Automotive Property Consultancy Holdings Limited, a specialist property consultancy dedicated to the franchised motor retail sector in the UK.
In the second half of the year, the Group acquired Site 8 Pty Limited, expanding our retail property management business in Australia. The UK business recently completed the acquisition of Nash Bond Limited, a leading UK prime retail agency and lease consultancy business, enhancing our position in this recovering market. Finally, DRC Savills Investment Management established the Group’s first position in the US real estate debt market through a joint venture with QCP LLC, a real estate debt manager based in Atlanta.
Supported by our strong balance sheet we continue to review opportunities to enhance our client offering across geographies and service lines.
Focus on technology
Technology continues to be an important focus for the Group, and we are well on the way through implementation of significant platform upgrades across the globe including both operating and finance systems and service-specific digital transformation programmes.
We continue to investigate and experiment with new and emerging technologies through our innovation and data teams globally. Recently there has been an increased focus on the opportunities presented by the latest developments in the broad area of artificial intelligence (‘AI’), or ‘Machine Learning’, which we use as a driver of efficiency in many of our bespoke data and service line platforms across the Group. One example of this is BrickByte in Germany, which was acquired by the Group in 2022. It is a technology-enabled method of workspace planning, driven by Machine Learning, to save time and optimise the use of space and which has significantly increased its revenues year-on-year.
Our other digital businesses continue to perform well. Cureoscity, our wholly-owned platform that connects occupiers, landlords and their managing agents, continued to grow Annual Recurring Revenue (‘ARR’) significantly year-on-year and has begun to expand into markets outside the UK. Our market-leading UK on-line auction business continues to take market share, and despite increasingly challenging markets, sold over £570m of property during the period, an increase of 25% year-on-year.
Through our wholly owned technology businesses and investments, we are experimenting with the latest advances in generative design particularly to test project feasibility at an earlier stage in the design process. For example, VU.CITY (in which the Group has an investment) uses its SiteSolve technology combined with complete digital city models at ‘planning grade’ levels of accuracy, to generate instant development options, taking into account environmental and other extant planning constraints.
We maintain our policy of continuing to support technology initiatives across the Group, striking the balance between locally led innovation and broader centralised initiatives.
Board
On 1 January 2024, I became Chair on the retirement of Nicholas Ferguson. Since he was appointed in May 2016, Savills has both delivered commendable growth and successfully navigated the challenges of both COVID and the market corrections of the last two years. I would like to thank him for his enormous contribution to the business.
On 13 December 2023, John Waters was appointed as an additional Independent Non-Executive Director and replaced me as Chair of the Savills Audit Committee with effect from 1 January 2024. We are delighted that John has joined the Board and look forward to benefitting from his extensive experience to support our future growth.
Dividends
An interim dividend of 6.9p per share (2022: 6.6p), amounting to £9.4m was paid on 2 October 2023, and a final ordinary dividend of 13.9p per share (2022: 13.4p) is recommended, making the ordinary dividend 20.8p per share for the year (2022: 20.0p). A supplemental interim dividend of 2.0p per share (2022: 15.6p) is declared, taking into account the significantly reduced underlying performance of our Global Transaction Advisory business. Taken together, the ordinary and supplemental interim dividends comprise an aggregate distribution for the year of 22.8p per share, representing a decrease of 36% on the 2022 aggregate ordinary and supplemental dividend of 35.6p.
Subject to Shareholder approval of the proposed final dividend at the AGM on 15 May 2024, the aggregate final and supplementary interim dividends of 15.9p will be paid on 23 May 2024 to Shareholders on the register at 12 April 2024.
People
On behalf of the Board, I wish to express my thanks to all our people worldwide for their hard work, commitment, collaborative approach and continued focus on client service, which enabled the Group to deliver results in line with our expectations in such challenging times.
Summary and Outlook
Savills resilient performance in 2023 highlights the diversity and strength of our global business. In the context of extremely challenging real estate markets, which saw the lowest levels of transaction volumes for a decade, our less transactional businesses have provided a solid platform for the Group with a resilient and growing earnings stream.
With increased expectation of a reduction in the cost of capital being likely during 2024, we expect re-financing driven activity and the sustainability agenda to be positive for transaction volumes, and therefore improving price transparency, in a number of markets. There also remain, for the near term at least, questions over office utilisation in certain locations, perhaps most keenly felt in the North American metropolitan markets of the eastern and western seaboards.
Current economic and geopolitical conditions remain uncertain and although we expect this to continue for some time, most markets appear to be past the moment of peak uncertainty. There are some early signs of underlying market improvements, which should set the course for a broader recovery during the second half of the year and into 2025.
Our policy of retaining our core bench-strength, enabled by our strong balance sheet, positions the Group well for the future.
Stacey Cartwright
Chair
