Profits tumbled by 69% at Savills during the first six months of 2020, but the group remains largely positive about the future, with revenues holding up, liquidity strong and pockets of recovery visible in various markets around the world.
Pre-tax profit fell to £7.7m in the six months ended 30 June, down from £24.7m in the same period last year. The decline was led by its transaction advisory business which made a loss of £14.7m, compared with profits of £9.9m. The firm’s property and facilities management business performed strongly during the period with profits up by 9% to £17.7m.
Revenues across the business remained reasonably solid despite the global impact of Covid-19, falling by just 7% to £791.4m. This was led by a 20% fall in transactional revenues. Revenues in its North American business were hardest hit, falling by one-fifth to £105.5m. UK revenues remained largely flat, dipping by just 2% to £298.8m.
The total shutdown of the residential market during the peak of lockdown saw UK residential revenues fall by 8% to £52.9m, with the drop mitigated by a strong recovery in June. In the second-hand agency business, revenues declined by 16%, with lockdown preventing transactions during the busy spring sales period.
However, the group’s private rented sector transactional business saw revenue rise by 87% period on period, with a number of significant transactions executed.
Underlying profits for the UK residential business as a whole fell by 54% to £1.6m.
Revenue from its Savills Investment Management business was down 6% as a result of lower performance fee income, but assets under management rose by 11% to €20.4bn (£18.4m). Performance fee income was skewed by one-off performance fees received in 2019. Base management fees rose by 9% over the period.
Savills group chief executive Mark Ridley said: “During this period, our less transactional businesses have provided a solid platform for the group and our transactional business teams have partially mitigated the effect of significantly lower levels of trading activity by winning increased market share. Much of this is due to our strategy of remaining open for business throughout, retaining the strength of our teams, and focusing resolutely on addressing both the pandemic-related, and longer term, needs of our clients.”
He added: “It is unclear how significantly the longer-term economic impact of Covid-19 will weigh on corporate and investor sentiment. That said, 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 allocations to real asset-backed strategies.”
Ridley said the group’s performance in the second half of 2020 would be “highly dependent” upon a sustained recovery in the market it operates.
UK trading
The UK business as a whole recorded revenues of just under £300m, only dropping by 2%. Profits were harder hit, dropping by 32% to £15m. Commercial transactional fee income fell by 2% to £30.9m, caused by a 56% drop of in UK investment volumes in Q2.
Savills said that its leasing and occupier-facing businesses were more significantly hit during lockdown as tenants sought renewals rather than new leases.
Consultancy fee income was down by just 1% to £92.2m, with strong performances in housing, building and project consultancy, rural and development consultancy.
The UK property and facilities management business reported a 2% increase in revenues during the period, to £110.1m. Savills said that Covid-19 has necessitated significant amounts of additional work by property managers and the provision of specific advice and return to work processes to clients during and after lockdowns.
Focus on people and cash
Ridley said that the group’s primary focus during the first half of the year has been on its people – staff, clients and suppliers and on maintaining a conservative financing structure to enable it to weather the storm.
The group now has net cash in the business of £9.4m, compared with a net debt of £139m in H1 2019.
“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,” said Ridley. “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.”
Group chief financial officer Simon Shaw said the moment the business first saw the impact Covid-19 was having in Asia it started to “batten down the hatches” and went into “Covid liquidity forecast mode”. That meant cutting senior management salaries around the globe by 20% for the whole of 2020, reducing discretionary spending on all but its digitisation and data analytics activities, and converting receivables into cash in the business.
“Savills has been around a long time and we have seen a lot of storms,” he said. “We have always had a conservative balance sheet so we cannot just survive, but thrive.”
Both Shaw and Ridley said the business remained in expansion mode, most recently acquiring German property and facilities management business Omega Immobilien Management.
“It is business as normal for us,” said Shaw. “We will continue to grow.”
Ridley said that the group was also not planning to make any significant redundancies in the face of the coronavirus pandemic.
“We will keep our full staff quota to out-service our clients,” he said.
A look to the future
While the second half of the year is traditionally a stronger half, the extent to which business will recover depends on economic and transactional recovery around the world.
Ridley said that the firm was already seeing a strong recovery in residential transactions in the UK, with record numbers in June and July and a record under-offer book. In the commercial investment and leasing business, China, Vietnam, Japan, Taiwan and Korea are all bouncing back, with Europe, the Netherlands, Germany and the Nordics all starting to regain momentum. North America continues to lag behind.
Cross-border activity remains suppressed too, as the drop in international flights hinders transactional activity. Savills said it had seen a 40% decline in cross-border revenues during H1, and until investors are able to “walk the floor” of potential investments, there was unlikely to be a major uptick in business.
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