Savills H2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
March 13, 2025

There are 8 speakers on the call.

Operator

How are we doing? Thumbs up. I would like this.

Operator

Just before I do start, bit of housekeeping. Health and safety. We're not planning any fire alarm tests. So if a fire alarm does go off, don't panic. You may it may go off because you're bored of my presentation.

Operator

I'm going on too long, so it could be deliberate. But to obviously exit the way you came in upstairs through, into the reception onto Margaret Street. The revolving doors don't place sardines and then the side doors will open. You can get out onto Margaret Street safely. So great to have you here in person.

Operator

Are we ready to roll? Good. Thank you. Well, thank you very much, firstly, for coming in and those also for joining us online. So it gives me a great deal of pleasure to start by giving you the highlights.

Operator

Good morning to all of you, and here is a presentation of our preliminary results for the year ending thirty first December twenty twenty four. As

Speaker 1

you all

Operator

know here, today's presentation is hybrid. Welcome to those attending in person, as I said, and please enjoy your coffee. And it's also great to have you back in Margaret Street which is our global headquarters. Thank you also to those attending on webinar, assuming the technology continues to work. In line with previous years, I will present the highlights which you see on this slide, as well as an overview of the market on sentiment and activity before handing over to Simon, who will take you through a detailed review of the main financial performance of our segments and the business.

Operator

I will then conclude with a brief update on the strategy for growth and the business development that we've undertaken during the year before finishing with our summary and outlook for the current year. We will then of course invite you all, any questions you have whether in person here or online. As a recap, when I look back at the half year results last year, I highlighted that we were sensing the beginnings of a stabilization, so a pretty difficult word these days, following a rapid market recalibration with the beginnings of a recovery in confidence. And whilst this did carry into the second half of last year, the market does continue to be overshadowed as we all know by major geopolitical and economic uncertainty. Rules are being rewritten around global security, trade tariffs and the likely effects on economic outlook.

Operator

And I'm sure all of you in this room here today will agree that these are elevated risks. We can only therefore control the controllables focusing on our core strategy for growth, maintaining our secure financial footing and looking for the themes of recovery in anticipation of a return to more normal and stable conditions. As ever, our focus within Savills is to continue to provide the best possible advice we can to all our clients worldwide, look after our global workforce, and continue to maintain our strict discipline for cost control. So let's move on to the highlights on this slide in front of you. I'm pleased to announce that please come in.

Operator

I'm pleased to announce that the group concluded twenty twenty four with a significantly improved performance, taking into account the uncertain macro conditions I've highlighted earlier. The balance and diversity of our business allowed us to increase group revenue by 7.4%, ten % in constant currency, to report annual revenues of billion. The benefits of this improved revenue also drove underlying profit to GBP 130,400,000.0, a GBP 30 7 point 6 percent increase and a 40% increase in constant currency. The key drivers, as you'll see on the slide, of this improved performance include a recovery in our global transaction revenues of 13% reflecting the gradual recovery of transactional volumes across both the commercial and residential sectors in our key markets. We also benefited from robust growth from our less transactional businesses totaling an aggregate of 64% of our total revenue with annualized growth overall of 5%.

Operator

And our net cash position at the year end has increased to million. And in light of this improved performance across the platform, we are proposing an aggregate dividend distribution of 30.2p per share, an increase of 32% on 2023. This reflects our continued confidence in our resilient business model. Turning to that resilience, putting this in context and looking at the ten year revenue growth we've experienced, I want to just highlight a couple of key observations. Firstly, we've obviously maintained over the entire period an annualized growth rate of 8%.

Operator

And the vast majority of that growth is actually organic as opposed to M and A activity. In addition, the chart clearly highlights the faster growth of our less transactional revenue, which now totals over GBP 1,500,000,000.0 per annum, equaling the size of our total group revenue in 2016. This, as many of you know, has been a deliberate core strategy reflecting the improved quality of our earnings. Finally, the chart clearly highlights the turbulence in the markets that we've all had to live through really since 2019, the Brexit year. It's also neatly coincide with my appointment as group chief executive.

Operator

Timing is everything. Moving on to themes recovery, rather than look back as a rear view mirror on what we saw last year with market sentiment now almost changing daily, I thought it would be useful to look through to the main themes of a recovery as a backdrop to the core elements of our future growth strategy. The continued turbulence has made equity raising for direct real estate funds pretty challenging, particularly for core and core plus products with more focus on value add returns as well as debt and infrastructure. Against this uncertain backdrop, sectors like the residential and living sectors continue to perform well. Investors in many cases remain underweight to this sector and this should give more opportunities going forward.

Operator

Occupational markets are also starting to recover but are sensitive to costs, whether localized labor costs or direct real estate costs and there will be continued drive towards greater efficiency. Indeed, occupier activity is gathering greater momentum, catalyzed by the stalling actually, please come in, of development activity, meaning options on the medium term are actually reduced and people are seeing localized shortages particularly affecting prime offices and prime industrial and logistics. Whilst this is leading to some green shoots of rental growth, we still have a backdrop of high build costs and increasing obsolescence with continued hesitancy around decision making. So turning to investment market activity. Looking back to last year, whilst global annual investment volumes did increase by 10%, they are still 25% behind the five year pre COVID average.

Operator

And the total for the year was somewhat rescued by a strong Q4. Before that it was slightly subdued. The shape of the recovery has varied across various regions and is market specific with a sectoral focus I mentioned on beds and sheds or living and logistics as well as hotels, a very strong year for them. But confidence also improved in the previously unloved office sector, particularly during Q4 in major markets. And it's good to highlight that London regains its crown as the top cross border destination for international capital.

Operator

In fact, this is already driving yield compression across some of the prime sectors. With cautious but progressive improvement in risk sentiment, we are seeing more activity from opportunistic investors seeking deeper discounts on mispriced assets, and this is driving greater portfolio and M and A activity, something we'd like to see more of during the course of this year. Okay. Onto occupational markets. Well, office leasing volumes continue to improve on the year, up 8% in Europe, 14 Percent in North America, with the APAC region experiencing significant regional variations, but all regions still significantly below pre COVID levels of take up.

Operator

That said, office vacancy rates have now generally stabilized across a number of markets, except perhaps secondary office supply where there's still elevated levels of availability. A polarization to prime offices continue. Many of you will be relieved to hear I'll hardly reference work from home as a major influence in the in the markets even in North America. And this is clearly evidenced by the strong rental growth we're seeing in cities like London, New York, and Dubai. The elevated level of take up in industrial logistics experienced really immediately post COVID has moderated which we expected.

Operator

But it is picking up again in the main markets across Europe, more of a demand normalization as I said, whilst prime retail demand in key world cities is also improving as the cities return to life. Retail demand also remains focused on a number of emerging markets as retailers look for first mover advantage in these developing economies. Onto residential. Once I mentioned earlier the resilience of the sector, many market segments still remain adversely affected by the much higher cost of debt, its effect on affordability, as well as some of the markets experiencing now a shortage of supply. In The UK mainstream market, national transaction volumes rose 8% year on year, but still are 8% below pre COVID average.

Operator

Prime sales above a million pounds were also up 8% with prices rising by 0.6% in London with a marginal fall in prime country prices. And across the international markets, it was a mixed picture and challenges in some markets like Mainland China down 10%, whilst in Hong Kong there was a bounce back with sales volumes up actually 17% year on year as that market started to recover. So looking at the APAC region as a whole, market recovery was strongest in Sydney and Tokyo, stabilizing in Singapore, whilst closer to home we're also seeing price increases in markets including Madrid, Barcelona, and Amsterdam. I will now hand over to Simon to take you through the financials.

Speaker 2

Thanks, Simon.

Speaker 1

Thank you very much, Mark. Good morning, everybody. Fantastic to be standing in front of real people again rather than a blank screen, which is a huge relief. I think the summary of what you've heard on the overall results for the year is that in markets that were a long, long way from fully recovered, what you begin to see is the real operational leverage in this business. The fact that we've significantly increased margin and profits on our 7% revenue growth, 10% constant currency.

Speaker 1

And, indeed, currency did cost us 2,500,000.0. There's a currency schedule in the in the appendix, this pack, if you're interested. Underlying EPS growth just over 20% as we had a higher tax charge in this year, and it's a it is a one off, primarily associated with some prior year deferred tax adjustments that went through in this period. But what you should expect to see is a tax rate that hovers somewhere between 3032% or so as we look forward. You'll have also read about the extension of our restructuring program from the previous year, and and this was during what was an extraordinarily volatile year in respect of expectations around forward interest rates.

Speaker 1

I I can't remember a year in which, those expectations moved around so much, and and in both directions during the period. So what we were doing was keeping open our assumptions and refreshing them through the year, and we made some additional, changes particularly focused on those markets that were a bit more compromised than the rest of the world. So namely, particularly Germany and particularly Mainland China for which a provision of 17,200,000.0 was made in in 2024. And there is another 3 and a half million to come through in the first quarter of this year. It's all done, but for accounting reasons, we couldn't reflect it in last year.

Speaker 1

So just to warn you in advance of that. And this is one of the primary differences between statutory earnings and our preferred and consistently measured underlying measure of earnings per share. This trading performance allowed us to make a significant increase in the dividends, as you've just heard, supported by the strong net cash position at year end, which we'll talk a bit more about that in a moment. So let's turn now to where we actually made our money. This is actually the last time you will see this form of the geographic segmentation of our business.

Speaker 1

As from this year, we're moving to, an EMEA basis, which is in line with some revised board and management structures we put in place last year. So the three segments from here on will be Europe, Middle East, and Africa, EMEA, Asia Pacific, and North America, respectively. And we will, of course, continue to call out any individual country impact on performance in future commentaries. But this does to some extent also help us, with comparison with some of our peers who still report on a geographic basis too. A proper comparative will be provided at the at the half year and the year end.

Speaker 1

But in the meantime, you can actually simply add together the two left hand columns of this chart. So it's not overly exciting from a for an analyst perspective. Anyway, back to trading, and after the volatility of the last few years and with very, very variable levels of recovery in our markets, it's really gratifying to see a return to green arrows across the board on this slide with as every top and bottom line improved during the year. And indeed, points to note, our UK business broke the billion pound barrier for the first time in its history. North America turned back into profit.

Speaker 1

Continental Europe and The Middle East materially reduced its losses as anticipated, whilst a number of its major markets were obviously, as you know, still quite challenged. And Asia Pacific returned to growth even in the context of continued challenging markets in Greater China. We were also this year delighted to take a controlling position in our Indian business, which was consolidated from August 2024. It's relatively small numbers to date, but we got very high hopes for this over the next five to ten years as a growth engine of our of our Asia Pac business. So where how did we make our money?

Speaker 1

We know where we made it, but how did we make it? I should really entitle this slide operational leverage in action. You can see the significant growth in profits in the transactional side of the business. This is despite many of the core markets still remaining very subdued as I've mentioned already. Our less transactional businesses, Consultancy and Property Management performed well.

Speaker 1

And you can see there was indeed some operational leverage in the Consultancy business as we saw all but a couple of our individual service lines come back into a growth phase. And finally, Salvo's investment management had what we would hope and expect to be its nardier year as less capital was generally allocatable to our core investment style with markets particularly focused more on the value add end of the investment spectrum. So let's move straight on to the segments. Starting with the commercial transaction business. On a global basis, a 15% increase in or in absolute terms, GBP 86,000,000 increase in revenue gave rise to a near £33,000,000 increase in profits as the incremental revenue flowed through at about 38% margin.

Speaker 1

That is the operational leverage I was talking about. The explanations for performance of each of our of our businesses is set out on the slide, but I draw your attention to the impact of trading improvements in Continental Europe and the Middle East region supported by the effect of restructuring in Germany and France, which led to an approximate halving of losses in the region during the year. Likewise, in North America and APAC, we returned to profit in 2024, the latter being driven for the most part by our ex Greater China elements of the APAC region, where we saw increasing strength through the last quarter of the year. And so in a world where markets such as The UK were still only marginally above COVID levels of transaction volume and others were still well below, we're pleased with this performance. One point I should make here is that in the early days of developing our international residential network, we have yet to break out the results of that business into the residential segment.

Speaker 1

This will happen in 2025. But for now, the financial impact of this strategy, which was particularly actually net P and L investment in The Middle East as we grew that business substantially during the year, sits within the CME segment on this on this page. So let's turn now to our residential segment. Overall, the growth in in profits, UK profits, was offset by the Asia Pacific business falling into loss for the year. And this was absolutely down to slow mainland Chinese and Singaporean markets, partially offset by some significant transactions in Hong Kong and improvements in other parts of the APAC region.

Speaker 1

In The UK, secondhand sales increased 13% on the back of a more attractive mortgage market, perhaps a bit more stable in the second half of the year. And at that point, I should say, greater stability and forward interest rate expectations. On the other hand, development sales of new homes reduced by some 13% on top of the reductions of 2023, and this did necessitate a little bit of a further rightsizing of our team in this sector in advance of future growth coming back. We've started the new year well. However, it is fair to say that both fiscal change this April and broader geopolitical concerns are likely to have an impact on the market in the very near term, but don't change the fundamentals of it as we look through to the medium and beyond.

Speaker 1

Our operational capital markets business also had a good year. That's mainly but not exclusively the bed sector, living, student, etcetera. And it performed well despite several transactions shifting into 2025 from the back end of last year. So let's turn to our less transactional service lines starting with property management. Globally, 5% reported growth, which was 7% in constant currency, and double digit growth in the profit line.

Speaker 1

In The UK, both contract wins in FM and PM were enhanced by greater revenue from energy sourcing and sustainability advisory work on our portfolio. And in addition, both the lettings business and our rural management portfolio performed well during the year. In Continental Europe and The Middle East, growth in the markets referenced in this slide was outweighed by the assumption of costs in advance of revenue in respect of a very significant contract win, pan European win, I should say, in our German business. And we won't see revenue really coming from that until probably the second half of this year. And finally, in APAC, it was a combination of really three things that produced 1% revenue growth, but an improved 6% bottom line growth.

Speaker 1

And those were labor shortages in Hong Kong having effect on cost at certain times in the year, a reduction in activity in the Macau leisure industry for pure economic reasons, and reductions in revenue in Mainland China as we restructured the business there. And that restricted the revenue growth, but improved our profit performance to 6% in constant currency. Just to give you an indication of what we've done in China, last eighteen months, we've closed five regional tier two and three city offices and reduced the size of a further three. So it's not an insubstantial exercise that's been going on there. So overall, a good result despite some difficult markets.

Speaker 1

Turning to Consultancy, you can see 8% nominal revenue growth at 9% in constant currency, which is within our normal expected range of high single to low double digits in any given period from this portfolio. In The UK, we saw growth in most of our service lines, perhaps with the exception of the leisure industry and the social housing consultancy, but the latter being particularly affected by hiatus as it always is around the UK general election. Meanwhile, project management grew nicely for us on the back of increases Mark referenced earlier, green fit assignments associated with the sustainability piece that we've we've talked about and retrofitting assets on behalf of landlords. In Continental Europe and The Middle East, the countries named on this slide and in particular, a surge in consulting activity in Saudi Arabia contributed to a significant increase in profits from the Middle Eastern consultancy or from the Continental Europe and Middle Eastern consultancy business. I'm looking forward to being able to say it here by the way.

Speaker 1

And in APAC, market related volume reductions had a negative effect, particularly on the valuation element of our consultancy businesses in Hong Kong and Mainland China, which was partially offset by the strengthening of activity in Australia, Japan and even Taipei during the period and the initial part of the consolidation of our engine business. Finally, North America reduced its losses to near breakeven through growth in the project management side of our business, but that was offset by a reduction in activity temporarily in Life Sciences and Technology in that part of the market. So final, the segment is the final segment is Investment Management. As I indicated previously, we were anticipating that this would be the hardest year for Savills investment management and through the difficulty of deploying new capital into core style product, which reduced both transaction fee revenue And at the other end of the spectrum, the difficulty in realizing value in that market reduced performance fee revenue too. The result of this was that the 2024 base management fees, although slightly reduced on valuations in the in the portfolios, represented 86% of our total revenue in investment management, which is an all time record.

Speaker 1

It's never been as high as that before. But it just does show there is a resilience in that business that allows us to to make money even in in really difficult times for that. We continue to grow the asset management business in Germany and in Italy in particular, and we launched two new pooled funds during the year. One, a pan European whole loan fund, which is expected to reach something around the $303.50 mark on its second close next quarter. And the other, Simply Affordable Homes, which is our first foray into the affordable living space.

Speaker 1

And it achieved its first hundred and twenty five million in commitments, which will be invested, I suspect, by the end of next quarter, at which point we'll be out on the raise again for the second second tranche. During the year, we extended last year's restructuring exercise given the circumstances that Silvers of Best Management is facing with a view to putting the business on a good footing in the current environment, but also positioning us well for recovery as that as that occurs over the course over the course of the coming periods. So having been through the drivers of our of our operating performance, let's take a quick look at the dividend distribution and a few words about cash. Starting with the dividend, you can see the progressive increase in the ordinary dividend component, which is supported by our less transactional service line performance. The big difference this year is the significant increase in the snappily entitled supplemental interim dividend, otherwise known as the transaction dividend, which is supported obviously by the increase in profits that I've just been talking about and the operational leverage.

Speaker 1

It's very heartening to see the impact of our bifurcated dividend policy come through on the upside now having having had to experience it for all of us the previous year on the downside with a significantly positive impact on our overall distribution. This is obviously helped too by our cash position, which you can see from this slide reflected an operating cash flow of just shy of SEK118 million compared with a negative SEK5 million last time out. And this is where you really see the beneficial effect of on working capital of our incentive structure in a period when profits start to rise. It should also be noted that we spent less on acquisitions during the year, primarily down to the timing on some exciting things in the hopper at the moment. What that acquisitions number does hide, it masks the fact that we did have the deferred consideration payment on DRC Capital, our debt investment manager, of 34,000,000 in September.

Speaker 1

But that was in working capital as that had been provided for through the life of that business in the six years or so since we bought it, five years. Without that, the working capital position would have actually been positive to the tune of about $25,000,000 So very clearly showing the impact of our working capital in a rising market. We spent a bit more on CapEx in 2024 as we upgraded and executed a major ERP program in North America and also upgraded and particularly with a view to sustainability a number of our the offices in our network around the world. Basically, every other item on this cash flow bridge was consistent with underlying performance. I've already been through the shareholder distribution element of our cash allocation policy.

Speaker 1

The remainder is directed towards value enhancing business development as you would expect. And we've got an exciting pipeline of potential transactions in the offing you know, across the field, really, from occupier services, consultancy, international residential agency, and indeed asset management. And we expect at least some of those to come to fruition during 2025, which with the recent renewal of our up to £450,000,000, revolving credit facility, which is totally unutilized at the balance sheet date, we comfortably having have the financing in place to deliver on those. So with that, I'll hand you back to Mark to talk further about business development.

Operator

That's great. Perfect. Thank you. Just before I look forward, what I think it is worth doing is just reminding ourselves of where we are snapshot of today. And it's it's important to see also not just the the the split between our less transactional and transactional businesses.

Operator

I think it's hard to highlight really the geographic mix in more detail on the right hand side of this slide, and also markets where we're seeing the fastest growth geographically, these future growth markets, which I've I've highlighted here, which we deem as critical when providing clients with coverage in these markets. Simon's referenced it. Perhaps unsurprisingly, India actually is the fastest growing market you'll see, where we started more or more scratch six years ago and now have a full service office operating out of 10 offices with over 800 staff. The next, again referenced, is the Middle East region, very strong momentum across the whole of The Middle East, particularly in residential, while Singapore has very much now established itself as our principal hub in Southeast Asia. Vietnam has grown into a market leading business in all segments, now employs over 2,700 people, and 78% of its revenue is generated out of property and facilities management, a very good keel on the ship.

Operator

Perhaps quite a surprise to some of you, Simon's reference, The UK has now achieved over £1,000,000,000 of revenue, and it is our largest geographic business. But it is still experiencing one of the strongest growth rates of all our businesses, certainly not reaching maturity. There are plenty of opportunities to develop this business and new service lines indeed. Finally, future growth markets. Well, certainly North America, where we still remain relatively small to our competitors, But also markets like The Philippines, where last year we set up an organic start in Manila.

Operator

And I'm pleased to announce we've just completed the acquisition of KMC, a market leading real estate advisory business based in Manila with 200 staff. So moving on to our global strategy. Whilst again, the core components of this you will see in the half year and prior year, the core components obviously will stay similar, but we've got to continue to refine and develop this to reflect the market challenges we're now seeing and look for the opportunities as well as our clients' needs. So within investor services, our primary focus here remains on developing our market leading property and facilities management businesses, mainly across EMEA and APAC, building on our reputation as the premier supplier of services in this key area. With that recovery underway in capital transaction markets, we've also maintained and grown our platform and continue to expand in many key markets with comprehensive services, both around equity and debt.

Operator

Within investment management, as I highlighted earlier in the themes of recovery, the focus has turned now towards more value add and infrastructure funds where we're developing our platform further. And across project management and consultancy services, there's an enormous amount of opportunity to reposition and refurbish obsolete assets for investors and occupiers. And in fact, our worldwide GreenFit project management teams last year were instructed on over 26,000,000 square feet of new refurbishment projects, which is an indication of that demand. Moving on to occupier and leasing services, our key focus here is on the growth of our mandated accounts from major corporate occupiers. Globally, this part of the business has tripled over the last three years, thanks to new account wins.

Operator

And in line with this, we've also extended the coverage of our consultancy services to provide occupiers with turnkey solutions. With the recovery of the industrial logistics markets now underway, we continue to organically grow, linked primarily to supply chain consultancy to support manufacturers' need for flexibility in a world now of tariffs. Thanks to our very strong, reputation in the residential sector, we're growing our wholly owned residential network in the world's prime markets, particularly focused upon across EMEA and the APAC region. And this is also closely linked to our investor services across multifamily and the living sector. Finally, we continue to explore, evolve and adapt new technology across data analytics and including the use of AI across the entire platform.

Operator

So now moving on geographically to The UK. Our overall revenue increase of 7% as we've referenced earlier was driven by growth in both property management as well as that recovery in transactional markets, primarily thanks to market share gains. Within Investor Services, our capital markets teams were ranked number one nationally across all property types last year, as well as particularly within the office and retail sectors. As a result of this, we acted on some of the largest transactions during the year, including the sale of M7's retail warehouse portfolio for over GBP 500,000,000. We also expanded across the Oxford Cambridge art, which is obviously a key focus and that's obviously relating to life sciences.

Operator

And we also grew our teams in natural capital and renewable sectors and developed our portfolio valuation business with new mandates from LGIM, Federated Hermes and Get Living. In the occupier and leasing services, our industrial logistics team expanded with new teams across the Midlands and Northwest, and our global occupier services platform secured a new numb a number of very key mandates from Capgemini, Ministry of Defense, Coca Cola, etcetera. So lots to go at. And within residential services, we grew our global cross border teams, consolidated our market leading position with a 21% market share over £3,000,000 transactions in London and 27% in the country. Whilst our multifamily and OCM teams, as we call them, transacted over £4,000,000,000 worth of capital transactions during the year, also ranking them as clear number one.

Operator

A good litmus test for showing the continued health of The UK residential markets, was the last week of last year, in fact, where our prime residential teams in London completed the sale of three houses in London SW1, each for over £30,000,000 during the last week, as I said. So, Simon and I were very relieved to see that. Okay. Moving on to, Continental Europe and The Middle East. So here, overall revenue growth of 10% was primarily driven by a recovery in transactional revenue, but more weighted to Southern Europe and The Middle East.

Operator

During the year, we formed a new EMEA board, which Simon referenced. The main purpose of this is to ensure that we do have a a a a synergistic approach and a coordinated approach to the development of the entire platform. And in conjunction with this, we appointed new heads of Northern Europe, Southern Europe and the CEE regions. Growth within Investor Services was primarily focused on European property management, particularly in Germany and Spain, as well as the growth of our industrial and logistics capability. During the year, we acquired a specialist residential property management platform in Spain to support our growing multifamily business.

Operator

And within Europe, we advised on some of the largest transactions during the year, including the disposal of Quintane Development in Ireland, a key multi family deal. Within occupier and leasing services, we established across Italy and UAE new commercial leasing teams. And in Italy, we continued to focus also on our global occupier services business, winning new mandates from occupiers including Epsom, Total Energies, and Renault. And finally, within residential services, we saw an enormous expansion across The UAE, hiring over over 100 new brokers during the year and winning some of the most prestigious residential agency instructions within this growth region. We also acquired a prime residential lettings business in Verbier and established new residential sales teams in both Barcelona and Milan.

Operator

Onto the APAC Region. Okay. As you'll see from the slide, we saw positive revenue growth driven by that transactional revenue pickup with 23% uplift, but also strong growth across the consultancy services in that region. During the year, we appointed a new CEO for the APAC region ex Greater China and consolidated the ownership, as Simon's referenced, in India. Transactional recovery was more pronounced in capital markets here, allowing us to grow our market share in key markets, particularly Hong Kong, Japan, South Korea, and Singapore.

Operator

And because of this, the capital markets teams undertook some of the largest deals of the year, including the sale of Goodman's industrial portfolio for over AUD 800,000,000. Across our property and facilities management platform, which represents actually 80% of our revenue in this region, We experienced strong growth in Singapore where what we call our IFM business grew by 20% thanks to contract wins. We also expanded our project management capability across India and acted for a number of major international corporates including SAP, Boeing and AstraZeneca on new facilities in India. Occupier And Leasing Services allowed us to develop also LCA, which is a leading supply chain consultancy in the region based in Malaysia. And we also strengthened our office leasing capability in both China and India as I've already mentioned.

Operator

And beyond that, we also acquired, say, KMC in The Philippines. Across residential services in the region, we continue to grow our prime business across the Eastern Seaboard in Australia, a hot market, with in particular focus on Melbourne and Sydney, as well as Hong Kong and Vietnam. Our North American business is heavily weighted, as I think many of you know, to the office sector. And here we saw a good level of recovery in a number of key markets, including New York, Chicago, and Houston, allowing overall revenue to increase by some 7%. We experienced faster growth in Global Occupier Services as a result of new mandates, with revenue here up 27%.

Operator

And our project management consultancy grew its revenues by around 11%. During the year, we appointed a new global head of global occupier services and enterprise solutions and continued to grow the platform thanks to large account wins, including Cortica, HubSpot, Sumitomo Corporate, amongst many others. As part of this growth, we also onboarded a further 20 specialist brokers in Minneapolis, expanded our office tenant rep teams nationally, and again, particular focus on New York, Miami, and Atlanta. Business wins during the year, including advising Louis Vuitton on its new headquarters in Madison Avenue, acting for the Los Angeles County on its 1,400,000 square feet acquisition of the Gas Tap Company, as well as JPMorgan Chase on the acquisition of 250 Park Avenue in Manhattan. Our project management teams also successfully advised major clients, including Greenberg, Troward, Baxter, and Convene on multiple projects.

Operator

And we also completed the new headquarters for Walt Disney Company in New York, totaling some 1,200,000 square feet. Across Canada, growth also continued, and we appointed new teams in both Toronto and Montreal, focused primarily on industrial and logistics. Okay. Finally, investment management. Simon has already highlighted the anticipated revenue decline here, in line with the overall industry, driven by a reduction in the performance fees as well as our conscious decision to safeguard the deployment of capital until such times as markets have recalibrated.

Operator

And whilst capital raising in the sector remained difficult, we made good progress last year raising over €2,000,000,000 of new equity for a range of products broadly in line with the previous year. Of paramount importance, bearing in mind current turbulence, was the maintenance of our strong performance across all discretionary products, with 68% of our assets under management outperforming their five year target. Moving on to business development, we successfully raised new capital across all our main fund products in logistics, living, debt, and also natural capital, and won new significant new equity mandates across a number of sectors, including prime offices, build to rent, forestry, and logistics. Our strategic alliance with Samsung Life also continues to progress well, with anchor capital provided now being deployed this year. And in line with the strategy to enhance our bench strength, we recently appointed a new Global Chief Investment Officer.

Operator

So moving on to summary and outlook, always a challenge in this sort of market. I am pleased with our improved performance during 2024 due in a significant part to the increased transactional revenues. However, headwinds continue. And whilst most markets were in recovery as we entered 2025, ongoing geopolitical uncertainty and economic weakness continues to affect sentiment. Most transactional markets continue to recalibrate and this is leading to greater liquidity and investor appetite.

Operator

And the recovery of our transactional revenues has been very much leveraged by our deliberate strategy bench strength through difficult times to accelerate growth and take market share as you've heard in most of the active markets. In addition, the strong balance of our business towards the less transactional or more recurring income continues to underpin our performance with continued growth here. And thanks to that diversity and our strong balance sheet, we are able to continue to advance our growth strategy, which I've highlighted in the areas and sectors that we are focused on. Indeed, we're already seeing positive returns come through from previous investments in the platform, including the new markets we've referenced, India, Middle East, and these will have a greater role to play going forward. Clearly, the events of the last week has shown how vast assumptions about the world can change.

Operator

So it's extraordinarily difficult to predict the the near term. But I'm glad to say we started in line with our expectations with very strong pipelines across the main markets in which we operate. Finally, a thank you. Firstly, to our clients worldwide for their loyal support and the same to our shareholders and last but not least, to our global workforce for the dedication and commitment they give to serving our clients to the best of their abilities. That now completes our presentation.

Operator

No fire alarms. Thank you for attending today's presentation, and I'll now be very happy with Simon to answer any questions you have. Thank you. We have any

Speaker 2

questions. Mister Barr.

Operator

Fire away.

Speaker 2

Sorry, Mike.

Operator

The No. Picked up. The technology,

Speaker 2

mate. What are you doing best? So response around profits operational gear again. I suppose what I'd like to ask you is, it was really

Operator

good to drop the rates

Speaker 2

in the transaction. This is just over 30%. Is that a sustainable level? What do you think would be right about? Perhaps just just linked above that to '21.

Speaker 3

Do you

Speaker 2

want to start again?

Operator

Well, I think so I start with the the point about for the markets for something. I think, you know, we are seeing capital transaction markets have not yet fully recovered. So you've got to remember that their global volumes up 10%, but still 25% behind pre COVID averages. So you know you can see that there is greater leverage there and I think the fact that we've maintained grown actually our transactional teams in many of those core markets, that the size of business is actually different to the size when you look back. So that would give us significant headroom going forward.

Speaker 1

I do. And I think you can see from the geographic spread of our performance that we're still relatively low margin in North America, and we're still making smaller, thankfully, but still making losses in Continental Europe. It's still very compromised market. So I reiterate my point that and and in fact, there is a slide in the appendix to the pack which shows this completely. But world volumes are way below where they were actually even in the COVID years, and that will not persist.

Speaker 1

Yeah. It's as we said at the end of this presentation, near term, very short term, it's terribly difficult to predict the fact of, let's call them world events on sentiment. But the underlying fundamental factors around real estate are largely corrected, and I think we will see that start to improve quite significantly when the fuss dies down a bit. As to the bigger picture, in terms of drop through, I think it was another one of your questions. I don't see that that is anything other than realistic.

Speaker 1

Remembering, this is all about, you know, thank you, shareholders, for allowing us to retain bench strength through 2023 when markets were horrible, as we all know. And we were we were retaining people because we knew they were working hard with clients who couldn't do anything either at the time, and we started to see the benefits of that coming through in 2024 recovery. That will continue by definition of what I just said around around world volumes. So I think that's perfectly reasonable expectation. As to longer term margin, I think it clearly depends upon where we make our money and exactly what it is that's going on.

Speaker 1

But I would expect to see us in that mid to high single digits over the next five years. And in in a glory year, and god knows we haven't had any of those for about the last decade pretty much, in the in the world that is, we could hit double digits. I'm gonna give Clyde Clyde. Oh, do you wanna come back on? Yeah.

Speaker 1

Chris, why don't you follow-up in the middle?

Speaker 2

It's quite simple. Restructuring, you know, it's quite a decent sized charge, and I know some of that was transaction related. I mean, you mentioned there's $3,000,000 Is that all we should expect for $25,000,000 or is there much more? And what are the benefits you see accruing from this financially?

Speaker 1

Okay. So I think the first up, the total restructuring, both in 2324, and that 3,500,000.0 I talked about in to fall in the first quarter this year, will yield us savings of at about a 1.6 multiple. So we're paying 1.6 times the savings that we expect to get out of them. So it's not an inconsiderable amount. I think once the mainstream restructuring, I think, is there and done.

Speaker 1

But we've in markets that we've been experiencing over the last eighteen months, we've always got to make sure that we keep an eye on those long term assumptions in individual markets and individual service lines and and temper or tweak sales a bit if we have to. But I don't I don't expect anything significant coming forward right now. No.

Operator

I think that's fair. And I think, you know, Simon referenced, you know, Mainland China, some of the European markets. I think we've done what is needed, and we're looking at, actually, the opportunities for those markets to grow. So I think that's where we are.

Speaker 1

Clyde, your charts?

Speaker 3

Apologies. I think you've got loads, but I'll split them into ten minutes. European property management, where do you need to scale of how big that is? I mean, again, how material is it going to be?

Speaker 1

I've got it. I've got to be sensitive about it, but it is a would be a material contributor to turning that business into a profitable business.

Speaker 3

Thank you. The management change of

Speaker 1

an an EMEA.

Speaker 3

EMEA. We call it EMEA. Right. What does that imply for The UK management? Because, obviously, when I look at The UK versus Europe or EMEA, the businesses are in very different positions in terms of maturity and the growth profile.

Speaker 3

I mean, you have The UK up there in terms of one of the growth markets. How it what's going to change, I suppose, for The UK business in particular, I suppose, as a result of that management structure?

Operator

I might also bring James Farrow, who is CEO of UK, constantly Europe and Middle East here. So I will definitely ask James to contribute to this. What I would say is that this is around, you know, the the business lines that we develop. So let you reference property management as a good example. So we manage in,

Speaker 1

you

Operator

know, The UK pretty much all the major institutional portfolios for international investors. And that's growing in all the European markets that we will get to maturity. And in some cases, we are getting there, and in other cases, a bit. So by providing consistent service and operating it in the same manner, that's what our clients need. The same is true if you're looking at international capital moving around those markets.

Operator

They want the same level of service in all of those markets. So I think that has been the driver is to ensure that we have a strategic outlook around our sectors of business. James, do you want to pick anything else

Speaker 1

up there?

Speaker 4

No. Thanks, Mark. Yes, I think it's those two things. It synergies the business, bring the businesses close together, but it's particularly around the clients. So I think the main point is that these are the same clients.

Speaker 4

They look at they don't look at The UK and Europe as separate. They look at it as one. They look at it as an EMEA. And I think that to really leverage our very strong position in London in particular and that link into Europe will be a significant benefit. Now the business is already well linked up, but I think we want to make them even more linked up for that reason.

Speaker 3

So should the follow on from that be over time you again established more, again, global sort of lines around property management maybe that it wasn't just a UK Europe merged as a US subset sort of Asian. Okay.

Operator

%. I think particularly, you mentioned property management is one. Global residential, just in Victoria here. So we regard the same for our residential business, needs to operate in that manner, consistent service, high end services. So I think, you know and also the global occupier services that I referenced, that that has to be a combined platform because, you know, we are operating for the same occupier in every market.

Operator

And if one bit goes wrong, that's a real problem to us.

Speaker 3

Thank you. And so I'm certainly very excited about the acquisition pipeline. In terms of scale and in terms of geography, where's the likely sort of bias? Is it against the very much sort of bolt ons, you know, five, ten, twenties? Or is there something larger than that point?

Speaker 3

And is it Yeah. The US is we've we've all been waiting to do to sort follow-up on the Sudley deal. So it's something else. Is that in the mix, or is that getting different price?

Speaker 1

I'll give you so the generality, you're not gonna expect me to tell you what we're what we're looking at and negotiating on at the moment. But the generality is, as you know, we tend to grow our less transactional businesses with M and A if the right opportunities come along. We tend to grow our transactional side through team lifts and recruitment a bit more than m and a, or

Operator

if some of it looks like small.

Speaker 1

But it's real. And so we've got a combination of all of that happening at the moment. I think this is a a not a bad moment to be doing it. The and it's across all of our regions as well, whether it's EMEA now, Asia Pacific, and indeed, and indeed North America. And I would also suggest I gave you some of the some of the areas that we were looking at.

Speaker 1

The only thing I would say is we've typically done little and often small bolt ons down as little as sort of 2,000,000, 3 million. So it's worth the size we are today. Yeah. We still do those, but I wouldn't be probably drawing them to your attention anymore. We're probably looking at the slightly higher end of our normal range of of activity at the moment,

Operator

and

Speaker 1

that's because the opportunities are presenting themselves, which is great.

Speaker 3

The last one I had was around competition and you already alluded to it. You kept the bench strength in 2023 and a lot of the competitors didn't. What are they now doing in terms of sort of heads? I mean, you talked about a number of broker recruitments across the business and building out the teams. What are they doing in those sorts of markets as well?

Speaker 3

Is competition level starting to increase?

Operator

I mean, competition never went away. That's been absolutely true. But I think the point about some

Speaker 3

of

Operator

those larger scale businesses that's in with large transaction deals, they did some trimming. And that affects morale. I think for us, you know, I think we are in a very strong position because, you know, you you create goodwill with your your teams by by looking after too thick and thin. Also, the the clients, in particular, are very loyal to you because you've looked after them in the the most difficult parts of the

Speaker 2

market,

Operator

over serviced them through to that process. So so, genuinely, I'm pleased to say that we we captured market share through that. Now we're gonna hang on to it, continue to grow it. So I'm not suggesting the competition has gone away. But I think we're in a very good position.

Operator

As Simon referenced, our transactional pipelines, in many markets, they are as strong as we can ever remember through that pressure. We still got to turn them into revenue, not a transact, but they are very strong indeed. So we are we've done what we believe we should do, and we're in a good position.

Speaker 5

Thanks. Congratulations on 38% increase in profit in a year that the transaction market was very difficult. I think that deserves a lot of credit. But just, yes, sort of slightly more forward looking. A few questions.

Speaker 5

I know you don't give a formal guidance on earnings, but if we take consensus as as sort of the reference point, you know, to get to that kind of number, do you think you need a stabilization in, in particular, interest rates and general volatility in the second half to get there, or could that be a number that you achieve even if the market continues to be very difficult? The second one is on the the stamp duty change in The UK. Do you see that having a a skew to earnings for UK residential towards the first half versus the second half that you typically generate? And lastly, on The US, I mean, I think a 20,000,000 increase in revenue passed through to a 12,000,000 increase in, in profit. Given the situation there, obviously, we don't know how it's gonna evolve, but should The US end up in that kind of negative growth scenario that people are talking about?

Speaker 5

How much of a potential headwind is that to, to profit in in 2025?

Speaker 1

We're talking about that. In the in the order in the order in which they arrived. And I've not completely forgotten what the first question was.

Speaker 5

Can you get to 01/1955 even if the thing

Speaker 1

Oh, yes. Yes. Yes. Yes. Yeah.

Speaker 1

Yeah. I mean, I think the the big issue at the moment is the big issue at the moment, which is obviously, we read the newspapers and see the news and wonder what pronouncements are going to come out from where and whether they're going to do about us and this and the other. That is clearly having an impact on sentiment to sign on the dotted line right now. But as I said earlier, I'm less worried about that in the longer term and or in the medium term as well, particularly through the second half of the year because the fundamentals are there. So I would argue I'm probably quite pleased right now because nobody can predict today.

Speaker 1

I'm quite pleased there's a bit of a range around the expectations for the year, but I don't see anything to change people's views right at this moment.

Operator

Yes, I think that's fine. The bit about interest rates, if I can just jump in on that, I don't think it has to be linked to a continued reduction in interest rates because whilst perhaps if we look at sometime last year, perhaps everybody's expecting it to fall past and more reductions. I think the capital markets in particular have recalibrated. The majority of markets are now perhaps past their trough. And also, the other thing that is driving investor positive sentiment is rental growth.

Operator

The world of low interest rates, people forgot about rental growth, but now we've genuinely got it in many sectors. So total returns are therefore looking quite strong. So I do think and you'll see activity from major, the largest U. S. Investors in London right now.

Operator

It's being driven by that. So it's not about this sort of continuing fall of interest rates. It's more about the total returns that best could get in the sector. So I think that's pretty much built in. Probably, the qualification is that the markets that have the most political stability, as well as the real estate fundamentals, and we're exposed to those, will do the best.

Operator

But it's got to be a combination of both.

Speaker 1

Yes. I think a final point, Stampede, I do think one of the impacts on the interest rate impact is when you've got the five year Treasury bill flipping around 30 basis points every twenty four hours, which we've seen a bit in recent weeks, that's not a stable place in which to be structuring your borrowing requirements. But so a bit more stability in that arena will help everybody, I think. But, stamp duty, we do think and we've got our our specialists here. Yeah.

Speaker 1

I agree. But I think the fact is generally, The UK market tends to absorb stamp duty question quite quickly, although you do see a bit of a surge in advancement, which I think is fair to say we saw.

Operator

We're putting an anchor of it as our UK residential business.

Speaker 6

I think the change in the stamp duty hasn't materially impacted buyer demand in the top end of the market. I think it's further down

Speaker 1

the chain

Speaker 6

of more relevance is the expected reduction in interest rates. That's still a fundamental driver of domestic markets more so than stamp duty change.

Speaker 3

Could you ask

Operator

all sections of

Speaker 1

your U. S.

Speaker 5

Under a slowdown.

Operator

Okay. I'm going to I'll talk about maybe just what's going on in the market maybe and then you can talk about it. Just reminding you, we are exposed to the occupier land markets as

Speaker 4

I referenced.

Operator

So it is a demand based business that's from discretionary capital. Of course, it can with fluctuations, it can obviously be hesitant. But we are seeing continued recovery in the stronger markets in North America, occupationally both across offices, same sort of demand. We've seen supply demand equation in some of those markets like Miami, where you're getting terrific mental growth, and people are wanting more space, etcetera. So those sort of markets, Texas, etcetera, we're seeing continue.

Operator

But also, recovery in New York, Chicago. So, I think we are seeing people getting on with it in the occupier markets and industrial logistics not December. So I think in a way, the capital markets could ebb and flow. We're not particularly exposed to North American capital markets in North America. Of course, we're affected by North American investors.

Operator

But I think we are quite insulated.

Speaker 1

I think it's absolutely right. And structurally, it's the one market where our revenue producers are entirely commission based as well. So there is a sort of natural Constantino effect on the cost base if they then have the revenue coming through.

Speaker 6

Thanks, Simon.

Operator

Jay?

Speaker 6

Good morning. I think in the past, you kind of called out the financing as the So,

Operator

the the look. The the debt refinancing going on is still very significant. There's plenty of debt to continue to look at. But I would say that equally, it's not just pure debt. It's also you know, your equity being capitalized into into the product partnership.

Operator

And I I referenced m and a activity through that process too. So we are seeing seeing that. We do have, you know, both within our sales investment management, where we, you know, have our own dedicated debt funds, which, at least, what you might talk about. And we also have debt advisory in our existing businesses in in most of the major regions we operate in. So they're very busy.

Operator

I I think what I would say is that liquidity is continuing to increase as funds end life get get to the end of life. There's an opportunity. So so, you know, London is a great example where liquidity has been very good in in a way. Other markets are now starting to unlock, and we're starting to see that in the concept of Europe, etcetera as well as people reach the end of their, their finance period or end of life in terms of a fund. So liquidity is is improving.

Operator

Alex, I don't know when you wanna reference anything on the debt. That's it.

Speaker 7

Yes. Hi. I'm responsible for the sales investment management business. You may recall that we acquired the DLC Capital, I think, three years ago, which is now branded DRC Sales Investment Management. Business and, you know, it's grown very successfully.

Operator

It's one of the

Speaker 7

leading commercial real estate non bank lending businesses across Europe. And as Simon mentioned, we we had a successful close of a Pan European whole loans fund, this year sorry, early last year. We're continuing to raise money for that and invest it. You know, I think it's it's a sweet spot really for investors that generally, institutions have been somewhat reluctant to, you know, commit to real estate given the volatility, but there seems to be higher up the agenda for people because it obviously provides that cushion, you know, downside protection if things don't go to plan. But also, you know, the risk adjusted returns are really attractive.

Speaker 7

The the margins are higher than they were, you know, four or five years ago. And, of course, the underlying interest rates are higher as well. So the overall returns that are available often look better than equity on a risk adjusted basis. So, you know, we really, actually, in in terms of the way we manage our business, the operating margins are significantly higher than the equity side. So basically, you're not managing the underlying asset.

Speaker 7

You're just making a loan and monitoring that loan. So, you know, it's an area that we think has got a lot of strong growth prospects ahead.

Speaker 1

Thank you.

Operator

Okay. You're not on. Yeah.

Speaker 2

Two more actually. So maybe.

Speaker 6

Managing the property management side.

Speaker 1

Yes. So I'm going to do the second one first, which is obviously, the National Insurance increased by from April this year. So we've got a part period in 2025. I'll give you the numbers. It's £6,000,000 paid off the P and L in 2025, which obviously rises to 8 in 2026, assuming the same level of staffing, which obviously won't be true.

Operator

That that that will be a good point.

Speaker 1

But it's not inconsiderable burden. And I think that's yeah. Unfortunately, we we just have to take it. And it it's where it hits disproportionately is in the facilities management business because of the reduction of the collar from $9

Operator

a year. We've got a lot

Speaker 1

of temporary staff, etcetera, or part time, I should say, more actively, in that arena. And it starts to bring those people into the net. And I won't make a political observation about that, but I don't think it's helpful. So, yes, it is a burden. Those are the numbers.

Speaker 1

We deal with it. Excuse me. On the technology front, public effect, it appears we don't have microphones embedded in the ceiling at this point, which one of our chief technologists told me we did before we started this meeting. The main thrust in technology terms, and I I'll use AI in there as well. There's a lot of stuff talked about AI, which is probably not healthy.

Speaker 1

The one thing we do have as a firm is we've got a stack of really useful data over many, many years, which we've spent a lot of time aggregating and organizing. And this is over the last three or four years we've been doing it, to to create the platform over which you can apply machine learning, AI, etcetera, for specific service lines. So this is all about finding ways in giving clients greater insight faster and more accurately out of this stack of data that we've obtained throughout our organization. And so that's what's happening. We're not going to be sort of running around saying, suddenly, these service lines are going to be done by a robot or what have you.

Speaker 1

This is about actually improving our ability to serve clients and become more efficient in so doing as well. So that's really where our focus is.

Operator

Just as an overlay between your two questions, if I may. If you look at where we are providing some of the support to property management's global occupier services, these are in markets like India, that means a reference, because we've got good employment catchments of skilled people, obviously, at a cost point, and also ensuring that we have the efficiency in our market to grow further. So as much as Simon's referencing rightly the increase in national insurance, in many of the markets that we're going to operate on a global basis, they're going to be in markets where we're going to get some benefits. Thank you very much indeed for coming into the office. Great to see you all in person.

Speaker 3

And if

Operator

there are any other questions beyond what we ask today, then please do answer that.

Speaker 1

We'll answer this.

Operator

Thanks very much.

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Earnings Conference Call
Savills H2 2024
00:00 / 00:00