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Savills group profits slump 12% in H1 on slowing markets, widening bid/offer spreads and currency headwinds

By James Wallace - Thursday, August 09, 2018 10:40

Savills reported a 12% fall in group underlying profit in H1 to £42.4m, compared to the same period last year, in part, driven by a slowing investment market, widening bid/offer spreads and currency headwinds affecting the UK division.

Underperformance in the UK commercial market was exacerbated by similarly weak performance in its second largest region, Asia Pacific, where revenues fell 5% to £250.4m and underlying profits slumped 15% to £18.6m. The UK and Asia Pacific regions accounted for 73% of Savills group revenue and 99.7% of group underlying profits in H1.

Fee income from Savills’ UK commercial transaction division decreased by 14% to £33.9m, reflecting a quiet start in a commercial investment market with greater uncertainty and a relative lack of stock when compared with H1 2017.

UK commercial property investment volumes declined by 4% in the first half of 2018, to £27.1bn, with retail assets particularly affected. Savills reported that while there was an improvement in demand for assets in the second quarter “bid/offer spreads have widened”.

In the UK occupier markets, London office take up was flat on the comparable period with an 8% increase in the City offset by a decline in the West End market. Take up in the regional UK markets was stable, save for a c. 33% increase in leasing activity for logistics assets. The reduced revenues led to a decline in underlying profits for the UK Commercial Transaction business to £2.8m.

At the group level, Savills reported revenue growth of 2% (5% in constant currency) to £727.8m, while underlying profit fell 12% to £42.4m, driven by currency movements which decreased revenue by £20.8m and underlying profit by £1.1m. Statutory group profit before tax was 18% lower than H1 to £26.7m. The UK contribution to group revenue was up 2% to £280.5m, but underlying profit slipped 6% to £23.7m.

In its interim results, Savills stated: “Markets outside London were more resilient with the same volume invested in the first half of 2018 versus 2017. International investors continue to remain very active across the UK, accounting for 40% of commercial property acquisitions in the first half of this year.”

In the period, Savills acquired third party property management portfolio ‘Broadgate Estates’ from British Land and Porta Planning LLPa planning and development consultancy business based in London. In addition, Savills announced the proposed acquisition of a 25% interest in DRC Capital, a European investment advisor of real estate debt funds.

Underperformance in the UK commercial division and across the Asian business was moderated by resilient performance in the UK residential market as well as robust organic growth in the Continental Europe, where a better than anticipated performance in H1 was delivered. Revenues in Continental Europe climbed 34% year on year to £96.6 m in H1.  

Savills Investment Management revenue declined, as anticipated, reflecting the late stage of the liquidation of the German Open-Ended Funds. £0.7bn capital raised during the period and period end AUM up 1% at €16.2bn.

Jeremy Helsby, group chief executive of Savills, said: “In the face of some challenging market conditions, Savills has delivered a resilient first half performance reflecting our geographic diversity, breadth of operations, recent business investment activity and the strength of our UK residential business.

“We have a robust pipeline of activity for the second half, despite an environment of escalating political and economic uncertainty, and we continue to anticipate that our performance for the full year will be in line with the board’s expectations.”

James Wallace is a freelance consultant and can be reached via Linkedin or email: jawallace32@gmail.com

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