Savills plc

Half Year Results

Savills plc, the international property adviser, today announces half year results for the six months ended 30 June 2008.

• Group revenue for the six months of £278.1m (2007: £284.2m).

• Group profit before tax increased 1% to £33.4m (2007: £33.2m). 

• Underlying Group profit before tax* decreased to £19.2m (2007: £32.5m) reflecting weaker market conditions in the UK and Europe.

• Basic earnings per share increased 30% to 23.2p (2007: 17.8p).

• Underlying basic earnings per share* of 10.0p (2007: 17.4p). 

• Interim dividend remains at 6.0p (2007: 6.0p).

• Strong financial position with net debt at 30 June 2008 of £5.9m.

• Infinergy wind farm business sold realising a one-off profit of £17.0m.

• Resilient performance from Asia and non-transaction businesses.

* After adjusting for share based payments (£0.9m / 0.5p), amortisation of intangibles and impairment of goodwill (£1.9m / 1.4p) and deducting profit on disposals (£17.0m / 15.1p)

Peter Smith, Chairman of Savills plc, comments:  

'2008 continues to be a challenging year for the real estate industry worldwide. However, we have delivered a robust set of figures as a direct result of creating a more balanced business. Our strategy over the past few years of reducing our dependence on transactional income by growing our Consultancy, Property Management and Fund Management businesses has served us well in these unsettled markets.  

We are taking action to reduce costs across the Group, but are also continuing to invest selectively. We believe the broad range of services we provide, our high quality staff and our geographical spread will ensure that Savills will continue to compete strongly in our markets and seize growth opportunities as they arise.'

For further information, contact:                                       020 7638 9571

Savills

Jeremy Helsby, Group Chief Executive

Mark Dearsley, Group Finance Director

Citigate Dewe Rogerson

George Cazenove

Lindsay Noton 

There will be an analyst presentation today at 9.30am at Citigate Dewe Rogerson, 3 London Wall Buildings, London, EC3M 5SY

CHAIRMAN'S STATEMENT

Results and highlights

Overview

We reported in our Trading Update, released on 8 July 2008, that challenging trading conditions for the first half of 2008 for our UK and US Commercial Capital Markets businesses and our UK Residential and Mortgage Broking businesses had resulted in significantly lower volumes in those businesses compared with the same period in 2007. These difficult trading conditions had spread to many parts of Europe, where the number of transactions declined as financing became more difficult to obtain. Our Transactional businesses in Asia continued to be more resilient notwithstanding the more challenging market conditions. Demand for our Consultancy and Property Management services remained good and this is reflected in their contribution to the Group's revenues and profits. Fund Management has benefitted from the funds launched and equity raised in 2007.

Infinergy

As announced on 12 June 2008, we sold our 50% share in Infinergy for £23.0m, payable in three instalments: £4.0m on completion, £9.0m in October 2008 and £10.0m in December 2009. All deferred payments are underwritten by bank guarantees. This sale realised a one-off profit before tax of £17.0m. Infinergy was established in 2003 to identify UK sites which were suitable for the development of wind farms. The realisation of a significant return from our investment in Infinergy demonstrates again the benefits of our entrepreneurial approach to business and our willingness to support the initiatives of our staff.

Investment

We have continued to invest selectively in the business, opening additional offices in Germany and China. We have also continued to recruit where appropriate, focussing on growth areas in our consultancy and property management businesses and have also taken on a new Corporate Finance team in London. 

Cost-cutting

We have taken action on costs and we are well on track to achieve savings of circa £20m during 2008, excluding profit-related bonuses and commissions. We expect the one-off costs to achieve these savings to be circa £2m. We believe the full annualised benefit of these savings will be close to £25m. We have targeted costs reductions in a number of areas including people, marketing, travel and property costs with a particular focus on our transactional and financial services businesses, which have been most affected by the downturn.

Financial review

Revenue for the six months to 30 June 2008 was £278.1m (2007: £284.2m). Profit before tax, including the profit on the sale of Infinergy, increased to £33.4m for the six months to  30 June 2008 (2007: £33.2m). Underlying profit before tax decreased to £19.2m from £32.5m. Basic earnings per share for the six months to 30 June 2008 increased to 23.2p (2007: 17.8p). Underlying earnings per share were 10.0p (2007: 17.4p).  

Overall, revenue is down 2% on the equivalent period in 2007. The reduction in revenue in our Transactional businesses in the UK and Europe, where performance reflects the challenging market conditions, has more than offset the growth achieved in our Consultancy, Property Management and Fund Management businesses and our strong performance in Asia. 

The Group's underlying profit before tax fell by 41% reflective of the reduced revenue from our Transactional businesses, which has historically been our highest margin work, and the higher cost base following the investment we have made in the business.

Reported earnings per share is higher this period with the profit on the sale of Infinergy, which is largely tax free, offsetting the fall in underlying earnings per share.

At 30 June 2008, the Group continued to be in a sound financial position with net debt of £5.9m. This compares with a net cash position of £12.4m as at 30 June 2007. The debt position reflects the working capital impact of the payment of the 2007 bonus in March 2008 and lower profits in the first half.

Dividends

The Board has declared an unchanged interim dividend for the six months to 30 June 2008 of 6.0p (2007: 6.0p) per ordinary share. This dividend will be paid on 29 October 2008 to shareholders who appear on the register on 26 September 2008.

Board Changes

As highlighted in our Annual Report and Accounts 2007, Jeremy Helsby was appointed Group Chief Executive on 7 May 2008 following the retirement of Aubrey Adams. 

Outlook

Prospects for our UK and US Commercial Capital Markets, UK Residential and UK Mortgage Broking businesses continue to depend on how quickly confidence returns to financial markets, which currently show no sign of improvement. Conditions in Europe remain challenging as the impact of the credit squeeze is increasingly felt. Overall, our transactional businesses in Asia continue to trade well in increasingly difficult markets.

Our Consultancy and Property Management businesses, which accounted for 70% of underlying profits in the first half, whilst not immune to the impact of the credit squeeze, continue to enjoy good demand for their services. Fund Management will benefit from its high quality contracted revenue streams.

As in previous years, we expect the overall outcome to be weighted towards the second half. However, trading conditions for our Transactional businesses in many of our markets makes predictions of full year performance difficult.  

Nevertheless, we continue to believe that the broad range of services we provide, our high quality staff and our geographical spread means Savills is well placed to continue to compete strongly and seize opportunities as they arise.

Peter Smith

Chairman

BUSINESS REVIEW 

Marketplace Overview

UK

Commercial

The UK investment markets continued to be constrained by the credit squeeze and uncertainty on pricing. While there is some evidence that debt is more available now than it was at the beginning of 2008, the terms on which this lending is taking place are less attractive with higher costs and equity requirements. There is continuing upward pressure on prime yields, albeit at a slower rate than has been seen over the last 12 months. Secondary yields in the UK also still have further to rise in the second half of 2008 and early 2009.

The continuing credit squeeze and increasing concerns about the UK's economic prospects led to indecision in the UK commercial property market in the first half of 2008. In the office sector, tenant demand held up well, even in the London markets. While demand in the major UK cities has been down on that seen in 2007, it remains in line with historic average levels. In the retail sector, retailers are cautious in the face of a slowing consumer economy, however they are still selectively expanding across the UK. Tenant demand in the logistics sector has also remained stable over the first six months of 2008. Rental growth is likely to be subdued in many sectors and some will experience rental falls during the remainder of 2008, although office developers have halted a number of scheduled starts and this should limit the prospects of dramatic increases in vacancy rates.  

Looking ahead, we expect that the UK economy will see slower growth in 2008 and 2009, and this will result in lower levels of tenant demand. Prime and cost-effective locations will continue to be in demand from office, retail and logistics tenants although investor demand will remain subdued for the remainder of 2008. The prospects for 2009 will depend on how quickly the credit squeeze eases and confidence returns.

Residential

UK Residential markets have softened. A weakening outlook for the economy has compounded the effect of the reduced accessibility to, and increased costs of, mortgage finance resulting from the credit squeeze.  The lower price bands have been particularly affected by mortgage restrictions imposed by the banks. The very top end of the prime residential markets, while not immune to the slow down, have nevertheless proved much more resilient.  Within Savills' core prime residential markets, Savills Research estimate transaction volumes in London are down about 45% year on year, with prices being adjusted downwards by approximately 7% in central London in the first six months of 2008. Prime country property was initially less affected than London but is now following suit.  

Development land markets have fallen by more than the value of the end product, but the strong agricultural sector is feeding through into an extremely buoyant market for farmland.

Europe

The major European economies have held up comparatively well over the first half of 2008, and have generally seen steady levels of demand and stable or falling vacancy rates across the retail, office and logistics sectors. The strongest rental growth continues to be in the office markets. Continuing demand for modern logistics space has delivered upward rental growth in that sector over the last 12 months. Against a tightening consumer background across Europe, prime retail rents have been broadly stable this year.

Europe's major commercial property markets have not been immune to the impacts of the global credit squeeze, with reduced demand from investor groups for all asset classes. Yields in Europe did not reach the lows seen in the UK in 2007, and thus the correction in pricing has not been as extreme. Office yields in particular have softened over the last 12 months and we believe that this trend will continue in the second half of 2008.

Asia Pacific

The credit squeeze and economic uncertainty have together started to have an impact on the Asia-Pacific real estate markets. Export-led economies are being affected by weakness in final demand markets while inflation is also likely to result in policy measures detrimental to asset price growth. Falls in transactions volumes have already been noted in the developed Asia Pacific countries, such as Australia and Japan, while Hong Kong and Singapore have also seen some slowing. In China, exceptionally high rates of growth are now finally moderating. Despite this, Asia generally appears to be more resilient to the credit squeeze than either the US or Europe and we note that, to date, international real estate funds have been active in the region. 

US

The US markets have been experiencing reduced transaction levels as buyers wait for further price falls and debt to become available on attractive terms.  Buyers are looking for opportunistic yields but there is little distressed product coming on to the market to service this appetite.

SEGMENTAL REVIEWS

Transactional Advice

UK Commercial: The challenges in the UK investment markets, evidenced by a significant fall in investment deals over the first half of 2008 and a slowdown in the occupational market, which showed a decline in take up in the second quarter, have together led to a fall in overall volumes for our UK Transactional business. The impact has been more pronounced in our capital markets teams whilst some leasing markets, most notably the West End of London, have proved more resilient. Nevertheless, the results demonstrate that our UK Transactional teams have continued to execute some notable transactions including the acquisition by Deka Immobilien GmbH of 50 Finsbury Square in London for approximately £113m.

UK Residential: Overall, the challenging markets have led to a significant fall in transaction volumes for our UK Residential business and we continue to take appropriate action to reduce costs. 

Europe: Europe's major commercial property markets are increasingly feeling the impact of the global credit squeeze and our European Transaction businesses have seen significantly reduced volumes due to the difficulty in obtaining debt finance and deals taking longer to complete. We have continued to invest in Europe, selectively adding businesses and teams, and the higher cost base has led to increased losses. A number of our teams and offices produced good results in the first half including Frankfurt Investment, our expanded Warsaw office and our recently opened Dusseldorf office. Transactions include the acquisition by Specialfastigheter of two freehold properties in Stockholm for €248m.

Asia: Strong performances in Hong Kong, Singapore and China have offset more challenging conditions in Australia and Japan. Our teams continued to secure instructions and, overall, our Asian businesses have had a strong six months in more challenging markets. Notable transactions included the acquisition by China Pacific Insurance of the Feng Sheng Building in Beijing for approximately US$312m. 

US: Despite difficulties in the markets and the extended time needed for deals to close, our US business continues to perform in line with our expectations. Transactions include the sale and leaseback of 47 Citibank properties in New York to a private Irish investor for approximately US$100m.

Consultancy

In more challenging markets there has been strong demand for our well respected consultancy and advisory services. As a result, our UK Consultancy businesses have performed well, with teams such as valuations, planning, social housing, building consultancy, healthcare and research experiencing strong performances. Our European Consultancy businesses have been affected by the market slowdown but we have continued to invest in these businesses, which we believe will bring benefits over the longer term. Our Valuation teams in Amsterdam, Milan, Frankfurt and Berlin have produced good results in the first half.  Asian demand for consultancy services remains solid. Expansion into new markets such as Macau and significant growth in China has compensated for a reduction in IPO-related activity.  

Property Management 

Our UK Property Management businesses have had a good first half, benefiting from strong organic growth and staff recruitment. Revenues in our European Property Management businesses are ahead of the same period in 2007, and we have continued to invest for the longer term. In Asia, the Property Management businesses have performed well and continue to underpin our business activities in the region. 

Financial Services

Trading conditions within the UK mortgage sector are proving extremely tough with transaction volumes down about 40% year on year. A combination of a lack of liquidity, tightened underwriting criteria and higher funding costs have resulted in very challenging trading conditions. Appropriate action is being taken to reduce costs and align the business with current market conditions.

Fund Management

Following the rapid expansion of the business and its product range over the last few years  the focus is currently on investing equity raised and delivering investment performance. In light of the credit squeeze and global economic uncertainty, no new funds were launched in the first half of 2008.  A distribution office has been opened in Singapore in order to expand our investor client base in Asia. 

PRINCIPAL RISKS AND UNCERTAINTIES

The principal risks and uncertainties are the same as those discussed on pages 54 and 55 of the Group's Annual Report and Accounts 2007. As detailed in the Chairman's Statement and Business Review sections of this Half Year Report, the Group's performance, given trading conditions, is more sensitive to the risk of "Responding to changes in the markets in which we operate." However, as discussed in this Half Year Report and the Annual Report and Accounts 2007, we continue to believe that we are well placed to continue to compete strongly due to the broad range of services we provide and the geographical spread of the business. For a full explanation of our risks and uncertainties, please refer to pages 54 and 55 in our Annual Report and Accounts 2007 or to our investors page on www.savills.com .

Forward-Looking Statements

This statement may contain certain "forward-looking statements" with respect to certain of Savills' plans and its current goals and expectations relating to its future financial condition, performance, results, strategy and objectives. Statements containing the words "believes", "intends", "expects", "plans", "seeks" and "anticipates", and words of similar meaning, are forward-looking. By their nature, all forward-looking statements involve risk and uncertainty because they relate to future events and circumstances which are beyond Savills' control including among other things, UK domestic and global economic and business conditions; market related risks; the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; and the impact of changes in accounting standards, and tax and other legislation and regulations in the jurisdictions in which Savills and its affiliates operate. As a result, Savills' actual future financial condition, performance and results may differ materially from the plans, goals, and expectations set forth in Savills' forward-looking statements. Savills undertakes no obligation to update the forward-looking statements contained in this statement or any other forward-looking statements it may make.

Note to the condensed consolidated interim financial information:

UK & Europe statistics supplied by Savills Commercial Research and Savills Residential Research

SAVILLS plc

CONSOLIDATED INCOME STATEMENT (unaudited)

for the period ended 30 June 2008