Edited Transcript of SVS.L earnings conference call or presentation 12-Mar-20 9:30am GMT

I thought it’d be useful to look back on my 15 months in office and recap on some of the strategic goals I gave this time last year. And in fact, since last year, I visited over 20 countries, maybe slightly curtailed at the moment, and met over half of our global workforce, some 20,000 people. And I’m delighted to say that the unique culture I highlighted is very much alive in our business. And it provides professionalism, passion and making performance happen. That can-do attitude in our business is very much at the core of what we do.

The priorities and focus I highlighted this time last year were particularly around the balance of the business by growing those Less Transactional businesses, particularly focused on Property Management, Consultancy. And we do have a real enviable reputation in providing best-in-class service here.

Secondly, it was to maintain our market share in those core transactional markets despite ups and downs through office leasing, tenant rep, logistics, capital markets and also residential.

Thirdly, it was to accelerate our growth in EMEA, North America and Asia Pac, particularly where we felt we might be underweight. And obviously, that also includes our growth in India.

Fourthly, to maximize the benefits of our recent acquisition to our growth with full integration and leveraging the opportunities that they give.

And finally to grow the — support the growth of Savills Investment Management under our new global CEO, particularly across Europe and the Asia Pac region.

A graph you’ve seen before. It shows our 10-year revenue growth, and you’ll see that actually, the compound growth is around 12% per annum, taking our global revenues to GBP 1.93 million (sic) [GBP 1.93 billion] for last year. And we will very shortly break through the GBP 2 billion per annum barrier. This is not about growth for growth’s sake. And I would highlight that much of this growth is focused around those Less Transactional revenues. And you’ll see in the yellow box there that almost 57% of our revenue comes from the combination of those, including the Investment Management business. It’s very much a keel to keep the yacht sailing in uncertain times.

Property Management is now the largest segment of our global revenue at 35%, and we managed over 2.3 billion square feet around the world, up 14% year-on-year. And we also managed over 3 million acres of land in the U.K. alone.

Then looking at our geographic spread across 71 offices. We’ve grown our platform to 39,000 people and now operate with new offices in 6 countries, 13 new offices during the course of last year.

In addition, we’ve opened 6 offices in India, a new region for us, where we now employ over 300 staff. Our strategy for growth continues the theme of strategic acquisitions where it makes sense alongside selective organic growth. And again, over the last 18 months, we’ve employed 3,700 extra staff across 32 offices. So this is a continuing theme.

If I now come to the U.K. business, and I’ll just highlight some of the market dynamics. The risks because of hard Brexit were obvious last year, but it was more around the general election, which gave plenty of reasons for people to take a pause. However, weak sterling and attractive comparative pricing created good demand from international and domestic investors. The markets did enjoy a Boris bounce last year after the election, resulting in record levels — transactional levels in the last 2 weeks of December, keeping our teams way too busy for Christmas pudding as we made sure that we can maximize the benefits of that.

Nationally, investment volumes last year fell, particularly in the U.K. and in London. London was eclipsed by Paris, the same result as the Six Nations rugby. But we will see it change during the course of this year.

Office leasing volumes were also impacted with vacancy rates still at historic lows. And the markets are experiencing rental growth, particularly in London, which enjoyed 14% rental growth despite the concerns of Brexit.

The structural change between retail and e-tail logistics is continuing, unfortunately. So the change there will see further store closures, rental falls and investment volumes were down, down actually significantly, the lowest since 2000. So you can see the impact there.

Residential markets, though, followed a similar pattern. Overall volume is down nationally by 1%, 2% above GBP 1 million. But in Prime Central London, Justin can talk later, volumes were up 14%, and our market share continued to increase. We expect further pricing improvements during the course of this year.

So our focus was around Property Management. We integrated the Broadgate Estates acquisition and won a number of key mandates, particularly from M&G and L&G national mandates. And we also grew our Property Management platform into the Channel Islands. Our total floor space under management in the U.K. increased by 16% to 440 million square feet.

The growth of our Consultancy business was extended by the acquisition of KKS last year. This is a design and workplace consultancy business with a fantastic track record, which works both in the U.K. and internationally.

We also extended our occupier services platform further, opening a new office in Brighton as well as a new dedicated life sciences team.

Residentially, our expansion in the core markets following the Currells acquisition, again, I highlighted last year, made sure that our core London income over GBP 1.1 million per property increased year-on-year by 31%, and our transactional volumes increased by 43%.

Transaction. We also strengthened a number of our national teams, particularly around corporate finance. And overall, this theme of growth allowed us to transact some of the largest deals ever. In Bristol — we did the biggest speculative pre-let in Bristol, a 200,000 square foot letting to British Telecom, and we have our retail team advise on the entire disposal of the Thomas Cook portfolio to Hays Travel.

Despite fears over the loss of farming subsidies, we also had a strong year, and our rural business transacted over 33,000 acres and 121 freehold properties in the largest single transaction in the rural markets for the last 5 years.

Overall, a very busy year. We grew our revenues by 10% to GBP 727 million across our comprehensive network of 134 offices.

Moving on to Asia Pac. The Asia Pac region enjoyed 4.4% GDP growth, but it slowed in a number of markets, particularly Australia and Singapore, and the disturbances in Hong Kong in H2 resulted in a GDP fallout.

Trade friction also impacted a number of markets. Hong Kong had the biggest fall, as you’ll see from the slide. Investment volumes down 43% and office leasing and residential sales also down. China was actually less impacted than Hong Kong with increased cross border activity, whilst volumes in Japan and Singapore enjoyed good increases.

In light of this, our focus was around growth in core markets as well as India. In Hong Kong, where 82% of our revenue comes from Property Management and Consultancy, our area under management grew by 24% to 185 million square feet. This is mainly through contract wins.

In China, we opened a new office in Haikou and grew a number of our services in Changsha. We now have 18 offices across China, employing some 9,000 people.

In Australia, again, an area I highlighted last year, we continued that accelerated growth across logistics, offices and also sales. And in New Zealand, we have appointed a new management team and grew capital markets and leasing.

Last year, I also mentioned Singapore to you, and we successfully hired the premier capital markets team and grew our facilities management and valuation functions.

So growth across Southeast Asia is also important, many growth markets there. And in Vietnam, we continue to grow with a record year, our Property Management portfolio grew some 20%. And our business here grows, now employs over 2,000 people. Moving on to India. A comprehensive platform now, 6 offices, employing 300 people.

All of this growth allowed us to transact some of the largest deals in the region last year, including a 50% share of the [MSLC] Center in Sydney for some AUD 800 million; Parc 1 Tower in Seoul for USD 880 million; and in City Plaza in Hong Kong for some USD 1.9 billion.

Our retail team has also enjoyed some fantastic appointments, including the Shenzhen Terminal 3 airport terminal with an area of around 17,000 square meters. And in Singapore, we represented UBS on a relocation to their brand-new headquarters, 380,000 square feet. So despite a number of headwinds in these markets, our revenue grew by 7% year-on-year, increasing to GBP 627 million across 58 offices.

In North America, GDP growth was strong, but the global trade policy created some uncertainty, although unemployment hit its low — all-time low through that job creation. With the federal banks now easing rates and ramping that up in 2020, the backdrop to real estate remains positive. National volumes — leasing increased with particular recovery in New York, as you’ll see, up 35%. And with this tight supply, national rents continue to increase.

Our focus remained around our core occupier-focused business, particularly in the offices and logistics sector. And in March, we rebranded the whole platform as Savills.

During the year, we organically grew our tenant rep business in 21 offices and our logistics national business also grew across 7 offices.

Furthermore, we opened a brand-new office in Calgary, in Connecticut, in Detroit and in Nashville. Our capital markets team also had a much stronger year and now has a much improved pipeline.

To further integrate those occupier services, we grew our workplace and Project Management businesses. And last night, as many of you may have read, we completed the acquisition of Macro Consultants, a very highly regarded project management and fit-out business operating across 4 offices in the U.S. and employing 90 staff.

Key transactions during the year included the relocation of global law firm, Jones Day in Atlanta to a new brand-new facility. And we’re also mandated by McGuireWoods and EAB Global on their new headquarter relocations.

So overall, our revenue grew 11% during the year to GBP 293 million across the 35 offices we have in U.S. and Canada.

Europe and the Middle East are big areas to cover quickly. GDP growth was quite sluggish across the main economies and again, affected potentially by Brexit and also the European budgetary constraints.

In the Middle East, we also experienced increased political uncertainty. With a number of investors adopting a wait-and-see approach, the U.K. — in the U.K., investment volumes in Continental Europe actually increased year-on-year. And the attractiveness of debt also fueled this demand with yields compressing to all-time lows.

Occupationally, demand also remains strong with leasing volumes in core markets increasing, but overall, dropping by 4%. And we see rental growth coming through in many markets, particularly in Germany.

Our focus last year, therefore, was around organic growth, whilst making sure we integrate it and maximize the benefits of the acquisitions we have made.

In Spain and Portugal, now our biggest region in Europe, we grew our Property Management and Project Management and Consultancy businesses and also Residential in Barcelona and Madrid.

In Sweden, with the new leadership team in place, we grew most of this key business lines there, particularly around leasing and capital markets, and we anticipate a strong year going forward.

France also had a big turnaround last year under new management leadership and that we expanded our logistics capability, both in Paris and Lyon, and also created a brand-new team, which many of you in this room would love to meet, Savills Ski, which covers the French Alps.

Linked to our growth in other markets, we also expanded work there, our flexible workplace platform to the Netherlands, Germany, Ireland, Spain and France. So a big rollout there.

Transactionally, we led the market last year by placing 25% of all the South Korean investment, which went into Continental Europe. And therefore, we did some of the largest deals. I mentioned at the half year, the Lumière in Paris, some GBP 1.15 billion, but we also did a number of other major deals in Poland, in the Czech Republic, where we acquired 1.25 million square foot facility for Amazon.

Our Swedish Property Management business also had some notable wins. It won a mandate from Patrizia across 140 assets, which continues to grow. And in the Middle East, where we have seen some potential downturn on transactions, the growth of our Property Management business continues. And our business in Egypt won the Management of Arkan Plaza, some 1.3 million square feet, which also was helped by our high-rise expertise, some of which came out of the Broadgate Estates acquisition. The strength and depth of that business is highlighted by the growth of 14%, with revenue totaling GBP 282 million across 46 offices.

And last but very much not least, Savills Investment Management, a continued growth story. Operating across the U.K., Europe and Asia Pac regions, I’ve already mentioned the dynamics of those markets. But the general trend away from retail and towards logistics continued and we experienced greater cross-border activity from the Asia Pac region as investors wish to diversify their exposure.

Against the backdrop of a lack of liquidity in many of the core markets, there remains significant appetite for real estate debt as well as alternative asset classes no longer alternative, perhaps.

The strong outlook is going to continue with greater fund allocations to real estate as well as a continued consolidation of smaller investment managers. So our own business focus was very much around making sure our funds continued their outperformance as well as the growth of our AUM, as well — and launching new products with record levels of equity raising.

Our AUM actually increased to GBP 17.7 billion, and we advised on over GBP 3.1 billion of transactions. And also that strong performance I mentioned meant that we outperformed our benchmarks in 89% of our funds over the last 5 years.

We also raised GBP 3.1 billion of fresh equity, secured approximately GBP 850 million worth of new mandates and successfully launched several new funds, including the European Logistics Fund 3 and also Japan Value Fund II. And we are continuing to strengthen our Asia Pac platform in Malaysia, Australia, Singapore, under the leadership of Alex. Revenues increased by 19% to GBP 79.2 million during the year across our 15 offices.

As a business, Savills is aligned to the United Nations’ sustainable development goals, and between 2017 and 2019, we successfully completed our emissions reduction plan. And going forward, have absolutely committed to all the sustainable development goals focused on climate change. Our people strategy is committed to developing the talent in the business, improving diversity and inclusion.

We also want to make sure that we return our shareholders the best returns through open and transparent engagement and making sure also that we are — we give the best and ethical advice that we can in all areas. And finally, in the communities in which we operate, we want to make sure we reduce environmental impact and maximize the social benefits.

My opening remarks about the level of environmental disruption, and we saw that obviously highlighted last year. It is certainly something that’s ingrained in Savills and has been for the last 20 years. We now have over 200 professionals working in this core area of our business across all real estate sectors. And the slide highlights some of the services we provide; all forms of energy reduction, green energy procurement, using smart tech to make sure buildings are more efficient, waste and carbon offsetting. We also provide a full suite of ISO audits, sustainable building certification and adopting best practice from Australia and New Zealand in their in-use buildings and guess what it’s called, NABERS.

As you’ll see, we are providing a full suite of services and are developing new skills in this area all the time.

I will now hand over to Simon to look at the financial review. Thank you.

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Simon James Blouet Shaw, Savills plc – Group CFO, Member of Group Executive Board & Executive Director [2]

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Thank you very much, Mark. Good morning, everybody. Let me start with the headline numbers. You can see the 9.6% revenue growth, which is a solid performance in some of the market conditions Mark has just outlined. That was 8.4% in constant currency, and 80% of our growth was organic, just to put that down for you.

Our profit line was steady, largely as a consequence of business mix and I’ll talk a bit more about that in a moment. And also the first time implementation of IFRS 16, which reduced our profits by GBP 3.5 million year-on-year and that equates to 2.6p on the earnings per share line. And that margin, which you can see, was affected by that business mix, both within the transactional services line with a predominance towards leasing and in the greater proportion of the lower margin Property Management and other Less Transactional services in our revenue lines as Mark was talking about.

Our basic EPS grew 8%, and our underlying EPS was consistent with our trading performance. And our net cash position at year-end was in line with our expectations, and I’ll go through componentry of cash flow in a moment. And finally, we raised our dividend by just a little bit more than our earnings growth. And I will turn to that dividend.

What you can see here is that our ordinary dividend based upon the strong Less Transactional business performance, which supports this element of our distribution, grew and offset a slight reduction in the transactionally-based supplemental interim dividend to give an overall distribution raise by just under 3% year-on-year. But as you can see, the components of that have changed slightly as this bifurcated dividend structure was always designed to achieve.

If we move towards the performance of our business lines, starting with geography. Going from left to right. Growth in both U.K. revenue and an improvement in profit during this period is a standout achievement, as you will have established by now, against the market context which would have anticipated a decline year-on-year. And this is really down to 3 things: The breadth and performance of our Less Transactional businesses here being approximately 2/3 of our revenues; the strength of our Commercial Transaction Advisory business, both in capital transactions and in leasing, which also benefited from the Savills global network to take market share in challenging markets you just heard about; and finally, the outperformance of our U.K. residential transaction business, which was pretty stellar during the period against the market context.

Moving along, you can see revenue growth in the Asia Pacific region, which was down again to our Less Transactional business, which offset the decline in transactional activity, in particular, in Hong Kong and Australia. But for reasons of the differential margins on these business lines, the impact of that transactional decline is clear when you look at the underlying profit line in the region.

In North America, we saw healthy growth, as you’ve heard, and we’ll talk a bit more about that in a moment. And finally, in Continental Europe, we also experienced healthy growth in revenue and profits, which were also boosted by the performance of our European Investment Management business, and you’ll see this on the next slide as I flip to our service line performance.

There you can see resilient revenue in the transaction markets and good revenue growth across all other service lines. In respect to the transactional segment, you can see the effect on the profit line of the geographical challenges we faced, both here and in Hong Kong, but it also shows the benefit of our diverse geographical and service line exposures, which mitigated the effects of these declines in what were historically our most significant locations worldwide.

I’ve noted the combined revenue and profit growth rates for the Less Transactional businesses in aggregate at 16% revenue and 15% profit growth, which demonstrates the importance of these core businesses or the keel on the ship, as Mark referred to them, to our overall outcome.

So having looked at the headlines, I will turn to cash before we go into our business segments in a little bit more detail. And I apologize, this is quite a busy slide. But if we start right at the beginning of the year, you’ll recall from the discussion at the half year results that our opening cash position in 2019 was GBP 25 million lower than the previous year’s opening cash position for all the reasons I explored with you then. The key items in this cash flow bridge, I’ll dwell on briefly.

So first of all, the big item 4 columns in, the working capital outflow, which represents the increased receivables at year-end based upon a very strong finish to the year, and particularly the last 3 to 6 weeks, together with the FX translation effect, which was negative for us at the balance sheet date. So that movement, plus the swing on commission accruals and bonus accruals versus cash paid during the year, represented an 80% negative swing year-on-year. Hold that thought, I’ll come back to it in a second.

Total acquisition spend, a couple of lines — columns further along, was substantially reduced year-on-year as we’d indicated at the half year. And that was a reduction of about GBP 64 million year-on-year, and it was down to the larger pieces of deferred consideration from our significant business development work over the previous 4 years or so falling away in accordance with their natural terms.

And finally, right over on the right-hand side, foreign exchange translation of our cash balances at year-end was a negative GBP 10 million, and that’s a minus GBP 20 million swing year-on-year in comparison with the previous year. What I will note, and in fact, before really doing that, you can see effectively negative working capital and foreign exchange were largely outweighed by a reduction in acquisition spend during the year.

Back to the working capital for a second. You should note that that position is unwinding as we speak. And at the end of February, our net cash balances group-wide were GBP 10 million higher than they were the previous period at the end of February 2019, despite having started the year GBP 45 million down on net cash. So it is unwinding.

Let’s turn now to the performance of the individual business segments. Starting with the Commercial Transaction Advisory business. Overall, revenue growth of 3% was a strong performance with the market challenges we’ve talked about, and those challenges were significantly offset, as you can see here, by growth in Continental Europe and the Middle East and in the U.S. But if we start in Asia, the Hong Kong investment volumes, as you’ve heard, where market volumes were down by over 40% year-on-year. And there were slowdowns in Australia and in Korea in particular. And our growth in Japan, in particular, but also actually in the regional hospitality sector teams, together with a resilient leasing performance, helped to mitigate these effects.

In the U.K., we had a strong final quarter, as I’ve just referenced, and particularly the last 3 weeks, and this significantly narrowed the year-on-year declines in activity which we evidenced at the half year, where, if you recall, at the profit line in transactions, we were down 54% year-on-year over ’18.

So against the backdrop of the London office market, which is where volumes declined very significantly, this is a strong performance, and our business mix shifted slightly within our U.K. commercial transaction business towards the relative strength of our leasing businesses.

Our European and Middle Eastern business posted revenue growth of 20%, driven by France, Netherlands, Spain and Germany, in particular, with underlying profit temporarily held back by expansion costs that Mark has referred to. That these were in Sweden, the Netherlands and Poland, in particular.

In North America, we were very pleased with the growth of our business in that market with strong performances in many of our key offices. And in addition, our capital markets team had a potentially improved year. The effect of these factors was 35% profit growth after continued costs of platform investment in that business. So we’re working up the margin scale that I indicated last time we met. So a robust position in some fairly challenging conditions.

Turning to the residential business. Clearly, for much of the year, the global residential business had its own challenges, for obvious reasons and the most significant impact being in Asia. So if we start there, investor confidence was severely impacted in the high-end Hong Kong market for the reasons we’ve already rehearsed where revenue declined 37% year-on-year. And in China, growth in Beijing offset a slight decline in Shanghai. And Singapore, including our mid-market residential associate Huttons was also affected by the government — effective government cooling measures on that market. While in Australia, we undertook some restructuring of our business in the light of weaker market conditions there.

If we turn to the U.K., though, by far and away, the biggest part of our residential business, pretty exceptional in the context of the market environment. Revenue growth of 6% and profit growth of 1% were achieved against the market backdrop that Mark laid out for you. Key to this was the strong growth in our core London business, average selling price, GBP 1.1 million, where we, in many cases, doubled our market share in most of the postcodes we operate in. A late resurgence in the prime and super-prime market in London. And finally, a very successful year for our private rented sector or build-to-rent transactions business.

So if we turn now to the Less Transactional businesses, starting with the largest one, Property Management. We’ve referenced the good growth overall at 17% revenue and 9% pretax. In Asia, where Property Management represents over half our revenue, revenue growth was 14%. That’s 11% in constant currency. Now some of this growth related to some very significant contract wins that Mark alluded to earlier, which tend to carry significant onboarding costs in their first periods and, therefore, have little effect on the bottom line. And another part of the revenue growth reflected the recognition of pass-through costs in Singapore, which has the effect of grossing up revenue and costs with no effect on profit.

But finally, the growth in our conventional property management business was offset at the profit line by restructuring and recruitment costs in Australia, in particular.

In the U.K., we posted revenue growth of 21%, of which exactly half was organic. That 21% was boosted by the residential letting segment, which grew 22% year-on-year in revenue terms, which is, again, an outstanding performance in this market. And the whole performance of Property Management in the U.K. was complemented by the full year effect of the Broadgate Estates acquisition and Currells of 2018. So 22% profit growth was a strong performance in the year.

And finally, in Europe and the Middle East, we saw revenue growth of 17%, including the full year effect of the Cluttons Middle East acquisition. As Mark’s indicated, we took on some pretty significant trophy mandates where the onboarding cost issue I’ve referenced for Asia was equally true in Europe. And that just held back our profit growth during the period alongside also some platform investment in our Spanish management business. So we’re pleased overall with the 9% profit growth in the circumstances.

If I turn to the Consultancy business, attractive revenue growth of 15% was offset at the profit line by recruitment and expansion costs in the year as we pushed on with the core strategy of building our consultancy practices, particularly outside the U.K. In the U.K., though, starting there, revenue growth of 6% and profit growth of 5% were driven by strength in the service lines I’ve outlined on this slide, but tempered by the political and Brexit uncertainty, which did challenge our development advisory business and our rural advisory business in particular.

In Asia Pacific, research and valuation consultancy grew well, particularly in China, but also generally across the region, and this was offset at the profit line by some fairly significant expansion costs, both in China, Singapore and Australia, as I said, as we seek to build these businesses in the Asia Pac region.

And finally, in Europe and the Middle East, it’s a not dissimilar story. Good revenue growth of 16% with contributions again from across the region was negated at the profit line by restructuring and recruitment costs, principally in the 3 countries I referred to on that slide.

So finally, we take a look at Investment Management. As Mark’s indicated, an absolutely outstanding performance during the year with revenue growth of 19%, profit growth of 65% and very strong fund performance. This, in turn — excuse me. Asthma, by the way, just confirm that — in turn led to some performance fees across the portfolio, and our overall performance fees were up just over GBP 3 million year-on-year. So perhaps, if you look at — looking forward from here, something around GBP 15 million rather than GBP 18 million is probably an underlying benchmark for you to consider as a 2020 comparator. What’s most important in this is that our base management fees grew by 22% year-on-year, as a consequence of some significant capital inflows and fund launches.

We’re also very pleased to see our associate real estate debt fund manager, DRC Capital, post an excellent year in terms of profit performance, but also winning some prestigious European awards in the sector recently. And finally, we appointed Alex Jeffrey as CEO in October. We’re absolutely delighted with the impact he’s had in the short period he has been here. And obviously, this performance is entirely down to him. And we look forward to the developments that he’ll bring to the business.

I’m going to turn to — briefly before I hand it back to Mark, to the whole area of technology and our approach in investment in this arena. And I’d just like to make a few observations really on what we’re doing. Generally, technology continues to be a huge focus — and I will change the slide for you as well — continues to be a huge focus in our — in the real estate industry.

What we have witnessed, and this is evidenced by a reduction in external private equity investment into the sector during 2019, is some of the excitement over PropTech being replaced by a much more pragmatic approach by the industry, ourselves included, to assessing which technologies will really make a fundamental difference to the challenges the industry itself, as in brokerage and services, and our client’s face.

So aside from some small follow-on investments in the Grosvenor Hill Ventures portfolio, we were deliberately relatively quiet on the private equity side of our technology initiatives. But I will call out the burdening growth of workthere.com, a hybrid tenant advisory business, into service office and co-working spaces, which achieved 300% revenue growth during the year, very substantial, and is launched in 9 countries, we supported over this period and continue to support its expansion. But our core focus has been on internal technology programs, and these will extend out over multiyear periods. I’ll just pick out a couple of examples.

First up, Knowledge Cubed, developed in the U.S. business, it’s our novel occupier services-facing analytics technology. And it has global relevance to corporate occupier clients around the world and increasingly being used and winning awards for being a best-in-class client-facing technology. So that’s very exciting.

Secondly, and I think this is possibly, in one sense, the most important initiative we have, and it’s going to take many years to pursue but it is already delivering benefits from day 1, is our data analytics and insight program, which is focused initially in the U.K., and that is where we’re seeking to harness the vast array of data we have in the business and generate every day that we turn up for work, to feed it back in the form of value-driving insights to our client base right across the spectrum of our client services. And we’ve got some very exciting developments on that during the year, and we’ll continue to be spending in that arena.

You will have noticed, if you’re very quick, our CapEx on the cash flow slide was up about GBP 1.5 million per year. That and more is all down to these technology initiatives, which we’re continuing to invest in.

So with that small insight into the technology program, I’ll hand you back to Mark to conclude.

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Mark Ridley, Savills plc – Group CEO, Member of the Executive Board & Director [3]

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Thank you, Simon. Okay. So I’m going to use the nautical theme, which is hold our course and the fog will lift. Certainly, I believe that our strategy — our strategic priorities remain very similar. Overall, we will continue to expand our Consultancy services, particularly outside the U.K.

In Asia Pac, our focus will be around the growth of Consultancy and Property Management and the further development of India and other growth markets, particularly Indonesia, Vietnam, Malaysia.

In the U.S., we will continue to make expansionary recruitment, particularly to broaden sector coverage, particularly around logistics, while seeking to deliver the intended margin improvement, we will achieve that over a period of time.

In Europe and the Middle East, we are focusing on our delivery following up those recent initiatives of expansion, covering our geographic footprint more fully and making sure we maintain and improve our profitability in Property Management.

Overall, we benefit from a very strong balance sheet, as Simon has alluded to, and we’ll maintain a cautious approach to financing and cost control. This positions us really well to withstand the economic, political and natural headwinds, and we remain in a position to be able to capitalize on opportunities as they arise.

So summary and outlook, the crystal ball. I’m delighted with the good performance from Savills for 2019 despite some of the challenges we faced. We’ve started the market really strongly on all measures. But have to take into account the effect of COVID-19 on the global economic outlook.

That said, the appetite for secure income characteristics of real estate remains extremely positive. Debt finance is going to remain cheap and looks to remain so for some time, and occupier demand remains positive. These factors suggest that the fundamental dynamics of the markets we operate in will remain highly attractive.

And at this point, it’s difficult to predict with any accuracy, the absolute impact of COVID-19. However, we do obviously expect a greater weighting in the second half of the year.

Before I finish, it’s really important just to talk about what is our USP, it’s our people and the strength of our assets. And it’s not without those exceptional people, we wouldn’t be able to continue our journey, and I’m very proud to be their CEO. The culture we have created is well illustrated by a quote from somebody who recently joined one of our businesses and describes it as a work hard, play hard as a team culture. This has created exceptional loyalty and longevity in the business, but also the ability to perform at the highest level, hence, some of these awards that I’ve put on this slide. It’s a great testament to our people, and I want to thank them.

That ends the presentation today. I want to thank you all for being so brave as to come into our room, and we’ll now answer any questions you have. Thank you.

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Questions and Answers

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Christopher James Millington, Numis Securities Limited, Research Division – Analyst [1]

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Chris Millington at Numis. A few, if I can, please. Firstly, residential tends to be very sensitive to kind of consumer moods and sentiment. So first of all, I’d just quite like to understand kind of what’s been happening at the front end with regard to KPIs in the U.K. and also Asia as well?

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Simon James Blouet Shaw, Savills plc – Group CFO, Member of Group Executive Board & Executive Director [2]

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As Mark said, there was a bounce following election last year. And I have to say, in the first 2 months, that’s continued. Applicants on the residential side are up about 35% year-on-year and viewing is up about 14%, which is encouraging. We’ve analyzed the change in viewing and applicants per week over the past 4, 5 weeks, and it’s minimal. So deals are still being done. And it’s interesting, you mentioned the challenges in the Far East residentially. In some ways, we are benefiting from that because the foreign interest last year went up. I mean the secondhand market went up about 7% and in the new home development side went up 13%. And in the first 2 months of this year, foreign interest in the secondhand market is about 1.6% and on the new home installment side, about 8%.

So the fundamentals are still there. I think it’s true to say also that the country market hasn’t really got going. It never does. It usually peaks in activity in kind of May, June. But I have to say, we’ve been extremely busy in the first 2 months, and we are continuing to be busy. We did 3 deals of over GBP 5 billion in the last 5 days and 2 [at the size of] GBP 20 million in Central London. So I would say that we are going well. We are taking market share. We increased our market share in the prime markets in London by 10% last year. And in the country by 15%, which is very encouraging. So so far, so good.

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Christopher James Millington, Numis Securities Limited, Research Division – Analyst [3]

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I’d just like to understand a bit more about how you’ve managed to pull on so much extra space in Property Management. It’s a huge increase year-over-year. I imagine it’s quite a competitive space. So perhaps you could just give us a bit more detail about what you’re doing to kind of stay ahead of the pack.

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Mark Ridley, Savills plc – Group CEO, Member of the Executive Board & Director [4]

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So we do have a very strong track record in it, Chris. I mean the first and foremost, it’s — 1 or 2 of our competitors have not invested in their platforms. So in some cases, they actually have retreated from the platform. So it is competitive. But I think what we’re seeing is global investors, international institutional investors wanting good service. It’s not about a chase necessarily to the bottom on price. They need good quality performance. So that track record allows us to win. And an awful lot of it is organic growth, winning great new opportunities, new mandates.

Obviously, we will bolt-on strategic acquisitions where it makes sense and Broadgate Estates was one of those. And James, I know has — high on his list is a continued growth in Europe, particularly in Germany. So that is the momentum we have. We’ve always had a very strong record in it. But by having really good people with experience, with making sure we can provide that to the client base, the momentum is created through that process.

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Christopher James Millington, Numis Securities Limited, Research Division – Analyst [5]

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I’m sorry to end on maybe a bit of a negative tone, but kind of scenario planning, obviously, COVID-19 is moving pretty quick. Just to understand the variability of Savills cost base because, clearly, the business changed quite a lot since the ’07 and ’09 downturn in terms of the move over to the Less Transactional businesses. But can you just talk us through kind of how you would read that if we were to go into a slightly more severe scenario?

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Mark Ridley, Savills plc – Group CEO, Member of the Executive Board & Director [6]

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I think — well, as you know, our employee cost is our largest cost. It’s about 65% — just under 65% of revenue, of which about 20% is profit-related bonus. In certain parts of the world, so the U.S., it is an entirely commission-driven workforce as well. So there’s natural flex with the level of revenues coming into the building. So we’ve historically always had that degree of flex and our cost base does concertina to an extent with revenue.

That said, we are — because we have such a strong balance sheet and we’re very cautiously financed, we do seek to maintain the bench strength of our teams, even when their markets are somewhat impaired. And if you look back to the global financial crisis, the success in doing so meant that we really ricocheted into recovery where other firms had — perhaps had to let good people go simply because they were temporarily wounded. So I always guard against anybody saying, well, you can just reduce your cost base because of market conditions. Actually, some of the best business development happens in more impaired markets.

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Unidentified Company Representative, [7]

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Are there any questions online?

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Unidentified Company Representative, [8]

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No.

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Mark Ridley, Savills plc – Group CEO, Member of the Executive Board & Director [9]

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Good. Well, thank you very much for coming and look forward to seeing you at our next results. Thanks to your support. Thank you.