2nd Mar 2005 07:02
Savills PLC02 March 2005 WEDNESDAY 2 MARCH 2005 RECORD YEAR FOR SAVILLS Savills plc, the international property adviser, today announces its results forthe year ended 31 December 2004. • Pre-tax profit of £50.2m (2003 - £34.1m) • Turnover up 9% to £328.0m (2003 - £301.7m) • Group operating profit up 10% to £39.0m (2003 - £35.3m) • Basic earnings per share 62.2p (2003 - 37.0p) and basic earnings per share excluding sale of trading & investment properties, impairment and amortisation of goodwill 55.7p (2003 - 37.7p) • Final dividend up 25% to 12.5p per share (2003 - 10.0p), making 18.5p for the full year, a 36% increase on last years 13.6p. Plus a special dividend of 20.0p per share making a total for the year of 38.5p per share (2003 - 13.6p) Peter Smith, Chairman of Savills plc, commented: "Our results this year show the rewards to be gained from being a broadly basedproperty advisory group ready to take the opportunities of a constantly evolvingmarket. This is my first report as Chairman and I am, therefore, particularlydelighted to be able to report an outstanding set of results following strongperformances from all our operating businesses. The continuing buoyancy of the global investment markets is encouraging for theprospects in all parts of our Commercial business in 2005; prime residentialmarkets remain resilient. We have enjoyed a satisfactory start to the year andare confident that the Company will continue to perform well." ***Chairman's Statement, Review of Operations, Financial Review and Preliminary Announcement of Results to Follow*** Savills plc. Registered in England No. 2122174. Registered Office 20 GrosvenorHill, Berkeley Square, London W1K 3HQ For further information, contact: Savills 020 7409 9923Aubrey Adams, Group Chief ExecutiveRobert McKellar, Finance Director Citigate Dewe Rogerson 020 7638 9571Simon RigbySarah GestetnerGeorge Cazenove There will be an analyst presentation today at 9.30am at 25 Finsbury Circus,EC2M 7EE. CHAIRMAN'S STATEMENT RESULTS This year marks the 150th anniversary of Savills and it is fitting that this isalso the year in which the Group consolidated all of its subsidiary brandingunder the Savills name. While the name is longstanding and the firm is built on a solid foundation, as alisted company Savills plc is only fifteen years old and we still considerourselves a young, dynamic and forward thinking Group. We continue to broadenand strengthen our property expertise across a wide spectrum of markets anddisciplines. Our results this year show the rewards to be gained from being a broadly basedproperty advisory group ready to take the opportunities of a constantly evolvingmarket. This is my first report as Chairman and I am, therefore, particularlydelighted to be able to report an outstanding set of results following strongperformances from all our operating businesses. Profits in the second half have historically exceeded the first half and thishas again been the case this year with a full year pre-tax profit of £50.2m(2003 - £34.1m). 2004 turnover increased by 9% to £328.0m (2003 - £301.7m).Group operating profit was £39.0m (2003 - £35.3m). Group operating profitmargins, excluding the sale of trading properties, were 11.6% (2003 - 11.2%). A reduced effective tax rate of 30.2% (2003 - 36.4%), together with increasedprofits resulted in basic earnings per share increasing substantially to 62.2p(2003 - 37.0p). Shareholders' funds increased to £102.8m (2003 - £95.7m) andcash balances to £90.1m (2003 - £71.9m). DIVIDENDS The Board is recommending a final dividend of 12.5p per share to thoseshareholders on the register on 15 April 2005, payable on 12 May 2005, making atotal for the year of 18.5p (2003 - 13.6p). This increase is in line with ourcurrent progressive dividend policy, which remains unchanged and reflectslong-term confidence in the business. In addition to the final dividend and asannounced in our trading update statement of 22 December 2004 the Board havedecided this year to recommend a special dividend of 20.0p per share to be paidon 12 May 2005 to those on the register as at the close of business on 15 April2005. This is possible because £15.0m was generated from property trading andinvestment over the past few years. These profits are regarded as non-recurringand the Board has taken the decision to pass the post-tax benefits of theseprofits to shareholders. HIGHLIGHTS In the UK we have continued to develop the business and expand on the range ofservices we are able to offer our clients. The investment markets have remainedstrong, and our agency teams have been active and successful. We have expandedour offering to commercial clients in the UK and in October 2004 opened anoffice in Leeds adding to our increased commercial presence in the Regions. Wehave also added to our network of residential and multi-disciplinary offices infifteen new locations through a combination of new openings and smallacquisitions in key locations. This year saw the launch of our fund management arm, Cordea Savills. During theyear funds under management increased materially as the result of two new fundlaunches: the Savills Investor Syndicate No.1 for UK private and institutionalinvestors and Europa Immobiliare No.1 a European fund for Italian privateinvestors where Cordea Savills acts as delegated investment manager and advisor. The Government has recently reiterated its commitment to the creation of anincreased supply of housing stock. Savills, with its unique expertise in theareas of affordable housing and mixed-use development, are assisting clients inthese areas. Both commercial and residential investors now have an increasedappreciation of the importance of property as an investment class and Savills iswell placed to take advantage of the opportunities that will arise from thisincreased awareness. Our Research teams continue to provide widely respected advice to private andcommercial clients through the production of articles such as 'The ResidentialProperty Focus' and 'Office Futures'. New and emerging markets continue to beexplored. In Europe we recruited a team and opened an office in Poland. We also purchaseda majority stake in our Associate in Sweden, Tufvesson & PartnersFastighetsradgivning AB, which is part of our continued strategy to grow ouroffices in commercial centres throughout Europe. In Asia and Australia we continue to make progress and consider opportunities asthey arise. This past year we opened an office in Tokyo and expanded ouroffering in Singapore through the acquisition of Hampden & Partners, where wecontinue to develop our investment operation. Offices in China are nowprofitable and making a strong contribution to our Asian business; our newoperation in Macau is offering clients access to professional services andretail markets. SHARE BUYBACK PROGRAMME At the last Annual General Meeting (AGM) shareholders gave authority for alimited purchase of Savills shares for cancellation of up to 5% of the issuedshare capital. During the year ended 31 December 2004 1,410,000 shares (2.3%)were repurchased for cancellation under this programme. As announced on 22December 2004, the Company undertook an irrevocable, non-discretionary programmeto re-purchase its own shares during the close period. During this period theCompany bought 100,000 shares for cancellation. The Company may make furtherpurchases of shares under this authority in the open period up to the AGM to beheld on 4 May 2005. This programme has proved to be particularly earningsenhancing and Shareholders will again this year be asked to consider aresolution to approve the re-purchase of shares. This is outlined in the Noticeof Annual General Meeting which will accompany the Report and Accounts for theyear ended 31 December 2004, and which will be distributed to shareholders atthe end of March 2005. BOARD AND STAFF I joined the Board on 24 May 2004 and took over as Chairman on 1 November 2004following the retirement of Richard Jewson. I am privileged to have taken overat this exciting time in the life of the Company. On behalf of the Board, I wish to convey our appreciation for the valuablecontribution made by Richard Jewson. Under his guidance, Savills has over thelast decade grown significantly with pre-tax profit having increased tenfold. The Board is pleased to announce that with effect from 31 March 2005, RobertMcKellar has been appointed to the role of Chief Executive - Asia Pacific. Hewill have specific responsibilities for growing and developing this importantpart of our business. Danny O'Donnell, will be appointed Group FinancialController and will report directly to the Group Chief Executive. DannyO'Donnell will have specific responsibilities for managing, monitoring andcontrolling the Group's systems of financial control. In addition, eachoperating division has a dedicated Finance Director who liaise closely with thecorporate financial management team. Savills' continued development and growth is a result of the committed anddedicated efforts of our talented staff whose ability to add value to ourclients is the basis for the excellent results achieved in 2004; I thank themall for their contribution. Our reward system is an important mechanism inproviding a balance between the interests of staff and shareholders. My appointment as Chairman presented a timely opportunity for the Board toconsider the composition of its various Committees and to ensure that itsgovernance processes fully reflected the requirements both of the size andstructure of the Company as well as that of the revised Combined Code. Fulldetails of the various committees is outlined in the Corporate Governance Reportin Savills' Report and Accounts for the year ended 31 December 2004 which willbe distributed to shareholders at the end of March 2005. OUTLOOK The continuing buoyancy of the global investment markets is encouraging for theprospects in all parts of our Commercial business in 2005; prime residentialmarkets remain resilient. We have enjoyed a satisfactory start to the year andare confident that the Company will continue to perform well. Peter Smith, Chairman GROUP CHIEF EXECUTIVE'S REVIEW OF OPERATIONS 2004 was a record year for Savills with pre-tax profits up by 47% and basicearnings per share of 62.2p (2003 - 37.0p). This was largely as a result ofstrong operating profits from all parts of the business, with the commercialinvestment markets particularly buoyant. The commercial agency markets continued to perform well throughout 2004 despiteconcerns that the market was slowing; strength in transactional income wasprimarily from the investment market where investor confidence remained strong. In the UK we have increased our services to commercial clients in key regionallocations through a number of small strategic acquisitions and additional officeopenings. Trading in Savills' European offices was again profitable this year with strongperformances from Spain, Germany and Italy. Our investment teams in Germany andSpain performed particularly well in a very difficult market. We continue toexpand and strengthen our presence in Europe, where we identified opportunitiesfor growth and this year saw the opening of a new office in Poland. In Decemberwe acquired a 51% stake in our associate business in Sweden. Our investment in the development of our fund management operations both withinthe UK and on a pan-European basis, resulted in Cordea Savills becoming themanager of two new closed end property funds. €283m of equity was raised inrespect of Europa Immobiliare No.1 for investment in property assets over thenext couple of years and £24m of equity was raised in respect of SavillsInvestor Syndicate No.1 Fund for UK investors. In Asia, the business continued to benefit from a strong market and a dominantposition in investment and residential sales with Chinese buyers continuing tobe active despite rising prices. In China, income growth remained strong, inparticular the property management sector which has been successful in winningseveral new mandates. In Singapore, the addition of a residential businessincreased the scope of the property services offered. Towards the end of theyear following the acquisition of a third-party property management business, weopened an office in Tokyo. This acquisition ties in with our strategy tofurther expand our successful Asian operations. As announced today, Robert McKellar, our Group Finance Director has beenappointed as Chief Executive - Asia Pacific with effect from 31 March 2005. Savills remains focused on developing and expanding the services it offers bothin the UK and internationally by recruiting high quality staff, investing in newareas of business and where appropriate opening new offices. TRANSACTIONAL ADVICE The Transactional Advice business stream comprises commercial, residential,agricultural agency and investment. During the year turnover was £149.0m (2003- £119.4m), representing 45% of our total turnover, generating profit beforeinterest and tax of £25.1m (2003 - £18.0m). Commercial Investment and Agency In the first quarter of 2004, property remained in strong demand from bothprivate and individual funds in the UK and abroad, who were attracted by therelatively high secure yields offered by commercial property investment. During2004, this increased demand and competition for stock gave rise to some yieldcompression but the markets have remained firm. The European investment team acted in the sale of a new office development inParis for CGI for €334m. In the UK, our London and regional investment teams were also involved in anumber of significant transactions, including: • the acquisition for CGI of White City retail development, the UK's single largest commercial property transaction in 2004; • the disposal for Deka Immobilien Investment GmbH of St Enoch Centre, Glasgow for £272.5m; • the disposal for Pillar of a number of retail and leisure assets; including the disposal of Fulham Broadway Shopping Centre (£97.7m), London; Omni Leisure Park Edinburgh (£74.3m) and Gallions Reach Shopping Park, Beckton (£78.7m); • £195m worth of acquisitions and disposals on behalf of Modus Properties which included C12 Shopping Park, Southport and Castle Dene Shopping Centre, Peterlee; • the acquisitions of Durham City Retail Park, Nova Scotia Retail Park, Blackburn and the sale of the B&Q Warehouse, Sunderland on behalf of F&C Asset Management; • one of the largest industrial estate transactions in the North West, Globe Industrial Estate, on behalf of ING Real Estate; • the disposal of BHP Billiton Petroleum Great Britain Limited UK office headquarters, namely One Neathouse Place, London for Quintain, achieving a price of £68m; • advising the Prudential on the acquisition of Temple Quay House, Bristol for £44m; • the sale of Forbury Square, Reading comprising of 148,000 sq ft new Grade A offices on behalf of Argent Estates Limited sold to Stonemartin Plc and Morley Fund Management for £40m; and • the acquisition of Leon House, Croydon, for Exemplar Properties and HSBC Active Property Fund at a price of £35m. A developing part of our investment business is the provision of propertyinvestment advice to clients in relation to indirect investment in property.This year our investment advisory team acted for UBS in relation to the propertyrelated aspects in respect of their South East Office Recovery Fund (SERF). The West End Office Agency department acted in 40 transactions totalling 330,000sq ft. Notable transactions included the assignment of the lease of the 50,000sqft. 30 Berkeley Square, Mayfair to GE Capital and advising Boodle Hatfield,solicitors, on their relocation to new offices of 30,000 sq ft at Lumina, 89 NewBond Street. In the City, we advised IPC on the acquisition of their new Europeanheadquarters building of 450,000 sq ft at 1 Bankside for c£200m. The transactional markets in Hong Kong rebounded significantly from thedifficulties experienced in 2003, with income increasing by 100%. The hugeupsurge in demand emanated predominantly from Hong Kong and Chinese buyers whowere quick to realise the hidden value in previously depressed prices. Savillswas able to act for over 50% of the grade A transactions in Hong Kong andstrengthen its position as the premier capital transactions agent. Retail and Leisure The Retail Warehouse team experienced another strong growth year with anincreased number of leasing and development instructions. The team advised onover 100 retail parks throughout the UK for clients such as Hammerson plc,Pillar Plc, Henderson Retail Warehouse Fund and Royal London Asset Management,as well as leading retailers such as B&Q plc, Boots The Chemist Ltd and Nextplc. The In-Town Retail department was expanded with the recruitment of three newDirectors who joined the London office in July. Along with the CommercialInvestment team, the department provided advice to Land Securities Plc closingone of the largest swap deals ever recorded which included acquiring fourshopping centres at Lewisham, Welwyn Garden City, Glasgow and Taplow whichformed part of the £720m combined asset swap transaction with Slough Estates,completed in December 2004. Hotels and Healthcare 2004 has seen further growth in revenue and profit together with continuedexpansion of the department with the recruitment of additional valuers andagents. Notable deals include the Corus Hotels PLC portfolio and a portfolio ofAccor hotels, acquired by London and Regional Properties under a sale andleaseback transaction. We increased our international presence with particularinvolvement in Spain, Barbados and the negotiation of a deal with Four Seasonsfor a significant resort in Mauritius. The National Healthcare team continued to consolidate their position as one ofthe market leaders in the sector in terms of both transactional and consultancyadvice. The team widened their banking client base and advised on primaryhealthcare LIFT schemes. Notable transactions included the sale of BrookmoonHealthcare Ltd, a Midlands based portfolio of purpose built care homes, toBarchester plc and the sale of Scottish care home group Burnfoot Homes Limitedto Mead Medical. Residential Agency The residential markets noticed a significant increase in buyer confidence inthe first six months of 2004, which resulted in strong activity. On the back ofthis we expanded our business in the Home Counties and opened new offices inFarnham, Beaconsfield and Harpenden. We also opened offices further afield inCirencester, Solihull, Wilmslow and Clifton. 2,600 properties were sold during the year equating to approximately £2.6bn invalue. The average property sale was c£1.5m in London and c£0.7m in thecountry. Highlights included: • the sale of eight houses in excess of £10m in London; • the sale of Moundsmere, Hampshire, a substantial country house for well in excess of the £6m guide price; and • Ayot Mountfitchet, the most expensive house ever to be sold in rural Hertfordshire (guide price £5.5m). In Hong Kong, the strength of the recovery enabled Savills to act for anincreasing number of local buyers who were keen to take advantage of risingprices for prime residential properties, including new developments. Purchasing Advice Prime Purchase, a wholly owned subsidiary specialising in acquiring residentialproperty in both London and the country on behalf of retained clients, commencedtrading in 2002. During the last two years the business has seen excellentgrowth and had a successful year doubling its turnover in 2004 over that of theprevious year. Of particular note was the acquisition of a substantial house in Chesham Place(over 7,250 sq ft) and the purchase of Chedington Court near Sherborne inDorset, one of the South West's most impressive country houses. Residential Letting There were strong indications of a recovery in the residential lettings marketin 2004, illustrated by a 10% growth in new lets in the London region whichrepresented the core of our lettings business. New lettings businesses wereacquired in Harpenden and Sunningdale. Auctions With the ever increasing interest in property as an investment or pensionprovision, a diverse range of clients are now using auctions as a fast andeffective method of property acquisition and disposal, for example we acted forprivate and public companies, local authorities, county councils, housingassociations, charities and development agencies. During the year, the London National Auction department sold 640 lots with avalue of £140m at an average success rate of 87%, one of the highest in theindustry. Residential and commercial properties were sold in Manchester,Liverpool, Birmingham and across the South East to Bristol and the West Country. A new dedicated commercial auction department has been recruited into our Londonoffice which will further increase the profile of our auctions business. New Homes At the Building Homes 2004 awards, the Savills New Homes department won "BestNew Homes Agent". We continue to develop our expertise in the rapidly emergingkey worker and residential investment sectors and are advising on many majorregeneration schemes which should lead to significant future new homesinstructions. The new homes market has experienced some slow down, but despite this 3,535units were sold with a total value of £1.28bn. Notable transactions includedsales at The Knightsbridge, London's most prestigious development, where closeto half the 200 apartments are now sold, including a penthouse with an askingprice of £18m. New instructions included the appointment by Crest Nicholson for the first phaseof their Harbourside scheme in Bristol, and by Ballymore Properties on their 260unit, Ontario tower development in London's Docklands. International New Homes The International Residential department had a successful year selling propertyat new resort developments around the world, including The Palm Islands inDubai, the Arc1950 ski resort in the French Alps and The Provence Golf andCountry Club near Avignon in the South of France. A recent trend has been thegrowing interest in resort buy-to-let property. The associate network has beenexpanded and the number of high-end instructions and sales has increased. Wehave recently set up an emerging markets and international residentialconsultancy division, which has secured several good instructions. Development The Savills Development and Regeneration team assists a range of clients onprojects with issues such as sustainable and green designs, collaboration andpartnerships in and across private and public sectors, and large scalemulti-sector projects. The team was also involved in promoting a number ofhighly sustainable schemes aimed at reducing CO2 emissions from both buildingsand modern lifestyles, including projects in urban and on brown-field sites,using land value and enhanced density to create cross-subsidy. These projectsrequire co-ordination and financial modelling capability. The team'sinvolvement included acting as core advisors and agents on some of the largestdevelopment projects in London such as: New Wembley for Quintain Estates andDevelopment PLC; Greenwich Peninsula on behalf of Meridian Delta Ltd; theregeneration of town centres such as Feltham where a multi-use scheme ofapproximately 1m sq ft is being developed. Farm and Estate Agency Although a number of properties were traded privately throughout 2004, therewere fewer flagship estates on the open market and fewer acres of farmland soldthan in 2003. The effect of this shortage of supply was that land prices roseby up to 20% during the year. Savills were seen to be active during the year both on the sale and theacquisition of farms and estates for clients. Successes included the sale ofthe largest privately available estate in 2004 and other highlights included the1,000 acre Dunmore Estate in Kent. Purchases included the majority of TheBurnley Hall Estate in Norfolk, The North Green Estate in Norfolk with a guideprice of £3.75m and the Eastcourt Estate in Gloucestershire with a guide priceof £4.75m. CONSULTANCY Our Consultancy business generates fee income from a wide range of professionalproperty services including valuation, building consultancy, landlord andtenant, rating, planning, strategic projects and research. Profit beforeinterest and tax for the year was £9.6m (2003 - £7.6m) on turnover of £60.2m(2003 - £49.1m). Valuation The Commercial Valuation department had another exceptional year, increasingbilling by 38% in London. In addition, our recently established teams inManchester and Edinburgh enjoyed similar success. The core business of thedepartment continues to be valuations for lenders for loan security purposes,for which we provided advice to over 50 lending organisations during the year.We also saw an increase in our litigation support work. We have gained areputation, not only for impartiality, but also for valuing properties at theupper end of the market, including major portfolios for financing purposes. Ourinstructions included a portfolio of 24 Debenhams department stores and aportfolio of 56 Somerfield food stores valued at over £400m and over £150mrespectively. We advised on many properties with a value in excess of £100mincluding St Katharine's Dock, E1 at over £300m, again for financing purposes.The regular valuation of large parts of Canary Wharf for financing, accounts andother purposes remains a major instruction. The Residential Valuation department had another successful year building on itsstrength as a 'One Stop Shop' professional services provider. The newlydedicated Land and New Homes Valuation team valued in excess of £1bn ofresidential and mixed use development schemes in London and the South East. Inaddition, we valued for loan security purposes in excess of £2bn worth ofproperty, including an unprecedented number of houses in excess of £10m each inLondon. We continue to advise landlords and tenants on enfranchisementvaluations, and provide valuations for matrimonial settlement, being retained insome high profile cases. We also valued c£300m of residential property held asportfolio investments. Building Consultancy Our Building Consultancy team focused on stock condition surveys and procurementadvice in the social housing sector and enjoyed another year of growth, doublingthe size of the business. The Government objective of making all social housingproperties decent by 2010 has substantially increased the demand for ourspecialist services. During the last year, we worked with many HousingAssociations and most of the large Metropolitan Local Authorities with notableprojects in Haringey, Birmingham, Manchester, Liverpool, Newcastle, Glasgow andAberdeen. We have also advised on a number of housing PFI schemes. We acted for purchasers of the Radisson SAS Hotel at Manchester Airport as wellas a number of prime office buildings. Our sizeable national team carried outthe pre-acquisition surveys of the part of the Safeway supermarket portfolioacquired by Barclays Capital and Robert Tchenguiz from Morrisons and now let toSomerfield. We represented the Sainsbury Family Charitable Trusts on a numberof projects including the extension and refurbishment of Lord Foster's SainsburyCentre for Visual Arts. The City based Project Management team, which focus on occupier 'fit out' works,have been successful in securing some significant projects including themonitoring of IPC's new 500,000 sq ft headquarters at Land Securities Banksidescheme, the development, monitoring and fitting out of a new UK partsdistribution unit for Suzuki GB PLC and numerous offices including DLA PiperRudnick Gray Cary Solicitors in Sheffield for Mitsui & Co's European and UK headoffice. A significant number of pre-acquisition surveys were undertaken in theCity, the largest being for Lloyds of London, which reflects the current highdemand for investment properties. The Manchester based Building Consultancy team increased their contribution thisyear. Key clients include Kenmore, Burford and UBS; with the size of projectsgetting larger year on year. Key framework agreements are now in place withMorley and UBS. Landlord and Tenant Whilst the office market in London and the South East was more difficult withfewer rent review fees generated than in the previous year, the Landlord andTenant department reported income for the year marginally below that of 2003with market share increasing. Work on over 200 properties was completed during the financial year; thisincluded working on many of the highest value out-of-town retail schemesthroughout the UK. We now act for over 60 landlords in this high profile sectorof the property market. The strength and depth across all sectors gives stability and certainty ofincome in times when individual markets are weak, as was the case in 2004. Rating During the year the Business Rates team in the UK continued to settle appealsachieving an average reduction of 13% with successful appeals. Despite the factthat the appeals we are finalising related to the third regular recent ratingrevaluation, we still obtained significant six figure savings for a foodmanufacturing client who we have advised on rating matters for over 40 years.Rates continue to be an operating cost that merit investigation by clients. Our expert knowledge of the interaction of value and liability through theoperation of the relevant legislation enabled us to double savings for a numberof clients; the technical aspects of the UK business rates system requiredetailed and comprehensive knowledge to maximise savings. We are well placed toadvise clients in connection with the 2005 Rating Revaluation. Planning The Commercial Planning team has grown significantly in 2004, following theacquisition by Savills of PDC Planning Development Consultancy Limited, aspecialist planning consultancy firm based in Manchester. The entire team ofseven staff transferred to the Manchester office in September 2004. TheManchester team works closely with London, and has already introduced newclients, including Helical Bar Plc for a major redevelopment project in Cardiffcity centre. The team already works closely with Land Securities Properties Ltdon a number of projects throughout the UK. The Planning division continues to expand, and is now the sixth largest planningconsultancy in the UK according to Planning Magazine's annual survey. Ourcurrent position reflects the high level of professional expertise across ourplanning teams in nine locations. In addition to major developers, landownersand investors, our clients also include English Partnerships and five RegionalDevelopment Agencies. Notable projects last year included a new rail station and transport interchangewith hotel, offices and housing for Network Rail and Kier Group; and an UrbanVillage of 4,000 houses, business and community uses for BP on their redundantLlandarcy Oil Refinery in South Wales. Urban design and environmental impact assessment are major components of ourwork. With a diverse and healthy work stream, we are looking forward to furthergrowth of our planning and urban design teams in 2005. Housing Consultancy The Housing Consultancy department operates from four offices nationally withapproximately 45% of turnover from annual repeat valuations. We continue toincrease the range of advice on offer as our Local Authority and HousingAssociation customers diversify and move into new forms of housing andinvestment. New instructions included asset strategies for six major housingproviders and we are beginning to create opportunities for the regeneration ofrun down housing. Research The Research department continues to provide robust and respected information inthe main property sectors, whilst also exploring new and emerging markets wherelittle or no other analysis has been carried out. The geographical informationfacility within the department developed a new and innovative method ofassessing the rapidly growing market of retirement villages as well asdeveloping a European retail demand model. The Residential Research teamlaunched an innovative new subscription service to clients called 'TheResidential Property Focus'. The Commercial Research team published a majorforward looking project for the British Council for Offices, 'Office Futures',looking at trends over the next 20 years. The European team undertook afeasibility study for a 12m sq ft mixed-use scheme in Cyprus, which is now goingthrough the planning process. The mixed use team continued to innovate in this fast-emerging area, includingdevelopment of a research tool to inform the master planning process byassessing the appropriate quantity and mix of facilities and amenities in a newcommunity and their impact on property and land values. PROPERTY MANAGEMENT The Property Management business continued to show significant growth,generating increased fee income from managing commercial, residential andagricultural properties for owners. During the year, turnover was £63.3m (2003- £57.8m), generating a profit before interest and tax of £4.0m (2003 - £3.9m). Commercial Management Commercial Management grew significantly in 2004, primarily resulting from therecruitment of the Shopping Centre team, who were supported in their move by anumber of key clients including Catalyst Capita, Edinburgh House Estates,Parkwood Asset Management, O&H Properties and PropInvest. In addition, a numberof new clients were won during the year including Morley who appointed Savillsin respect of 64 properties throughout the UK. The client base has also been widened and performance will also ensure organicgrowth. Strong foundations have been laid for the future and there is focus tostrengthen and grow the teams throughout the UK. The Property Management businesses in Asia were able to increase revenue despitecontinued competition and fee cutting. Commercial office rents in Hong Konghave risen significantly which has alleviated pressure on fee levels. Elsewherein Asia, Savills has opened an office in Tokyo and acquired a property and assetmanagement business that had over twenty contracts for a number of largecommercial buildings in Tokyo. Land and Farm Management The major issue affecting the countryside in 2004 was the development of thereform of the Common Agricultural Policy ('CAP'). Savills, with the benefit ofextensive research facilities, have played a major role in commenting ongovernment proposals and worked closely with the CLA throughout the year. Weare now in an unrivalled position to advise clients on the major effects thesereforms will have in terms of both land ownership and agri-business. Governmentregulations and legal requirements in regard to health and safety, insurancecompliance, asbestos regulations and similar issues continue to put burdens onproperty ownership with requirements for greater management input andresponsibility. Opportunities continue to arise from the close correlationbetween the estate management teams and Savills' in-house development andplanning expertise. In line with the restructuring of CAP affecting both the business of landoccupation and land ownership, Savills acquired the remaining minority interestin Aubourn Limited and have integrated this service with their land agencyadvisory management service. They will continue to provide agri-business adviceunder the Aubourn name within the Savills' group umbrella. Our Rural Property Management in the UK, a core part of Savills' growth, wasincreased by the acquisition of Smith Woolley (Oxford and the East Midlands),Colvilles (South West) and Elvy & Co (Ayrshire). The addition of thesebusinesses adds about 265,000 acres of management and consultancy work toSavills' existing portfolio. FACILITIES MANAGEMENT Savills Guardian (Holdings) Limited, our facilities management operation in HongKong, made profits before interest and tax of £1.8m (2003 - £0.4m) on turnoverof £22.5m (2003 - £27.7m). The Hong Kong based facilities management business continued to perform well.Given the integrated offering of our Property Management and FacilitiesManagement business, in the future we will report the figures for FacilitiesManagement with those of our Property Management division. PROPERTY TRADING AND INVESTMENT These sales made a significant contribution in the second half and operatingprofit for the Property Trading and Investment business for the year was £2.0m(2003 - £5.1m) on turnover of £13.0m (2003 - £32.3m) and an additional £8.1mprofit on disposal of investment property. During the year Savills completed the sale of the remaining properties heldwithin the Property Trading and Investment division. As announced on 10 August2004, the sale of Talbot Green Retail Park, Llantrisant generated a profit of£8.1m. Matalan, Leicester Street, Northwich was transferred at market value of£8.5m to Savills Investor Syndicate No.1 LP and 86-88 Above Bar, Southampton wasdisposed of for £2.9m. No properties now remain within the Property Trading andInvestment division. The Group's interest in Managed Office Solutions (GHV), our managed office spacebusiness, continued to develop a strong base and focus on expansion. FINANCIAL SERVICES The Financial Services division is comprised of Savills Private Finance Limited,which provides residential mortgage broking services, commercial debt brokingservices, commercial and private insurance services and associated financialproducts. The division made profit before interest and tax of £3.9m (2003 -£3.9m) on a turnover of £20.1m (2003 - £15.5m). Savills Private Finance is recognised as one of the leading providers ofmortgage finance to the high net worth market covering both residential andcommercial properties. During the year, growth has taken place throughselective recruitment of key staff and the acquisition of Sherwins MortgageServices Limited which enabled the company to enter the affordable housingmarket. The company is now operating from 19 locations throughout the UK. Fund Management 2004 was a milestone year with the Fund Management business being rebranded andrestructured as Cordea Savills. The repositioning of the business and therecruitment of a number of high quality individuals to complement the existingmanagement team, has enabled Cordea Savills to emerge as an importantindependent fund management organisation. As well as the growth of existing funds, a strategic decision has been taken tocreate products specifically aimed at UK private investors. In response to thisdemand, Cordea Savills Wealth Management was created and the first product forthe private investor market, Savills Investor Syndicate No.1 Fund, was launchedin October 2004. A number of further product launches for private investors areexpected during the first half of 2005. Within Europe, Europa Immobiliare No.1was launched in 2004 in a joint venture with local partner Vegagest SGR. Thisfund, advised and managed by Cordea Savills, provides a diversified Europeanreal estate portfolio for Italian private investors. The fund was distributedprincipally by Poste Italiane and equity raised substantially exceeded initialexpectations. In order to support the current and future growth of the business, CordeaSavills has invested heavily during 2004 in infrastructure and people. Furtherinvestment is planned during 2005, which will constrain profits growth in theshort term. However, the success of the business in retaining and growing itshistoric client base, coupled with its successful expansion into new growthareas, bodes very well for the future. Aubrey Adams, Group Chief Executive FINANCIAL REVIEW Results for the year Group turnover increased by 9% from £301.7m to £328.0m. Excluding turnover fromproperty disposals the overall increase was 16%. Group profit before taxincreased from £34.1m to £50.2m and basic EPS increased from 37.0p to 62.2p.Financial highlights for the year: • The Group operating margins, excluding property trading profits, increased from 11.2% to 11.6% in 2004. • Operating losses from acquisitions of £0.4m was attributable to the start-up costs surrounding the acquisitions of Smith Woolley and Harpenden. • Profit from the sale of trading property assets of £2.2m was generated during the period compared to £4.7m in 2003. • Profits of £0.3m arising from associated undertakings during the year compares favourably to the final write down of the remaining goodwill in the Group's associated undertaking Trammell Crow Company Limited (formerly Trammell Crow Savills Limited) to a nil value, together with related operating losses, totalling £1.6m in 2003. • Profits of £0.8m from the disposal of an interest in a subsidiary undertaking arose following the decision to dispose of a controlling stake in Adventis Group plc, which was floated on the AIM in September 2004. • Disposal profits on property investment sales of £8.1m were realised in 2004. Acquisitions and Disposals During the year we have completed a number of acquisitions and disposals ofbusinesses or interests in ventures, both in the UK and overseas including: • On 6 October 2004 Savills (L&P) Limited acquired the Smith Woolley partnership for a consideration of £2.4m. • On 1 October 2004 Savills Private Finance acquired the business known as Sherwins Mortgage Services Ltd for £847,000. • In September 2004, Savills acquired the property management business of GMAC Commercial Mortgage Japan KK, which is based in Toyko, for £651,000. • On 22 December 2004 Savills acquired 51% of the Tufvesson & Partners Fastighetsradgivning AB, a Swedish property consultancy business based in Stockholm, for £953,000. • On 6 July 2004 Savills Commercial Limited acquired a business known as the PDC Planning Development Consultancy Limited based in Manchester for £1,000,000. • On 22 November 2004 Savills Commercial Limited acquired a Leeds based investment team for £909,000. • On 1 July 2004 Savills (L&P) Limited disposed of 26% of its shareholding in Adventis Group plc when the Company was floated on the AIM. Savills (L&P) Limited retains 45.5% of the share capital of the business. Net cash outflow for acquisitions and disposals during the year amounted to£5.7m (2003 - £7.6m). Treasury Activities and Policies The Group's treasury operations are co-ordinated and managed in accordance withpolicies and procedures approved by the Board. They are designed to reduce thefinancial risks faced by the Group, which primarily relate to funding andliquidity, interest rate exposure and currency rate exposures. The Group's financial instruments comprise borrowings, some cash and liquidresources and various other items such as trade debtors and trade creditors thatarise directly from its operations. The Group does not engage in trades of aspeculative nature. Further details of financial instruments are provided in Note 18 to the Reportand Accounts for the year ended 31 December 2004. The Board reviews and agreespolicies for managing each of the above-mentioned risks. These have remainedunchanged during the year under review and are summarised below. Interest Rate Risk The Group finances its operations through a mixture of retained profits and bankborrowings, at both fixed and floating interest rates. Liquidity Risk The Group prepares an annual funding plan approved by the Board which sets outthe Group's expected financing requirements for the next 12 months. At theyear-end, the Group had no debt on which there were fixed or floating interestrates. Foreign Currency Risk Our policy is for each business to borrow in local currencies where possible.The Group does not actively seek to hedge risks arising from foreign currencytransactions due to their non-cash nature and the high costs associated withsuch hedging. Borrowing The Group retains substantial short-term money market facilities with itsbankers of £19m which are currently not utilised. Net Interest Net interest receivable is £1.9m (2003 - £0.2m payable). Higher operating cashflows, increased average deposit rates and the disposal of the entire propertyportfolio during the year together with associated debt, gave rise to thesignificant movement on last year. Taxation The taxation charge decreased to 30.2% of the profit before tax compared with36.4% during the year to 31 December 2003. The lower tax charge mainly reflectsincreased profits from Hong Kong where applicable rates are lower. Minority Interests The minority interest share decreased to £0.2m (2003 - £0.8m) and reflects thatelement of profits due to the majority shareholders for the year 2004 prior tothe disposal of a controlling stake in Adventis Group plc. Earnings and Dividend Basic earnings per share amounted to 62.2p (2003 - 37.0p). Adjusted basicearnings per share excluding sale of trading and investment properties,impairments and amortisation of goodwill amounted to 55.7p (2003 - 37.7p). The Board is recommending a final dividend of 12.5p (net), making 18.5p for thefull year, a 36% increase on last year. In addition, the Board is recommendinga special dividend of 20.0p per share to reflect the profits derived from aseries of one-off property gains during 2003 and 2004 which are unlikely to berepeated. Share Capital During the year ended 31 December 2004, 17,500 shares were issued toparticipants in the Savills plc United Kingdom Executive Share Option Scheme,75,000 to participants in The Savills Executive Share Option Scheme and 375,375to participants in the Savills Sharesave Scheme. A further 55,839 shares wereissued to the QUEST. During the year ended 31 December 2004, 1,410,000 shareswere re-purchased for cancellation. The total number of Ordinary Shares issuedat 31 December 2004 was 60.5m (2003 - 61.4m). Since the year-end, 100,000shares were re-purchased for cancellation as at 2 March 2005. Cash Flow and Liquidity Net cash inflow from operating activities totalled £56.3m which, after allowingfor cash flows including taxation, dividends, investments and capitalexpenditure (see below), produced a net increase in cash of £23.3m. At 31December 2004, the Group's cash at bank and on short term deposit amounted to£90.1m. This was deposited with banks and financial institutions with topcredit ratings for periods not exceeding six months, to match known outgoings. The Group continues to operate a centralised treasury function, which is not aseparate profit centre but purely provides a service to the operating companies. Fixed Asset Investments and Capital Expenditure cash outflow amounted to£9.3m. Pension Scheme During the year, the Company undertook the required triennial valuation of thePension and Life Assurance Plan of Savills ('the Plan'). Full details of thisare provided in the Notes to the Report and Accounts for the year ended 31December 2004. As a result of this valuation and in order to improve thefinancial position of the Plan and remove part of the deficit, the Company madea lump sum prepayment of £15m into the Plan in 2004. Intellectual Property No value is attributed in the Group balance sheet to internally generatedintangibles such as brand name or intellectual property rights. New Accounting Standards UITF 38 'Accounting for ESOP trusts' In accordance with UITF 38, investment in the Group's own shares, which are heldto provide shares to certain employees under a long term incentive plan throughits Employee Share Ownership Plan Trust (ESOP) are shown as a deduction fromshareholders' funds. Total Shareholders funds as at 31 December 2003 have beenreduced by £1,406,000. This change of accounting policy has been reflected as aprior year adjustment and the corresponding amounts have been restated. The restatement of the prior year figures reduced profit on ordinary activitiesafter taxation by £1,207,000 for the year ended 31 December 2003, reflecting anESOP charge based on the market value of shares at award date rather than costas required by UITF 17 as revised by UITF 38. The cash flow statement has alsobeen restated to show the relevant cash flows in financing rather than capitalexpenditure and financial investment. FRS 17 'Retirement Benefits' Full adoption of FRS 17 issued in November 2000 by the Accounting StandardsBoard which replaces SSAP 24 "Accounting for Pension Costs", has been deferredby the ASB until periods beginning on or after 1 January 2005. In accordancewith the transitional arrangements of FRS 17, certain additional disclosures areincluded in Note 7 of the Report and Accounts for the year ended 31 December2004. The table in Note 7 illustrates that if FRS 17 had been fully in force as at 31December 2004, the net worth for the Group would have been reduced by £14.2m(2003 - £17.9m) as a result of a shortfall in the Plan's funding. The Board isreviewing a number of alternative options for providing employee pensionbenefits due to the increasing economic risk and uncertainty that determine thepension valuations going forward. International Financial Reporting Standards (IFRS) International Financial Reporting Standards (IFRS) will be applied, as requiredfor all European listed companies, for our financial year ending 31 December2005. The Group has been working towards implementation of IFRS and is welladvanced in its plan to meet the requirements of IFRS implementation. The Company has extensively reviewed the impact of the applicable InternationalAccounting Standards (IAS) on the reported UK GAAP results for 2004. Thefinancial effects of the relevant changes are not set out in the accounts forthe year ended 31 December 2004. However, the Group can provide guidance as tothe accounting impact of IFRS and the principal areas where IFRS differs from UKGAAP, affecting the Group's results are shown below: • Share-based payments - under UK GAAP, the Group has fully expensed the shares granted based on the market value, such that the annual charge represents the annual award. Under IFRS 2, the Group is required to measure the cost of all share based payments granted since 7 November 2002 that have not fully vested and amortise those over the life of the grant using an option pricing model. The cost of the options charged to the profit and loss account in 2004 will now need to be spread over the vesting period. • Goodwill amortisation - under UK GAAP, the Group's policy is to amortise capitalised goodwill on a straight-line basis over its estimated useful economic life. On transition to IFRS, instead of an annual charge to the profit and loss, an impairment review will be carried out at each balance sheet date. Under UK GAAP goodwill amortisation of £2.9m was charged to the profit and loss account in 2004. • Proposed dividends - unlike UK GAAP, which requires proposed final dividends to be accrued, IFRS only permits recognition of the liability to pay a final dividend which has been approved by the shareholders. This will lead to a one off increase in net asset value. • Pension scheme - the Group will be adjusting the opening net assets for the net pension liability of £14.2m in line with IAS 19 as at 1 January 2005. Robert McKellar, Finance Director SAVILLS plc CONSOLIDATED PROFIT & LOSS ACCOUNT year ended 31 December 2004 Restated (See Note 2) Year Year to 31.12.04 to 31.12.03 Notes £'000 £'000Turnover - Group & share of joint venturesOther continuing operations 316,259 274,015Sale of trading properties 11,356 28,987Acquisitions 2,124 -Less: Share of turnover of joint ventures (1,764) (1,310)Total Group turnover 3&4 327,975 301,692Operating profitOther continuing operations 37,127 30,568Sale of trading properties 2,179 4,714Acquisitions (355) -Group operating profit 3&4 38,951 35,282Share of operating profit of joint ventures 55 30Share of operating profit/(loss) of associated undertakings 5 274 (1,559)Operating profit including share of joint ventures &associated undertakings 39,280 33,753Profit on disposal of interest in subsidiary undertakings 763 -Profit on disposal of interest in associated undertakings 154 -Profit on disposal of investment property 8,094 -Profit on disposal of investments - 521Profit on ordinary activities before interest 3&4 48,291 34,274Net interestGroup 1,870 (208)Joint ventures 4 (2)Associated undertakings 28 (7)Total net interest 1,902 (217)Profit on ordinary activities before taxation 3&4 50,193 34,057Taxation on profit on ordinary activities 6 (15,168) (12,409)Profit on ordinary activities after taxation 35,025 21,648Equity minority interests (250) (838)Profit for the financial year 34,775 20,810Dividends paid & proposed 7 (21,359) (7,584)Profit for the financial year transferred to reserves 13,416 13,226Basic earnings per share 8(a) 62.2p 37.0pAdjusted basic earnings per share excluding sale oftrading & investment properties, impairments andamortisation of goodwill 8(b) 55.7p 37.7pDiluted earnings per share 8(a) 56.5p 34.1pDividend per share 7 38.5p 13.6p SAVILLS plc CONSOLIDATED GROUP BALANCE SHEET at 31 December 2004 Restated (See Note 2) 31.12.04 31.12.03 Notes £'000 £'000Fixed assetsIntangible assets 44,449 36,021Tangible assets 12,732 26,762Investments Investments in joint ventures Share of gross assets 1,472 901 Share of gross liabilities (730) (361) 742 540 Investment in associated undertakings 2,082 280 Other investments 3,834 1,427Total investments 6,658 2,247Total fixed assets 63,839 65,030 Current assetsProperty held for sale - 8,081Work in progress 2,666 2,801Debtors Prepaid pension contributions 13,763 - Other debtors 91,473 82,074 105,236 82,074Cash at bank & short-term deposits 90,056 71,871 197,958 164,827Creditors - amounts falling duewithin one year (144,184) (103,753) Net current assets 53,774 61,074Total assets less current liabilities 117,613 126,104 Creditors - amounts falling dueafter more than one year (3,384) (19,521)Provisions for liabilities & charges (11,320) (10,306) Net assets 102,909 96,277 Capital & ReservesCalled up equity share capital 3,026 3,070Share premium account 43,114 42,237Capital redemption reserve 177 107Profit & loss account 2 56,434 50,301Equity shareholders' funds 102,751 95,715 Equity minority interests 158 562Related Shares:
Savills