Final Results

14th Mar 2007 07:01

Savills PLC14 March 2007 OUTSTANDING SET OF RESULTS FOR SAVILLS Savills plc, the international property consultant, today announces its resultsfor the year ended 31 December 2006. Financial Highlights Underlying results Underlying Group profit is calculated by adjusting reported profit before tax todeduct profits on disposals of £5.1m (2005 - £0.4m) and share based paymentadjustment of £6.1m (2005 - £1.9m) and add back amortisation of intangibles andimpairment of goodwill of £1.8m (2005 - £0.9m). • Underlying Group profit before tax up 31% to £75.0m (2005 - £57.2m). • Underlying revenue up 38% to £517.6m (2005 - £373.9m). • Underlying basic earnings per share from continuing operations (based upon underlying Group profit) up 23% to 40.8p (2005 - 33.3p). Reported results • Revenue up 38% to £517.6m (2005 - £373.9m). • Group profit before tax up 44% to £84.4m (2005 - £58.6m). • Basic earnings per share 46.3p (2005 - 33.6p). • Proposed final dividend up 38% to 11p per share (2005 - 8p). • Shareholders' funds £212.8m (2005 - £168.3m). • Cash and cash equivalents £124.1m (2005 - £99.9m). Peter Smith, Chairman of Savills plc, commented: "The commercial and residential markets remain strong and in the absence of aglobal economic downturn, we are confident that we will continue to make goodprogress in 2007." ***Chairman's Statement, Group Chief Executive's Review of Operations and Finance 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 Executive Citigate Dewe Rogerson 020 7638 9571Sarah GestetnerGeorge Cazenove There will be an analyst presentation today at 9.30 am at 25 Finsbury Circus,London EC2M 7EE. Chairman's Statement Results 2006 was an excellent year for Savills and I am pleased to report an outstandingset of results following strong performances from our operating businesses. Underlying results Underlying Group profit is calculated by adjusting reported profit before tax todeduct profits on disposals of £5.1m (2005 - £0.4m) and share based paymentadjustment of £6.1m (2005 - £1.9m) and add back amortisation of intangibles andimpairment of goodwill of £1.8m (2005 - £0.9m). • Underlying Group profit before tax up 31% to £75.0m (2005 - £57.2m). • Underlying revenue up 38% to £517.6m (2005 - £373.9m). • Underlying basic earnings per share from continuing operations (based upon underlying Group profit) up 23% to 40.8p (2005 - 33.3p). Reported results • Revenue up 38% to £517.6m (2005 - £373.9m). • Group profit before tax up 44% to £84.4m (2005 - £58.6m). • Basic earnings per share 46.3p (2005 - 33.6p). • Proposed final dividend up 38% to 11p per share (2005 - 8p). • Shareholders' funds £212.8m (2005 - £168.3m). • Cash and cash equivalents £124.1m (2005 - £99.9m). Dividends In the five years to 31 December 2006 reported earnings have increased by anaverage of 33% per annum and dividends by an average of 27% per annum. Thisyear the Board has recommended an increase in the final dividend of 38% to 11pper share to those shareholders on the register on 13 April 2007, payable on 15May 2007. This gives a total ordinary dividend for the year ended 31 December2006 of 16p (2005 - 12p), in line with our current progressive dividend policy. Major acquisitions During 2006, we continued to grow our range of services though the hiring ofindividuals and acquisition of businesses in the UK, Europe and Asia Pacific.Of particular importance was the acquisition of a 55% holding in Korea AssetAdvisors and BHP Korea, which reinforces our position in this region. We alsoacquired Hamilton Osborne King in Ireland which was later rebranded as SavillsHamilton Osborne King, opening a new market to Savills as well as reinforcinglinks with Irish investors. Trammell Crow Company (TCC) As a result of the acquisition of TCC by CB Richard Ellis Group (CBRE), ourassociation with TCC ended and shortly after the year end their 19.2% holding inSavills was placed in the market. Share buyback programme and share split At the last Annual General Meeting shareholders gave authority for a limitedpurchase of Savills shares for cancellation of up to 10% of the issued sharecapital. During the year ended 31 December 2006, no shares were repurchased forcancellation under this programme. On 11 January 2007, coincidental with theplacing of the shares previously held by TCC, we purchased 3.5m shares forcancellation. The Company may make further purchases of shares under thisauthority up to the Annual General Meeting to be held on 9 May 2007. As in previous years, shareholders will again be asked to consider a resolutionto approve the repurchase of shares. This is outlined in the Notice of AnnualGeneral Meeting which will accompany the Report and Accounts for the year ended31 December 2006 and which will be distributed to shareholders at the beginningof April 2007. At the Annual General Meeting on 10 May 2006, the shareholders passed aresolution that the existing ordinary share capital of the Company be split;each existing 5p ordinary share was divided into two new ordinary shares of 2 1/2 p. Board and staff Since the last Report and Accounts, a number of changes have been made to theBoard. First, following the acquisition of TCC by CBRE, the two TCC nominatedDirectors, William Concannon and Derek McClain, resigned with effect from 20December 2006 and the entitlement by TCC to retain a Director on the Boardlapsed. Secondly, as planned, a new Non-Executive Director has been appointed.I am delighted to welcome Martin Angle, who was appointed as a Non-ExecutiveDirector with effect from 2 January 2007. We welcome the experience he willbring and the contribution he will make to our discussions. Details of theBoard, its Committees and their composition are outlined in the Report andAccounts for the year ended 31 December 2006. The Board currently comprises a Non-Executive Chairman, four IndependentNon-Executive Directors and five Executive Directors, which the Board considersis an appropriate balance and meets the present needs of the Group. TheNon-Executive Directors have a wide range of business experience and expertiseand provide a strong independent element to the Board. However, the Board willkeep under review the need for any changes. Savills' continued growth is a result of the committed and dedicated efforts ofour people whose continued ability to provide a professional service to ourclients is the basis for the excellent results achieved; I thank them all fortheir contribution. Our reward system, which is essentially based on teamprofit performance, is an important mechanism in providing a balance between theinterests of staff and shareholders and is more fully described in theRemuneration Report in the Report and Accounts for the year ended 31 December2006. Outlook The commercial and residential markets remain strong and in the absence of aglobal economic downturn, we are confident that we will continue to make goodprogress in 2007. Peter Smith, Chairman Group Chief Executive's Review of Operations & Financial Review 2006 was a year of achievement; we delivered an excellent financial performance,expanded our range of global property-related services and comprehensivelyreviewed our strategy. Pre-tax profits increased from £58.6m to £84.4m. Underlying pre-tax profitsincreased from £57.2m to £75.0m. Underlying profit is calculated by adjustingreported profit before tax to deduct profits on disposals of £5.1m (2005 -£0.4m), share based payment adjustment of £6.1m (2005 - £1.9m) and add backamortisation of intangibles and impairment of goodwill of £1.8m (2005 - £0.9m). In the UK, we saw exceptional performance, exploiting the opportunities ofrising commercial and residential markets. Acquisitions and organic expansionbrought new teams and new expertise into our commercial capability. We alsoexpanded our residential teams and partnered with major clients on a number ofvery significant projects. In Europe, the main focus of our business was investment, where we expanded ourservices in all areas. Increased economic activity and renewed confidenceacross the region created a number of opportunities which were capitalised uponby our teams. In Asia Pacific, we recorded 38% growth in revenue with a significant increasein profitability; 48% of the growth was attributable to our acquisition inKorea, while the remainder was largely due to organic growth in existinggeographical and service lines of business especially in our Property andFacility Management businesses. This achievement was generated against abackdrop of various investments made during the year, including new offices,recruitment and infrastructure projects. Group Strategy Context and Vision Over the past five years, we have delivered outstanding growth in totalshareholder returns, achieving a total return of 898% compared with a return of117% provided by the FTSE 250 and 233% provided by the FTSE All Share RealEstate Index. Recognising the need to sustain this high level of growth, theBoard undertook a Strategic Review during 2006 to map the path for the businessover the next five years. Our vision is at the heart of this new strategy: "To become one of the leading providers of real estate services in all of themajor markets of the world". By doing so, we aim to deliver superior total returns to shareholders comparedwith our peers. Through this combination of market leadership and financialsuccess, our aim is for Savills to be the employer of choice for outstandingindividuals. The market for real estate services There is no doubt that our core customer groups still value expertise, localknowledge, our breadth of experience across the disciplines, innovation,professionalism and high calibre individuals. Building strong local businessesand offering this local expertise and experience remains central to ourapproach. However, we are also seeing an increasing requirement from ourcustomers to support them across borders, this is particularly true of propertyinvestors, for whom we are increasingly handling multinational assignments. The competitive environment is also evolving, with more competitive tenderingfor business than ever before. Savills is strong in many markets, withleadership positions in the major cities of the UK and Ireland, Hong Kong andother areas of Asia. However, we recognise the need to achieve strongercompetitive positions elsewhere. We will focus our efforts on other majorcities in Europe, Asia and the US, in large economies that have the strongestdomestic real estate markets and which are important sources/destinations forreal estate investment flows. In these cities, Savills will be building scale,service, breadth, brand recognition and team strength. Excellent people remain at the heart of success in this market. The "war fortalent" is more intense than ever before, and the need to reward and retain keyindividuals is vital as competitors recognise the quality of Savills people, ourdistinguishing asset. We have a unique culture that is the envy of ourcompetitors and we will do everything we can to ensure Savills remains the mostattractive place to work in the industry. Investment markets in which we are already the leader remain central to thesuccess of Savills' business model. However, uncertainty remains over futureeconomic growth in mature markets, reinforcing our need to develop furthernon-transactional sources of revenue and to diversify geographically. The Savills Strategy The strategy revolves around five key objectives: • To invest in teams of excellent people, achieving scale and brand recognition in the major cities of the world. • To serve investors, developers, and occupiers in those major cities, from a broad range of regional platforms including investment brokerage, valuation, leasing, development and property/asset management. • To continue to grow our leading positions in the UK, Ireland, Hong Kong and parts of Asia, as well as growing our business in other major financial and institutional locations. • To exploit our depth of real estate expertise and market leadership through improving and growing our fund management business, Cordea Savills, and our financial services business, Savills Private Finance. • To increasingly invest in the Savills business and brand to ensure the long-term sustainability of earnings, whilst maintaining a focus on short-term financial returns. Measuring success: At Savills, we have a long history of maintaining a sharpfocus on profit and financial measures will continue to be of greatestimportance. However, we will also be introducing new measures to help review progressagainst our strategic objectives. These will include a combination of peopleand organisational measures, customer and market leadership measures, andoperational measures. Achievements in 2006: There have been numerous highlights of the past 12 months,some of which are documented in the Report and Accounts for the year ended 31December 2006. In the UK, we achieved our programme of expansion into the retail sector bycompleting the acquisition of Blair Kirkman LLP and we now offer an extensiverange of retail experience. In Europe, we successfully established our Munich office and completedrecruitment for the opening of our office in Hamburg. We also recruited keydirectors into investment and valuation for our Netherlands operation. TheHungarian business was successfully incorporated with our Budapest office now upand running. The acquisition of Hamilton Osborne King in Ireland promises to be a successwith an increased European network for Irish business to access and greatercontact for our European and UK investment clients to Irish money. In Asia, we acquired a 55% stake leading Korean businesses, Korea Asset Advisorsand BHP Korea, to establish a market leading presence in Korea. Priorities for 2007 and beyond: Geographically, we aim to expand and believe there is considerable scope forthis expansion in Europe. There are initiatives in place to grow and broadenthe domestic UK, Irish, and German businesses, followed by Italy, Spain andFrance. There is also scope for expansion in Asia, and the short termpriorities for building broad-based domestic businesses include Japan, HongKong, Singapore, Seoul, and major cities in Greater China. In addition, severalnew offices are planned across the European and Asian regions to enhance ourcross-border investment position and to establish an initial presence. The US is a top priority, especially following the termination of the AllianceAgreement with Trammell Crow Company now that the acquisition by CBRE iscomplete. A number of options are presently under consideration including thepotential to acquire one or more established businesses. Having invested in infrastructure within Cordea Savills, we are now confidentthat it will deliver solid growth through the launch of several new funds. Wewill also be driving closer co-operation between SPF and the UK commercial andresidential businesses, which should enhance its performance. Our organisation and brand are key to the way in which we will deliver ourstrategy. Looking ahead, we will be upgrading the HR strategy for the business,to ensure we have the right mix of skills and capabilities in the business as wecontinue to grow. Marketplace Overview UK The year's major story in the UK commercial market was the return of upwardrental growth in the office market, on the back of a recovery in tenant demandin London and the South East. Following the downturn in 2001-2003, tenant demandhas returned to, or exceeded, average annual levels. This demand has drivenvacancy rates downwards which has had the effect of driving rental growthupwards. Rising rents have prompted renewed interest from developers in these markets,following several years where activity has been lower than average. Tenant demand in the industrial and warehousing markets remains steady,particularly for large distribution schemes in the Midlands and around the M25. Whilst challenging trading conditions continued through 2006, retailers havenevertheless continued to expand. Retailer demand is increasingly focused onthe best locations, and this favours prime shopping centres, retail warehouseparks and high streets around the country. 2006 was another strong year for investor demand and we estimate that the levelof investment in UK commercial property was broadly in line with 2005's recordlevel. Around 30% of the purchases of UK commercial property in 2006 were bynon-domestic investors. Investor demand continued to drive up prices. Yields inall the UK markets that we monitor ended the year at or close to record lows. Looking ahead we expect similar conditions to prevail in 2007. Tenant demand inthe office and industrial markets is likely to stay at or slightly above averagelevels due to an improving macro-economic environment. Retailers will continueto be cautious in their expansion plans as consumer confidence stays low.Although we anticipate that retailers will look to open new outlets, this demandwill be highly location specific. Investor demand for commercial property is likely to remain high over the next12 months, with both domestic and international investors still showing interestin the asset class. The introduction of REITs to the UK in 2007 may wellincrease this interest in the sector, leading to further upward price movement.In terms of the leasing and development markets, we expect that the CentralLondon office market will continue to show the strongest rental growth andreturns. UK residential markets were also strong during 2006. Despite higher interestrates, price growth approached 10%. London and the South East were thestrongest markets; most notably prime Central London markets, where prices grewby an average of 24%. Recent surveys of asking prices, new sales instructions and buyer enquiriesindicated positive sentiment in mainstream markets, leading up to January'sincrease in interest rates; but thereafter there has been evidence of more buyercaution. At this stage we see no reason to alter our expectation of a 7%increase in UK house prices during 2007. The main issue in most marketsconcerns purchasers' perceptions of where interest rates will be by theyear-end. If expectations are of a further 25 basis point rise to 5.5%, with nofall thereafter, then households are likely to rebuild incomes, reducing theirspending on housing. This will lead to lower turnover and price growth.However, we do not expect price falls, as the interest rate trigger for suchmarket behaviour is likely to be above 6% and possibly as high as 7%. Driven to a great extent by City bonuses and overseas purchasers, the top endprime markets are less sensitive to the cost of borrowing. With last year'sCity bonuses fuelling demand and global economic growth set to continue, weanticipate at least another year of high price growth in prime markets, assumingthat current uncertainty in financial markets is a short term issue. Longerterm, barring an unexpected economic shock, the top end prime markets seemlikely to show continued growth. Whilst the new homes markets are still driven by overall housing scarcity at anational level, the way in which new housing supply is being delivered to themarket has created imbalances. This means that some local markets have reachedsaturation and developers must know their markets well in order to deliver theright product type and fully target all new demand. Europe Improved economic activity and the upturn in employment growth translated intohigher tenant take-up levels in most European markets in 2006. The imbalancebetween demand and supply is gradually being restored and vacancy rates areslowly falling in most markets. Prime rental growth has accelerated during thecourse of the previous year: we estimate that it reached 10% on average at theend of 2006 across the main European central business district markets. The level of demand for modern warehouses remains high, driven by the growth oftrade and logistics activity in Europe. Consolidation is creating large scalerequirements, with demand focused around the main conurbations, airports, portsand motorways. However, new locations are emerging as occupiers look to balancecost, availability of labour and accessibility. We have seen rental valuesincrease mainly in those areas where demand exceeds supply. The predictions for strong labour market conditions in Europe in 2007 and animproving economic climate support a positive outlook for the property sector.As market fundamentals recover, developer interest is renewed, driven by theanticipation of higher demand and positive rental growth. The expansion of large international retailers in Europe goes hand in hand withthe expansion of out-of-town retail concepts, which are still underdeveloped ina number of European countries, especially the recent entrants to the EuropeanUnion. The projections for strong consumer spending growth and the swift movetowards new shopping habits in these regions offer an attractive environment fordevelopers and investors. We experienced significant yield compression in 2006and this should continue in 2007. Investor demand was also strong in all markets but in particular for offices andwarehouses due to the perception that the leasing markets are improving orlikely to improve soon. There is an evident yield convergence, especiallyacross the prime commercial markets. Furthermore, we have seen strong investorinterest in more specialist asset classes. We expect European property to remain high on the agenda of many investmentmanagers in 2007, despite the limited supply of product. The introduction ofREITs in the UK and Germany should also drive the growth of the listed sector,offering a wider spectrum of options to investors. Prospects for further yieldcompression are more positive in developing markets and locations with goodrental growth prospects. Asia Increasing maturity in the China real estate market will offer opportunities forinvestment sales and purchase fees. However, frequent intervention by thegovernment into the property sector, either by increasing property taxes orrestrictions on available credit for property lending, may reduce investorattraction. According to the Asian Development Bank, Asia reported growth of 7.7% in 2006,marginally above the 7.4% recorded in 2005. Growth drivers included Europeanand US demand for exports as well as increasingly significant levels of domesticconsumption and intra-regional trade. Japan began to turn around in 2006 whileChina and India continued to enjoy growth rates of more than 8%. Strong growthis forecast for 2007, supported by intra-regional trade, domestic consumptionexpenditure and foreign direct investment, factors which will continue to drivethe regional economy even if the US were to experience a soft landing. Many of Asia's major office markets reported exceptional levels of occupierdemand in 2006 at a time when supply of prime office space has proved to belimited. The result has been rapidly rising rents in Singapore, Hong Kong,Tokyo and Shanghai and this trend is expected to continue into 2007. Costincreases in some of these markets are prompting tenants to look to non-coreoffice locations to accommodate all or part of their operations. In Beijing andSeoul, relatively high levels of new Grade 'A' office supply in 2007 should capany rental upside for the time being although high rates of pre-commitment inSeoul suggest that there may be room for some growth. In the residential markets, fortunes were mixed. In Japan, a broad based andstable recovery should continue to underpin demand for housing and prices shouldmake steady progress in 2007. In Hong Kong, after two years of modest growth,values look set to put in a strong performance over the next 12 months,especially as salary increases and bonuses feed through into the marketplace.Singapore has made remarkable progress and the residential market is booming,especially at the top-end. In Mainland China, the government's efforts to coolthe housing market have succeeded in moderating price rises and coolingsentiment, while strong economic growth should render any major price correctionunlikely. Slower economic growth combined with tough new government measuresshould see the residential market in South Korea cool over 2007. Robust economic growth, rising household incomes, more leisure time andgenerally positive population growth rates are all factors which have benefitedthe Asian retail economy over recent years. International retailers continue tomake in-roads into new markets while developing markets continue to experimentwith new retail formats. Intra-regional tourism is having a significant impacton consumption patterns in some areas as Mainland Chinese flood into Hong Kongand Macau, and Japanese travellers re-visit the region. After two or threeyears of rapid rental growth, however, markets such as Hong Kong and Seoul areshowing signs of exhaustion while supply-demand imbalances have caused retailrents to stabilise in Beijing and Shanghai. US US GDP has been following the global trend with a 3.3% growth rate in 2006 andan expected 2.3% expansion in 2007. Going forward, major economic indicatorsare predicted to remain stable with slight increases in unemployment andinterest rates expected in 2008 and beyond. 2004 and 2005 saw record capital inflow into commercial real estate. Despitethe sentiment of a cooling US investment market, office property sales increasedby 33% to $134bn in 2006 and over $307bn of commercial real estate transactionvolumes were reported 2006 (source: US National Association of Realtors).Performance is closely tied to the general health of the economy, and as aresult the market has experienced stable growth in the past two years as theeconomy recovers from the burst of the high-tech bubble and September 11. Thecurrent health of the commercial market is reflected in rising net absorption,falling vacancy rates and increases in rents in the office, industrial andmultifamily sectors. Commercial real estate markets are expected to continue togrow and individual sectors in many areas are seeing tighter vacancy rates andhigher rents. Segmental reviews Operating Operating Revenue 2006 Revenue Profit 2006 ProfitSegment 2005 Change 2005 Change Transactional advice £247.2m £166.9m +48% £48.6m £32.2m +51%Consultancy £98.8m £71.9m +37% £16.4m £12.8m +28%Property & FacilitiesManagement £137.2m £104.5m +31% £9.9m £7.5m +32%Financial Services £26.9m £25.8m +4% £4.0m £4.3m (7%)Fund Management £7.2m £4.7m +53% £0.8m £0.6m +33% Transactional advice 2006 2005 Change Revenue £247.2m £166.9m +48%Operating profit £48.6m £32.2m +51% Our Transactional Advice business stream comprises commercial, residential,agricultural agency and investment. Marketplace Investment markets are becoming increasingly global, with cross bordertransactions becoming more and more significant. This is the driving rationalebehind having regional investment platforms, entering the US market and openingoffices in secondary cities. Our Investment teams across the UK reported continued interest from investors inall property sectors with the biggest challenge being a lack of qualityinvestment stock. We believe the advent of REITs will be a positive move forthe industry as companies transferring into REITs will wish to trade assets tosuit their new status. Certainly, there is likely to be increased interest inthe regions as investors look beyond London due to the continued pressure onyields in the capital. As office and retail yields compress, investors are now focusing on other assetclasses such as healthcare, leisure and logistics. It is likely that in 2007 wewill see a widening of the yield gap between prime and secondary stock. An increased presence and strength in the industrial and logistics markets isenabling us each year to gain share in this expanding market. There is continuing demand from investors both at UK and international level forall types of investment products and continuing demand from occupiers aseconomies improve. In the residential agency market, the year started with great confidence. TheCity was buoyant and we saw a continuation of the strong market which hadstarted in the second half of 2005. In Central London, 42% of our buyers workin the finance sector and 56% are under the age of 40. In addition, 25% of ourbuyers in London are international purchasers and two-thirds of these arelooking to spend in excess of £4 million. The market remained confidentthroughout the year, leading to an excess of demand over supply which forcedvalues even higher. In Central London, the market for prime properties rose by24%, taking our average sale price to £1.45m. The new homes market strengthened through the year, particularly in London wherea shortage in supply of second-hand sales resulted in higher prices. Certainprovincial cities showed signs of oversupply with marketing incentives requiredto move stock. The farmland market strengthened in 2006 with demand from lifestyle purchasersforcing prices up by 15% to an average of £2,690 per acre. The total area ofland marketed (180,500 acres) increased only slightly over the previous year(175,700 acres) so lack of supply continued to support prices. In Asia Pacific, markets remained very competitive and the challenge to retainand recruit the best talent in the market was fundamental to the on-goingsuccess of the business. Key achievements of 2006 Our Transactional Advice business stream saw many highlights during 2006 withkey achievements recorded in all areas of the business. 2006 was another strong year for the Commercial Investment team across the UK.The year saw the team advise on transactions involving in excess of £10bn ofcommercial property, an increase in excess of 25% on 2005, cementing the team'stop three ranking by revenue amongst agency practices in the UK. Notable transactions included the Retail Warehousing Investment team advising onthe disposal on behalf of Hercules Unit Trust and Bank of Ireland PrivateBanking of Gallions Reach Shopping Park, Beckton to Standard Life for £208m. InBrighton, the Business Space Investment team advised Irish Life Assurance plc onthe £69.2m acquisition of City Park, a new business park let to Legal & General. In the West End, the Central London Investment team advised Henderson'sCentral London Office Fund on the £127.4m acquisition of Belgrave House, asubstantial office building let to Google, American Express and BAA Plc. During the year, our UK Residential business acquired Buckleys in Clapham, toenhance our coverage in South West London. In December, we acquiredChesterfield, a practice based in Knightsbridge specialising in the top end ofthe prime Central London market. We also opened new residential offices inTruro, Reigate, Haywards Heath, Bury St Edmunds and Locksbottom as well asexpanding many of our existing teams. Across both the London and Countrysectors, we sold 4,236 second-hand units, a 32% increase on the previous year,including the sale of 66 properties over £5m. Among the most notable sales wasa house in Eaton Square which had a guide price of £20m and Bignell Wood nearLyndhurst in Hampshire which once belonged to Sir Arthur Conan Doyle. The Residential Investment team was consolidated during the year, enabling us toextend our wide range of professional and transactional advice to anever-increasing mix of clients interested in residential products as an assetclass. The Residential Investment team was particularly active in forwardselling off-plan student and residential investment opportunities. Highlightsincluded the disposal of an entire scheme of over 100 residential units onbehalf of Bellway Homes plc and forward selling over 2,500 student bed spacesfor various specialist developers. Our purchasing advice business, Prime Purchase, which operates independently,recorded its fifth year of sustained growth. New offices were established inDorset and Oxfordshire. The average length of search fell to four months inLondon and seven months in the Country, with over half of the properties boughtfor clients secured before they were advertised. A key achievement was theacquisition of the 365 acre Alderley Estate in Gloucestershire. From 22 New Homes offices we sold 4,790 units for £2.1bn and new sales weresecured in London on properties worth in excess of £1.6bn. Sales of new homesincluded off-plan sales of all eight houses at Phillimore Square for prices inthe region of £10m. The entire development, including 35 apartments, was soldwithin six months of completion. Our recent investment in the Auction business produced encouraging earlyreturns. In the first full year's trading, the Commercial and Residential teamsproduced sales of £412m, up from £278m in 2005. This comprised 1,171 lots sold,with an average success rate of 87% and an average lot size of £352,000. Thesefigures place us as the third largest auction house in the UK. Although the Residential business is now mature, it nevertheless produced salesof £215.8m, up from £177m last year. We sold 800 lots and achieved an averagesuccess rate of 89% and an average sale price of £270,000. Many HousingAssociations and Local Authorities use our auctions services as a successfulsales method. The Nottingham Auction team raised sales to £22.3m from £12m in2005. This comprised some 121 lots sold and an average lot price of £184,000. In 2006, our Affordable Housing team advised a number of residential andmixed-use developers, helping them to optimise affordable housing obligationsdriven by evolving planning policy. We assisted Development Securities plc on aplanning application for a mixed-use scheme at Oriental City in the LondonBorough of Brent and assisted in justifying the level of planning contributionmade for the scheme. Our Leisure business provided valuations of the Bannatyne Fitness and LivingwellPremier Health Club chain following acquisition of 24 Livingwell Premier Clubsby Bannatyne for approximately £90m. The combined portfolio comprised 61 clubswith a value in the region of £250m. Our Farmland business marketed 17.5% (31,823 acres) of land marketed in the UKconsolidating our market-leading position. The influx of foreign money into theUK continued with Danish farmers buying over 9,700 acres at a cost of around£34m over the last 12 months. In Asia, we opened an agency office in Bangkok in 2006, recruiting a team of tento conduct commercial and residential agency operations in the city as well asin the coastal resorts of Phuket and Koh Samui. In July 2006, Savills acted for an offshore Korean fund to acquire Hopson Tower,an 87,000 square metre office development in Shanghai for US$300m and believedto be the largest single asset transaction undertaken to date in mainland China. We are beginning to see the signs of a developing market for commercialproperty sales both to private and institutional buyers, and our Capital Marketsteams in Beijing and Shanghai are well-placed to take market share as thedisposition activity gathers pace. We also opened new offices in China, inChengdu and Tianjin. In Hong Kong, our Capital Markets team were responsible for concluding overHK$10.8bn worth of commercial real estate transactions during 2006. The teamhave an enviable reputation in the marketplace, being responsible for between35-50% of all known deal flow in the Hong Kong market, irrespective of whetherit is whole bloc site, collective sales, retail or office/industrial. In Japan, considerable organic investment was undertaken. We recruited alandlord leasing team of 12, opened a new serviced office in Osaka and also amajor high street residential office in a key high-value ward in Tokyo. In Australia, our senior management team was rebased and this incurred somesignificant restructuring costs. Our Sydney business also moved office andsecured the services of a 'Strategic Project Delivery' team during the year.Our Perth office managed the off-market sale of a private portfolio for a totalof AUS$465m. Future plans Following our strategy of the last two years to strengthen our Investment andAgency teams through targeted recruitment, we continue to focus on ensuring thatwe have a breadth of outstanding expertise across all sectors to meet clientneeds. High on our agenda is to establish an investment business in the US, where weare reviewing a number of options. We also aim to add further specialist investment services, including additionalrecruitment to our Private Client department. This business experienced anexceptional year in 2006 and we see a clear opportunity to improve our servicein what is an increasingly important and expanding market. Following the exceptional performance of the Investment teams in our eightestablished European markets, our strategy is to continue growth via recruitmentand to use our reputation and market share to improve brand recognition andstrengthen our European presence. In 2007 we are aiming to expand our Corporate Finance capability, workingclosely with our existing transactional teams. We will continue to be involved in the most exclusive developments, an exampleof which is One Hyde Park, on behalf of Candy & Candy, project managers for thescheme. This development will comprise 80 of the world's most sought-afterproperties, many with direct views across Hyde Park. Our Asia Pacific business continued its growth strategy of investment in theregion and will remain focused on the high value real estate markets through2007. Our Hong Kong business continues its objective of organic recruitment andmaintaining its strong market position in investment sales and purchase, leasingand property management services. In South East Asia we will continue to expand our Singaporean business in allreal estate service lines and look to strengthen our brand awareness inIndonesia, Malaysia and the Philippines through associations with the premierlocal real estate service providers. Our most significant objective in Asia Pacific will be to achieve furtherpenetration into major cities in Japan, arguably the most difficult real estatemarket in Asia, through organic recruitment and small scale acquisitions. Thedevelopment of our business in the Japanese market requires taking a long-termview, the significant benefits of which will take several years to materialise. Consultancy 2006 2005 Change Revenue £98.8m £71.9m +37%Operating profit £16.4m £12.8m +28% 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. Marketplace The continuing attractiveness of commercial property as an investment class, aswell as recovery of the office leasing markets throughout Europe led to strongdemand for consultancy services across Europe. Development activity picked upsteadily in 2006 and this combined with strong investor interest in the sector,stimulated demand for building consultancy, planning and valuation services inparticular. During the year there was strong growth in all areas of UK Valuations. 2006 saw positive rental growth returning to the majority of markets, inparticular the West End office market. Key achievements of 2006 Savills' Commercial Valuation Department has been nominated for ProfessionalAgency Team of the Year (Valuation) at the Property Week Awards Ceremony on 17April 2007. We value investment and development properties across thecommercial, residential and mixed-use sectors, both in the UK and Europe. Weact for all the main banks, providing independent valuations for loan securitypurposes and also providing advice to investment banks seeking to acquirefinancial stakes in major portfolios. 800 property lenders attended our annualFinancing Property Presentations in June 2006 in London City, London West End,Manchester, Edinburgh and Dublin, the latter in conjunction with SavillsHamilton Osborne King. Of the development projects valued in 2006, the completeddevelopment values were as follows: 35 exceeded £100m, 15 were between £200mand £500m, seven were between £500m and £1bn and five were above £1bn. Highprofile instructions included: "The Gherkin", One Hyde Park, Middlesex Hospitaland The London Stock Exchange. The year was characterised by extraordinary growth in residential values inprime central London with our Private Bank Valuation team valuing 35 houses andflats with capital values of between £10m and £32m in London and the HomeCounties. The Residential Valuation department in London increased its staff by 30%resulting in a 50% increase in turnover in our Loan Security and Landlord andTenant business. The key strategy of this department is to develop teams ofindividual specialists across the business. This has resulted in retention asvaluers to a number of the national house builders, such as Ballymore PropertiesLimited where we work on their London residential schemes. Commercial Building Consultancy with principal offices based in London,Manchester, Birmingham and Glasgow continued to expand throughout 2006. Eachoffice continued to recruit senior high calibre staff in order to focus on highvalue projects. The Technical Due Diligence and Project Monitoring team were particularly activein Europe in the last 12 months having advised on over 20 property portfolios,comprising offices, retail and care homes in excess of 1.8m sq m and over €2.5bnin value, in nine European countries. The largest single property was theCevahir Centre in Istanbul, one of Europe's largest shopping centres. Inaddition to the European work, we have been active advising investment clientson new build retail schemes at White City and Victoria Square Belfast, twoLondon landmark office buildings and two student housing schemes. Otherprojects included Triton Court and Milton and Shire House in the City of Londonfor PropInvest and Beacon Capital respectively and major portfolios of hotels,car showrooms and restaurant chains. Landlord & Tenant with teams in London (City and West End) and throughout thecountry has continued to win a plethora of high profile instructions in theoffice, retail warehouse, retail and industrial sectors. In 2006, we represented over fifty landlord clients in the out of town retailsector and acted on over 3m sq ft. We were also retained on some of the highestvalue single let office properties throughout Central London and having one ofthe most senior and established teams in this niche specialisation, are wellplaced to capitalise upon the enhanced rental growth predicted within not onlyCentral London but also the provinces. Our expertise in this specialisation was complemented during the year by thecorporate acquisition of Blair Kirkman and with that the synergy of anestablished and highly respected team with a bias towards the high street,shopping centres and food stores. We now have one of the most senior andexperienced Landlord and Tenant teams in the Country and with leadingspecialists to cover all sectors. The Lease Management team provided strategic dilapidations advice on 1.5m sq ftof dilapidations and expert instructions totalling £31m in value and contractadministered some £2.3m of works. On average, they reduced landlord's claims by66%. On one Romford warehouse they were able to reduce a landlord's £1.7mdilapidations claim by 95%. They advised on 33 new service charge audits andexpert instructions for notable clients such as Mapeley STEPS and AmericanExpress. Our Project Management team was responsible for advising on, and deliveringoffice fit out and refurbishment projects totalling more than 1m sq ft. Theoccupier fit out sector remains buoyant and a key market, however, with thebenefit of the team's extensive experience and broad skill base, their focus andgrowth is towards larger scale refurbishment and redevelopment projects onbehalf of landlord, developer and investor clients, where value enhancement fromgrowing levels of second hand stock is absolutely crucial towards realisingmaximum return. The Industrial Building consultancy has continued to expand over the past 12months. We have provided specialist pre acquisition and project managementsupport for our leading developer clients on over 3m sq ft of new distributionspace. We have also provided due diligence and asset monitoring for a range offunds across 2.5m sq ft of industrial development. Our principal clientsinclude Gazeley, Helios Properties, MetLife Investments, Mothercare and TerraceHill. In the social housing sector, our specialist Stock Condition Survey andProcurement Advice team had another busy year carrying out a record number ofsurveys and substantially increasing our market share. The sector looks set toremain buoyant and we are well placed to continue to expand our business in thisspecialist area. During the year, we expanded our Capital Allowances team to take advantage ofthe strong investment markets. The telecoms sector continues to dominate our Strategic Projects business. Weare rolling-out the mobile phone operators' networks in spite of the muchpublicised uncertainty at the take-up of the technology. As the sector matures,operators are focusing on identifying opportunities to reduce expenditure. Forexample, we have been awarded a three year project by Siemens to reduceVodafone's BT fixed line rental costs. The second main contributor to ourStrategic Projects business is landowner liaison work. We work with bothScottish and Southern Energy Ltd and EDF Energy, helping their constructionteams refurbish high voltage overhead lines. A complex mix of overall housing scarcity and localised market saturation isproving to be fruitful ground for our Residential Market Research consultancy,with most of our investor and developer clients now insisting on research aspart of a total advisory service. In fact in some cases, scheme funding dependson research. Our Planning teams based across the UK also achieved a record year, advising ona wide variety of projects across the UK. Our London based Planning teamhandled several high profile development projects, among them the Arsenalregeneration scheme which has won several awards, including RegenerationMagazine's Best Mixed Use Project in 2006 and the Mayor of London's Award forPlanning Excellence. In the regions, important successes included theallocation of a 1,200 house urban extension at Andover for Persimmon Homes, andthe securing of detailed planning consent for a flagship regeneration project atOcean Village, Southampton, for MDL Developments. In Housing Consultancy, a key project of 2006 was the strategic asset appraisalof Glasgow Housing Association's 74,000 unit housing stock. Our teams inBristol, York, Birmingham and the City also continued to perform well and werestrengthened by the acquisition of PCA Holdings Limited, a 14 strong specialistteam based in St Albans. Our Research team provided valuable input to Land Securities on the developmentof 10,000 new homes at Ebbsfleet Valley in Kent Thameside. This is a goodexample of the way in which our approach can help the development of largerscale projects. We helped to provide answers to a number of important issuesconcerning the type of environment that can be created at Ebbsfleet, taking onboard the existing housing stock in the area and substantial volumes ofcompetition. We also looked at potential demand and how values could beenhanced by the high quality design aspirations of our client. In Hong Kong and China, the Valuation team of thirty-five which were recruitedin 2005 continued to increase their presence in the Hong Kong, Macau andmainland China markets. During 2006, our Valuation and Professional Services team in Hong Kong wereinvolved in the property valuations associated with the listing of 16 separateIPO and notifiable transactions on the Hong Kong Stock Exchange. Included inthese were the Sunlight REIT, Champion REIT, China Coal and Energy Company andChina Communications Services Company. In Australia, we were appointed by the Australia Post to value their propertyportfolio annually for the next three years. The portfolio comprises 450properties and worth in excess of A$1bn. Also in Australia, the Strategic Project Delivery team has an ongoingappointment for the Sydney Opera House known as the 'Venue Improvement Plan'.This will encompass strategic planning/staging, authority approvals, briefpreparation, detailed design and construction for the NSW State Government. Future plans In line with our new strategy, we will continue to invest in new teams of highquality people who are able to drive our growth. For example, a major newinitiative for 2007 will be the creation of a new pan-European Valuation teambased in London but working closely with colleagues in Europe. This team willexpand our capability in order to meet the growing demand from London basedclients for quality valuation advice in Europe. In the Netherlands, the aim is to develop a recognised due diligence advisorypractice, following on from our success in Sweden. During 2007, we will expand several of our teams into the UK regions, includingHotels Valuation, Capital Allowances and Building Consultancy where we alreadyhave ongoing recruitment plans in operation in Glasgow, Manchester andBirmingham. Our Hotels Valuation capability will also be extended into Europewhere we aim to exploit the increasing demand for professional services. At the start of 2007, we acquired Hepher Dixon, the award-winning nationalplanning and regeneration specialists. With 160 planning and relatedprofessionals operating across 12 offices nationwide, we can integrate planningand regeneration skills with residential, commercial and mixed use propertyconsultancy. Our enhanced environmental, urban design and master planningskills mean that we are well equipped to embrace the new planning policyframework and the emerging sustainable development, energy efficiency andclimate change agendas. The strategy of our Development business is to create strong and diversedevelopment teams which offer both consultancy and agency services. This broadrange of services not only meets our clients requirements in the public andprivate sectors but also provides a sustainable and balanced income stream. For 2007, the Strategic Projects team is looking closely at the renewable energysector and has a contract to roll out a large number of small 2MW plantsthroughout the UK. It is anticipated that as the listed property trust market in Asia gathersmomentum, the need to appoint independent valuation and research consultantswill increase and Savills is well-positioned to secure a substantial share ofthat business. Our Australian and Hong Kong Valuation teams are working closely together toutilise their combined experience in a bid to secure more of the growing listedproperty trust requirement for valuation services. Property and Facilities Management 2006 2005 Change Revenue £137.2m £104.5m +31%Operating profit £9.9m £7.5m +32% Our Property and Facilities Management business continued to grow, generatingfee income from managing commercial, residential and agricultural properties. Marketplace Property management remains a fiercely competitive market sector throughout theUK and Europe. Legislative changes in many areas including Health & Safety andEmployment law ensure that liabilities for managing agents continue to increaseyear on year. Robust commercially practical procedures are required to ensurethese changes do not become onerous for management companies. As yields hardenlandlords' reliance on managing agents' ability to assist with asset managementinitiatives increases as does the need for an agent to be able to accommodateportfolios including holdings across Europe, not solely in the UK. The Rural Management business saw significant change in 2006 with CAP reformsgenerating a marked improvement in confidence. This was further enhanced by arise in soft commodity prices and the prospect of enhanced demand for bio cropsto drive an increase in land values and farm profitability. The Property Management business in China continued to grow as local developersincreasingly seek international service providers to maintain their buildings tovery high standards, and maximise holding value through proven asset managementskills. In Hong Kong the market remains healthy, although there is increasingcompetition amongst the major players. In Australia, the business is seeingincreasing pressure on margins as the listed and unlisted property trustsattempt to squeeze operating costs to maintain some form of positive yield overlending costs. Our Facilities Management business in Hong Kong has had to come to terms withthe introduction of the Wage Protection Movement for Cleansing & Security Guardswhich pushed up wage costs in the private sector. Nevertheless, the marketremains robust and the strong economy is off setting the pressure on fee levels. Key achievements of 2006 Our Property Management business continued to grow across the UK and Europe; weestablished new management teams in Bristol and Leeds. The acquisition ofHamilton Osborne King introduced a new income stream within the Irish Market,whilst our UK team secured significant portfolio instructions. This includedour appointment as managing agents on behalf of Resolution Asset Management. Atthe same time, portfolios under management on behalf of many existing clientsincluding British Land, GE Commercial Finance Real Estate and Reef increasednotably. The Rural Management business expanded substantially, taking on 18 significantnew estates across the country totalling 64,000 acres. A key instructionconcerned St John's College, Cambridge, where we advised on the strategic reviewand management of the College's property portfolio. New clients have alsoresulted from our close involvement with our Agency teams in the UK by Danishbuyers. In Asia Pacific, the Property and Facilities Management business is pursuing itscontinuing growth path in mainland China, Macau and Hong Kong. In Beijing, Savills secured the mandate for the Yin Tai Centre, a Grade A officebuilding in the central business district of 750,000 sq ft, and the Xidan Mall,also in Beijing, which is a mixed development of retail and office of over200,000 sq ft. In Hong Kong, Savills was awarded the asset management for theVicwood Plaza, together with 181 Queens Road which comprise a total ground floorarea of 750,000 sq ft. In accordance with the strategy to penetrate key high-value real estate markets,we acquired a 55% stake in a leading Korean business in 2006. The business has14.7m sq ft of mostly Grade A prime office and retail in Seoul under management. In addition, the business secured a major asset management instruction inBusan, including office, retail and residential and requiring an on-site team ofsix. In Macau, we opened a full service office to take advantage of the huge increasein property management activity generated by developments in the gaming andentertainment business. Our Facility Management business in Hong Kong was awarded the contract for theEcoPark in Tuen Mun Hong Kong as it seeks to expand its service lines intorelated avenues. The contract was awarded to Savills Guardian on its technicalqualities, rather than on the lowest bid basis. Future plans Property management remains of high importance to us as a source of highquality, secure income and not just as an extension to our other services. Itis an opportunity for us to work closely with clients to improve and enhancevalue through active, hands-on asset management. We employ the highest qualitymanagers, which is an important factor in our ability to attract new clients.We aim to expand our portfolios under management, across all sectors in the UK. This expansion will be serviced by all our offices, with particular emphasison London and the shopping centre market. In order to better service new and existing clients, we are opening a newProperty Management department in Bristol and are continuing to expand the teamsin Glasgow, Manchester, Birmingham and London. In addition, we are expandingour services in Germany where there is great demand from internationalinvestors. Property management continues to be a priority growth service in Asia where wehave an established reputation and where the margins and quality of income arehigh. Where there are clear synergies to be gained, we are also activelyconsidering growth through the acquisition of niche property managementbusinesses. The growing need for proven international expertise in the Propertyand Facility Management business in China, will enable us to increase ourpresence into the secondary cities. With the opening of Chengdu and Tianjin in2006, we now have seven offices in mainland China, with the possibility ofseveral more in 2007. Financial Services 2006 2005 Change Revenue £26.9m £25.8m +4%Operating profit £4.0m £4.3m (7%) The Financial Services division comprises Savills Private Finance Limited, whichprovides residential mortgage broking services, commercial debt brokingservices, commercial and private insurance services and associated financialplanning products. Marketplace The 2006 UK mortgage market was valued at around £340bn, of which approximately50% was accounted for by the re-mortgage business. There is an increasingimpact of regulation in the market and we aim to be in the forefront to ensurethat we follow the highest standards. Interest rates rose in both November 2006 and January 2007, and this willundoubtedly have an impact on the buy-to-let mortgage market as the pressure onyields increases. The base rate remains historically low for the UK but thecumulative effect of the recent rises may have some influence on affordability,particularly at the lower to middle sectors of the market. With major lenders now focusing on retention of existing customers, it ispossible that the overall market may shrink, but we are confident of increasingour market share. Key achievements of 2006 The 2006 performance was pleasing. Strong contributions were made by all areasof the business, most notably from the Commercial Debt Broking team whichcontinued to excel in the areas of healthcare, leisure and investment. Increasedregulation in this market has inevitably resulted in additional costs. As partof our policy of being 'best in class' we have invested substantially inimproving our compliance systems and operating procedures. The residentialmortgage market remained strong despite additional operating costs and thebusiness continued to trade well. Future plans We will continue to follow our strategy of selective diversification and expectto see further progress within our Channel Islands business, our affordablemortgage operation SPF Sherwins and the International Mortgage team. Thetraditional Residential Mortgage Broking business now operates from 18 officesand we expect further growth through 2007. Part of our strategy will be forcloser co-operation in terms of deal flow between Savills L&P and SPF. Fund Management 2006 2005 Change Revenue £7.2m £4.7m +53%Operating profit £0.8m £0.6m +33% Although revenue was in line with expectations, the operating profit was belowplan principally due to abortive costs incurred in the second half of the yearrelating to products that did not launch due to short term market weakness.Expenditure on infrastructure development accelerated sharply throughout theyear in line with the budgeted expansion of the business. Funds undermanagement increased to £2.1bn. Cordea Savills was formed three years ago to grow the existing UK-based fundmanagement division into an independent and international property fund manager. We have now developed a European investment and business platform, employing50 people in offices in London, Milan, Munich and Paris. With this significantexpenditure in infrastructure, we anticipate strong growth in revenues goingforward, as we invest capital raised over the last two years and launch furtherfunds. Funds under management in the current year are expected to rise by over£1bn from growth of existing funds and a strong new product pipeline. Clients are principally institutions, private investors, family offices,charities and fund of fund managers. The increasing internationalisation ofproperty is reflected in our client base which is drawn from European countriesand Asia. Marketplace There has been a steady rise in allocations to property as an asset class byinstitutions and private investors over the past few years. However, as yieldshave compressed across European property markets, investors are becomingincreasingly discerning in their investment requirements. With investment inpooled funds, investors are seeking fund managers with an investment strategydesigned to achieve above market returns, a team of experienced investmentprofessionals with proven transaction capabilities and tax-efficient structuresthrough which to invest. Cordea Savills is now well positioned to meet suchrequirements. Key achievements of 2006 In a strongly performing property market, we managed to achieve superior returnsfor most funds. For example, we are once again on target to outperform thebenchmark for our largest pension fund client, something we have achieved inevery year except one since 1988. Several of our existing funds also grew in size during the year, such as theCharities Property Fund, which increased from £309m to £376m, and EuropaImmobiliare No.1, which increased its gross asset value from €286m to €460m. We launched a number of new funds during the year including: ItalianOpportunities No.1, a vehicle which draws on our strong local presence todeliver attractive returns and which, based on the equity raised, is expected tohave a gross asset value of €800m; Serviced Land No.2, which follows on from thesuccessful original fund dealing in residential land in the UK; the Student HallFund, which offers long term secure income streams in an undersupplied UKmarket; and the Accommodation Investment Fund for Charities, which is adiversified UK residential fund. Future plans The success of our business is dependent on our ability to create innovativeinvestment opportunities and deliver performance. Understanding therequirements of clients, matching these with investment opportunities anddelivering performance is central to our business. We have a pan-European investment capability and are in the process of launchingfurther European funds designed to meet the particular needs of Italian andGerman institutions. This strategy is complemented by market and sectorspecific funds. In response to the increasing globalisation of capital flows and demand forproperty investment, we are investigating investment opportunities and newproduct lines in a selected number of Asian markets. During 2006, Savills plc provided capital to support growth, particularly inrelation to fund launches and is continuing to support the business in thecurrent year. We believe that Cordea Savills is about to enter a period ofaccelerated and sustained growth, which will result in an increasing need forcapital to both co-invest in funds and purchase seed assets. As such, thepartners of Cordea Savills LLP consider that this is now the appropriate time tobring in an additional strategic investor to help maximise opportunities forclients and enhance shareholder value. British Linen Advisers have beenappointed to provide advice in relation to this strategic investment, which isexpected to be concluded within the first half of 2007. Financial Highlights The key financial information for the year was as follows: • Underlying Group operating margins of 13.7% (2005 - 14.3%). • Strong cash balances with a year-end balance of £124.1m. • A very strong performance from Asia Pacific this year with turnover up 38% and underlying profit before tax up 18%. Acquisitions and disposals In order to deliver our strategy, during the year we completed a number ofacquisitions and disposals of businesses or interests in ventures, both in theUK (in aggregate £21.1m) and overseas (in aggregate £50.9m) including: • In January 2006, the Group disposed of its 13.72% shareholding in Fastcrop plc, owner of the Primelocation website, at a profit after costs of £4.5m. • On 3 January 2006, the Group acquired an initial 50% share in each of Korea Asset Advisors and BHP Korea to expand Asian operations further and take advantage of the attractive, high growth market. On 19 December 2006, a further 5% of the share capital was acquired. Total consideration was £8.9m. • On 28 April 2006, the Group's investment in the Student Halls Long Lease 1 Unit Trust was sold at carrying value of £16.5m with £1.0m invested in the new Cordea Savills Student Hall Fund. • On 13 June 2006, the Group acquired Hamilton Osborne King (HOK) in Ireland for consideration of £39.4m, in line with our strategy to grow Savills across all the key markets where our clients do business. • On 1 July 2006, the Group disposed of its investment in Managed Office Solutions for a profit after costs of £0.5m. • Also during 2006, the Group acquired Blair Kirkman LLP, Chesterfield and Co. (Rentals) Limited, Buckley's (Estate Agents) Limited and PCA Holdings Limited for an aggregate consideration of £20.5m. Earnings per share and dividends EPS growth is the change in EPS adjusted for share based payments, amortisationof intangibles and impairment of goodwill and profit on disposals. Basicearnings per share amounted to 46.3p (2005 - 33.6p). Underlying basic earningsper share from continuing operations amounted to 40.8p (2005 - 33.3p). The Board is recommending a final dividend of 11p (net), making 16p for the fullyear, a 33% increase on last year. The decision to increase our dividend isboth a reflection on profits and in line with our current progressive dividendpolicy. Capital and Shareholders' interests Minority interests Minority interests increased to £4.3m (2005 - £0.6m) and reflects acquisitionsand increased profits during the year. Share capital At the AGM on 10 May 2006, the shareholders passed a resolution that theexisting ordinary share capital of the Company be split; each existing 5pordinary share was divided into two new ordinary shares of 21/2p. The sharesplit became effective on 11 May 2006. Relevant figures in this preliminarystatement have been adjusted to reflect this. During the year ended 31 December 2006, 570,000 shares were issued toparticipants in the Savills plc United Kingdom Executive Share Option Scheme and1,516,788 shares to participants in the Savills Sharesave Scheme. No shareswere issued to the QUEST or re-purchased for cancellation during the year.Following the placing of Savills shares on 11 January 2007 by CBRE upon itsacquisition of Trammell Crow Company we re-purchased 3.5m shares forcancellation. The total number of ordinary shares in issue at 31 December 2006was 135.1m (2005 - 133m). Cash Flow and Liquidity Cash generated from operations is defined as cash earned from the principalrevenue-producing activities of the Group that are not financing or investingactivities. This is a key indicator for the ability to maintain our operatingcapability, pay dividends and make new investments without external financing. Net cash inflow from operating activities totalled £76.1m (2005 - £32.6m) which,after allowing for cash flows including taxation, dividends, investments andcapital expenditure, produced a net increase in cash of £28.7m (2005 - £7.5m). At 31 December 2006, the Group's cash at bank and on short term deposit amountedto £124.1m. This was deposited with banks and financial institutions with topcredit ratings for periods not exceeding six months, to match known outgoings. Future liquidity The Group's existing net cash balance and expected cash flows for the yearprovides the Group with substantial resources to fund operating and investmentactivities. The Group also has undrawn facilities of £8.9m, however, in orderto achieve our growth strategy we may arrange long term bank borrowings ifrequired. Net Assets Net assets continue to grow with an increase of 26% from 31 December 2005 to£212.8m. Goodwill increased significantly from £54.3m to £99.9m largely due tothe £22.5m Hamilton Osborne King goodwill capitalised. Pension Scheme During the year the Company and the Trustees undertook a review of the PensionPlan of Savills ('the Plan') and a number of rule changes were made toaccommodate and meet the legislation changes effective from 6 April 2006. Forward Looking Statement In preparing this Group Chief Executive's Review of Operations and FinancialReview, whilst we have provided a detailed management commentary on our markets,activities and prospects all forward looking statements and forecasts involverisk and uncertainty because they relate to events and depend upon circumstancesthat will occur in the future. Aubrey Adams, Group Chief Executive SAVILLS plc CONSOLIDATED INCOME STATEMENT for the year ended 31 December 2006 Year ended Year ended 2006 2005 Notes £m £mContinuing operationsRevenue 2 517.6 373.9 Less:Employee benefits expense (306.1) (227.5)Depreciation (5.6) (4.6)Amortisation of intangibles & impairment of goodwill (2.4) (1.5)Other operating expenses (129.2) (85.9)Other income 0.8 -Profit on disposal of subsidiary, associate, joint venture & 5.1 0.4available-for-sale investments Operating profit 2 80.2 54.8 Finance income 4.8 4.0Finance costs (1.1) (0.5) 3.7 3.5Share of post tax profit from associates & joint ventures 0.5 0.3 Profit before income tax 84.4 58.6Income tax expense (including foreign tax of £4.4m and 2005 - 4 (25.6) (17.8)£4.0m) Profit for the year from continuing operations 58.8 40.8 Discontinued operationsProfit/(loss) for the year from discontinued operations 3 0.3 (0.5) Profit after income tax 59.1 40.3 Attributable to:Equity shareholders of the parent 57.7 40.0Minority interest 1.4 0.3 59.1 40.3 Earnings per shareFrom continuing and discontinued operationsBasic earnings per share 7 46.3p 33.6pDiluted earnings per share 7 44.2p 31.3pFrom continuing operationsBasic earnings per share 7 46.0p 34.1pDiluted earnings per share 7 44.0p 31.7pFrom discontinued operationsBasic earnings per share 7 0.3p (0.5p)Diluted earnings per share 7 0.2p (0.4p)Dividends per shareFinal dividend proposed 5 11.0p 8.0pDividends paid (2005 including special) 5 13.0p 20.3p SAVILLS plc CONSOLIDATED BALANCE SHEET at 31 December 2006 31.12.06 31.12.05 Notes £m £mAssetsNon-current assetsProperty, plant and equipment 16.5 14.7Goodwill 99.9 54.3Intangible assets 19.1 4.7Investments in associates and joint ventures 5.6 3.4Deferred income tax assets 20.6 23.9Available-for-sale investments 8.8 10.5Financial assets at fair value through profit or loss 1.5 - 172.0 111.5Current assetsAssets classified as held for sale - 64.9Work in progress 3.2 3.2Trade and other receivables 163.9 115.2Cash and cash equivalents 124.1 99.9 291.2 283.2LiabilitiesCurrent LiabilitiesBorrowings 7.3 1.9Derivative financial instruments 0.2 -Liabilities directly related to assets classified as held for sale - 48.9Trade and other payables 191.8 136.1Current income tax liabilities 10.3 5.6Employee benefit obligations 3.0 1.7Provisions for other liabilities and charges 1.5 0.7 214.1 194.9 Net current assets 77.1 88.3 Total assets less current liabilities 249.1 199.8Non-current LiabilitiesBorrowings 12.0 1.5Derivative financial instruments 0.3 -Trade and other payables 2.0 1.0Retirement and employee benefit obligations 19.0 25.0Provisions for other liabilities and charges 1.6 1.7Deferred income tax liabilities 1.4 2.3 36.3 31.5 Net assets 212.8 168.3EquityCapital and reserves attributable to equity holders of the CompanyShare capital 10 3.4 3.3Share premium 10 82.4 80.9Other reserves 10 (1.8) 6.5Retained earnings 10 124.5 77.0 208.5 167.7Minority interest 10 4.3 0.6 Total equity 212.8 168.3 SAVILLS plc CONSOLIDATED STATEMENT OF CASH FLOWS for the year ended 31 December 2006 Year ended Year ended 2006 2005 Notes £m £mCash flows from operating activitiesCash generated from continuing operations 8 87.4 44.9Interest received 4.7 3.8Interest paid (0.9) (0.5)Income tax paid (15.1) (15.6) Net cash generated from operating activities 76.1 32.6 Cash flows from investing activities(Outflow)/proceeds from sale of subsidiary, net of cash disposed (0.2) 0.1Proceeds from sale of property, plant and equipment 0.2 0.1Proceeds from sale of associates, joint ventures and 7.9 0.5available-for-sale investmentsDividends received 0.5 0.3Net loans to associates and joint ventures (2.0) (0.4)Acquisition of subsidiaries, net of cash acquired 9 (37.8) (7.5)Sale/(purchase) of assets held for resale 16.3 (16.5)Purchases of property, plant and equipment (7.3) (7.3)Purchases of intangible assets (1.1) (0.9)Purchase of investment in associates, joint ventures and (2.2) (0.2)available-for-sale investmentsPurchase of financial assets at fair value through profit or loss (1.5) - Net cash used in investing activities (27.2) (31.8) Cash flows from financing activitiesProceeds from issue of share capital 1.2 38.1Proceeds from borrowings 0.2 0.7Repurchase of own shares - (0.5)Purchase of own shares for Employee Benefit Trust (5.0) (4.2)Repayments of borrowings (1.1) (4.3)Dividends paid (16.4) (23.1) Net cash (used in)/generated from financing activities (21.1) 6.7 Net increase in cash, cash equivalents and bank overdrafts 27.8 7.5Cash, cash equivalents and bank overdrafts at beginning of the year 99.9 89.9Effect of exchange rate fluctuations on cash held (4.0) 2.5 Cash, cash equivalents and bank overdrafts at end of year 123.7 99.9 SAVILLS plc CONSOLIDATED STATEMENT OF RECOGNISED INCOME & EXPENSE for the year ended 31 December 2006 Year ended Year ended 2006 2005 Notes £m £m Profit for the year 59.1 40.3 Revaluation of available-for-sale investments 0.4 6.6Actuarial gain/(loss) on defined benefit pension scheme 2.5 (7.3)Tax on items directly taken to reserves 3.5 9.5Foreign exchange translation differences (4.3) 2.7 Net income recognised directly in equity 2.1 11.5 Total recognised income and expense for the year 61.2 51.8 Attributable to:Equity shareholders of the Company 59.6 51.6Minority interest 1.6 0.2 61.2 51.8 Effects of changes in accounting policiesAttributable to equity shareholders of the parent - increase in retained earnings due to revaluation ofavailable-for-sale investments on adoption of IAS 32 & IAS 39 - 1.0Attributable to minority interest - - - 1.0 NOTES 1. Basis of preparation The results for the year ended 31 December 2006 have been extracted from theaudited financial statements. The financial statements have been prepared inaccordance with International Financial Reporting Standards and IFRICinterpretations as adopted by the European Union and with those parts of theCompanies Act 1985 applicable to companies reporting under IFRS. The financial information in this statement does not constitute statutoryaccounts within the meaning of s240 of the Companies Act 1985. The statutoryaccounts for the year ended 31 December 2006, on which the auditors have givenan unqualified audit report, have not yet been filed with the Registrar ofCompanies. The preparation of financial statements in conformity with generally acceptedaccounting principles requires the use of estimates and assumptions that affectthe reported amounts of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during the year.Although these estimates are based on management's best knowledge of the amount,event or actions, actual results ultimately may differ from those estimates. 2. Segment analysis Year ended 31 Trans-actional Consult-ancy Property & Fund Financial Unalloc-ated* TotalDecember 2006 Advice Facilities Management Services Management £m £m £m £m £m £m £mRevenueUnited Kingdom - Commercial 83.5 59.6 34.8 7.2 3.7 0.3 189.1 - Residential 91.5 22.4 8.8 - 23.2 - 145.9 175.0 82.0 43.6 7.2 26.9 0.3 335.0Rest of Europe 32.6 5.3 10.2 - - - 48.1Asia Pacific 39.6 11.5 83.4 - - - 134.5 Total revenue 247.2 98.8 137.2 7.2 26.9 0.3 517.6 Operating profitUnited Kingdom - Commercial 19.7 11.0 3.1 0.8 1.0 0.5 36.1 - Residential 20.4 4.0 1.0 - 3.0 - 28.4 40.1 15.0 4.1 0.8 4.0 0.5 64.5Rest of Europe 4.3 0.7 (0.1) - - - 4.9Asia Pacific 4.2 0.7 5.9 - - - 10.8 Operating profit 48.6 16.4 9.9 0.8 4.0 0.5 80.2 Net finance income 3.7Share of post tax profit from associates & joint ventures 0.5 Profit before income tax 84.4Income tax expense (25.6) Profit for the year from continuing operations 58.8 Year ended 31 Transactional Consultancy Property & Fund Financial Unallocated* TotalDecember 2005 Advice Facilities Management Services Management £m £m £m £m £m £m £mRevenueUnited Kingdom - Commercial 60.8 42.6 32.8 4.7 3.2 0.1 144.2 - Residential 61.1 19.7 7.0 - 22.6 - 110.4 121.9 62.3 39.8 4.7 25.8 0.1 254.6Rest of Europe 15.1 2.1 4.7 - - - 21.9Asia Pacific 29.9 7.5 60.0 - - - 97.4 Total revenue 166.9 71.9 104.5 4.7 25.8 0.1 373.9 Operating profitUnited Kingdom - Commercial 13.9 8.9 3.2 0.6 0.8 (3.0) 24.4 - Residential 10.1 2.9 0.9 - 3.5 - 17.4 24.0 11.8 4.1 0.6 4.3 (3.0) 41.8Rest of Europe 3.0 0.3 (0.1) - - 0.1 3.3Asia Pacific 5.2 0.7 3.5 - - 0.3 9.7 Operating profit/ 32.2 12.8 7.5 0.6 4.3 (2.6) 54.8(loss) Net finance income 3.5Share of post tax profit from associates & joint ventures 0.3 Profit before income tax 58.6Income tax expense (17.8) Profit for the year from continuing operations 40.8 The unallocated segment includes holding company costs, Group bonuses and otherexpenses not directly attributable to the operating activities of the Group'sbusiness segments. *For the purpose of the segmental information above, and to assist in thecomparison of segmental information, the benefit arising from the amortisationof the share based payment charge as discussed in more detail in Note 6, isretained within the unallocated segment. The segmental analysis has beenadjusted to allocate European central costs against the relevant businessstreams. These costs were previously shown as part of the unallocated UnitedKingdom - Commercial segment. 3. Discontinued operations Year ended Year ended 2006 2005 £m £m Revenue 1.1 0.2Expenses (0.4) (0.9) Profit/(loss) before income tax 0.7 (0.7)Income tax (expense)/credit (0.4) 0.2 Profit/(loss) after income tax 0.3 (0.5) The assets and liabilities related to the Student Halls Long Lease 1 Unit Trust(the 'Fund') in which, at 31 December 2005, the Group held 100% of the unitswere disposed during the year. The Group's share of the Fund was diluted to a 2%holding of £1.0m, which is classified as an available-for-sale investment. The profit for the year includes a fair value gain of £1.4m arising on mark tomarket valuation of two interest rate swaps taken out on loans secured on theproperties within the Fund. All operating results are classified underdiscontinued operations. 4. Income tax on profit from continuing operations The income tax expense has been calculated on the basis of the underlying ratein each jurisdiction adjusted for any disallowable charges. Year ended Year ended 2006 2005 £m £m United Kingdom corporation tax 18.7 13.0Foreign tax 4.7 4.0Deferred tax 2.2 0.8 25.6 17.8 5. Dividends Year ended Year ended 2006 2005 £m £mAmounts recognised as distribution to equity holders in the year:Interim dividend of 5.0p per share (2005 - 4.0p) 6.2 4.9Ordinary final dividend of 8.0p per share (2005 - 6.3p) 10.0 7.0Special dividend of nil per share (2005 - 10.0p) - 11.1 16.2 23.0 Proposed final dividend for the year ended 31 December 2006 of 11.0p 13.2 -per share The final dividend in respect of the year ended 31 December is to be proposed atthe Annual General Meeting on 9 May 2007. These financial statements do notreflect this dividend payable. If approved the dividend will be paid on 15 May2007 to shareholders on the register as at 13 April 2007. Following shareholder approval at the Annual General Meeting on 10 May 2006 atwo for one share split took place. The above quoted dividend per share figureshave been adjusted to present comparable figures following the split. 6. Underlying profit before tax Year ended Year ended(a) From continuing operations 2006 2005 £m £mReported profit before income tax 84.4 58.6Adjustments:Amortisation of intangibles (excluding software) & impairment of goodwill 1.8 0.9Share based payment adjustment (6.1) (1.9)Sale of subsidiary, associate, joint ventures & available-for-sale (5.1) (0.4)investments Underlying profit before income tax 75.0 57.2 The Directors regard the above adjustments necessary to give a fair picture ofthe underlying results of the Group for the period. The adjustment for sharebased payment relates to the transitional impact of the accounting standard forshare based compensation. The annual bonus is paid in a mixture of cash and deferred shares and theproportions can vary from one year to another. Under IFRS the deferred shareelement is amortised to the income statement over the vesting period whilst thecash element is expensed in the year. The adjustment above addresses this bydeducting from profit the difference between the IFRS 2 charge and the value ofthe annual share award. (b) Geographical information Year ended Year endedUnderlying profit before tax 2006 2005 £m £mUnited Kingdom - Commercial 32.5 24.1 - Residential 24.6 19.4 57.1 43.5Rest of Europe 5.5 3.2Asia Pacific 12.4 10.5 75.0 57.2 7. Basic and diluted earnings per share The following earnings per share calculations have been made as if the sharesplit (see Note 5) had taken place at 1 January 2005 so as to present comparableinformation. a. Basic and diluted earnings per share Earnings Shares EPS Earnings Shares EPSYear ended 31 December 2006 2006 2006 2005 2005 2005 £m m Pence £m m PenceFrom continuing and discontinued operationsBasic earnings per share 57.7 124.7 46.3 40.0 118.9 33.6Effect of additional sharesissuable under option - 5.8 (2.1) - 8.8 (2.3)Diluted earnings per share 57.7 130.5 44.2 40.0 127.7 31.3 From continuing operationsBasic earnings per share 57.4 124.7 46.0 40.5 118.9 34.1Effect of additional sharesissuable under option - 5.8 (2.0) - 8.8 (2.4)Diluted earnings per share 57.4 130.5 44.0 40.5 127.7 31.7 Earnings Shares EPS Earnings Shares EPSYear ended 31 December 2006 2006 2006 2005 2005 2005 £m m Pence £m m PenceFrom discontinued operationsBasic earnings per share 0.3 124.7 0.3 (0.5) 118.9 (0.5)Effect of additional sharesissuable under option - 5.8 (0.1) - 8.8 0.1 Diluted earnings per share 0.3 130.5 0.2 (0.5) 127.7 (0.4) b. Underlying basic earnings per share Earnings Shares EPS Earnings Shares EPSYear ended 31 December 2006 2006 2006 2005 2005 2005 £m m Pence £m m PenceFrom continuing operationsBasic earnings from continuing 57.4 124.7 46.0 40.5 118.9 34.1operationsAmortisation of intangibles 1.3 - 1.0 0.6 - 0.5(excluding software) & impairmentof goodwill after taxShare based payment adjustment (4.3) - (3.4) (1.3) - (1.1)after taxLess sale of subsidiary, associate, (3.5) - (2.8) (0.3) - (0.2)joint venture & available-for-saleinvestments after tax Underlying basic earnings per share 50.9 124.7 40.8 39.5 118.9 33.3 Year ended Year ended8. Cash generated from continuing operations 2006 2005 £m £mProfit for the year from continuing operations 58.8 40.8Adjustments for:Income tax 25.6 17.8Depreciation 5.6 4.6Amortisation of intangibles 2.4 1.2Impairment of goodwill - 0.3Net finance income (3.7) (3.5)Share of post tax profit from associates & joint (0.5) (0.3)venturesProfit on disposal of subsidiary, associate, joint venture & available-for-sale (5.1) (0.4)investmentsLoss on sale of property, plant and equipment 0.4 0.4Increase/(decrease) in provisions 0.5 (0.8)Decrease in employee and retirement obligations (2.2) (9.6)Charge for share based compensation 5.3 1.9 Operating cash flows before movements in working capital 87.1 52.4 Decrease/(increase) in work in progress 0.4 (0.4)Increase in debtors (37.2) (23.5)Increase in creditors 37.1 16.4 Cash generated from operations 87.4 44.9 9. Acquisitions On 3 January 2006, Savills Asia Pacific acquired an initial 50% share in each ofKorean Asset Advisors and BHP Korea and a further 5% was acquired in December2006 for total consideration of £8.9m. On 13 June 2006, Savills Overseas Holdings Limited acquired the businesses ofHamilton Osborne King (HOK) in Ireland for total consideration of £39.4m. 10. Statement of changes in equity Attributable to equity holders of the Group Share Share Other Retained Minority Total capital premium reserves earnings interest equity £m £m £m £m £m £m Balance at 1 January 2006 3.3 80.9 6.5 77.0 0.6 168.3Total recognised income and expense - - (4.2) 63.8 1.6 61.2for the periodEmployee share option scheme:- Value of services provided - - - 5.3 - 5.3- Exercise of options - 0.4 - (0.4) - -Issue of share capital 0.1 1.1 - - - 1.2Purchase of treasury shares - - - (5.0) - (5.0)Dividends - - - (16.2) (0.2) (16.4)Disposals (net of tax) - - (4.1) - - (4.1)Acquisitions - - - - 2.3 2.3 Balance at 31 December 2006 3.4 82.4 (1.8) 124.5 4.3 212.8 Attributable to equity holders of the Group Share Share Other Retained Minority Total capital premium reserves earnings interest equity £m £m £m £m £m £m Balance at 31 December 2004 3.0 43.1 (1.2) 58.6 0.2 103.7Adoption of IAS 32 and IAS 39 - - 0.7 0.3 - 1.0 Balance at 1 January 2005 3.0 43.1 (0.5) 58.9 0.2 104.7 Total recognised income and expense - - 7.7 43.9 0.2 51.8for the periodEmployee share option scheme:- Value of services provided - - - 1.9 - 1.9Issue of share capital 0.3 37.8 - - - 38.1Purchase of own shares - - - (0.5) - (0.5)Purchase of treasury shares - - - (4.2) - (4.2)Dividends - - - (23.0) (0.1) (23.1)Disposals (net of tax) - - (0.7) - - (0.7)Acquisitions - - - - 0.3 0.3 Balance at 31 December 2005 3.3 80.9 6.5 77.0 0.6 168.3 Copies of this statement are available from the Company website at: www.savills.com and also from: Savills plc, 20 Grosvenor Hill, Berkeley Square, London W1K 3HQ Telephone: 020 7409 9928 Fax: 020 7491 0505 Email: [email protected] Contact: Victoria Grady In addition, with prior notice, copies in alternative formats i.e. large print, audio tape, braille are available if required from: Lloyds TSB Registrars, The Causeway, Worthing, West Sussex BN99 6DA End This information is provided by RNS The company news service from the London Stock Exchange

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