BTO: Savills pre-tax profit slides 61% to £33.2m

Business Times - 12 Mar 2009

Savills pre-tax profit slides 61% to £33.2m

It is cutting dividend as transaction volumes tumble

 

(LONDON) Property broker Savills reported a 61 per cent fall in pre-tax profit to £33.2 million (S$70.7 million) yesterday as activity in the world's catatonic property market plumbed 'unprecedented' depths.

 

The London-listed agent, which has more than 200 offices and affiliates worldwide, said that a collapse in real estate transaction volumes had forced it to recommend a reduced final dividend of 3 pence per share, slashing its full 2008 dividend to 9 pence versus 18 pence in 2007.

 

Chief executive Jeremy Helsby said that transaction volumes would continue to fall until a shortage of mortgages - the grease for the wheels of the real estate market - was replenished.

 

'We believe that the volume of transactions in 2009 will be significantly lower than in recent years,' he said. 'In Europe, property values have not fallen as far and as quickly as in the UK with the result that there remains a mismatch between vendors expectation on price and buyers' requirements.'

 

Savills said that its US operations also suffered from a prolonged famine in real estate debt, with an 87 per cent drop in US investment deals between January 2007 and December 2008.

 

While sketching out a cautious outlook for the year ahead, Mr Helsby said that he was confident that the European and US units would rally this year as the company looked to beef up business areas such as property management, consultancy and corporate recovery.

 

'I am comfortable without putting my neck on the line that performances in both businesses will be improved,' he said.

 

In line with prevailing market conditions, Savills said that its 20,000-strong global workforce would share a bonus pool of 60 million pounds this year compared to 130 million pounds in 2007.

 

The company made cost savings of 22 million pounds last year, partly due to job cuts, office closures and tighter control of overheads.

 

By end-December, Savills had net cash reserves of 45.7 million pounds, but Mr Helsby said that he would maintain efforts to preserve cash - including making further job cuts - to defend the company from fresh market turbulence and bankroll new investments when appropriate.

 

'We're taking a very prudent view on cash at the moment . . . having it there as a war chest is a comfortable feeling,' he said.

 

Savills shares, which have fallen by 27 per cent in the past year, were trading 6.9 per cent down to 234.75 pence by 0922 GMT, lagging a one per cent rise in the FTSE 350 Real Estate sector.

 

Mr Helsby said that interest in London's bombed-out housing market was rising as domestic buyers tired of lower savings rates and international investors eyed possible bargains as a result of the weaker pound.

 

'I think people are deciding that with virtually zero per cent interest rates on their money in the bank, residential investment is starting to look quite attractive,' he said.

 

'The challenge for us is lack of stock. We thought we would see more distressed sales but because mortgage finance has come down significantly, a lot of people . . . have now decided they can afford to keep their house,' he said, echoing similar obstacles to recovery seen in the commercial property market.

 

But outside London, Mr Helsby predicted a surge in firesales from developers saddled with unwanted city centre flats.

 

'There's definitely more pain to come outside of London,' Mr Helsby said, adding that average UK house prices were likely to fall by 30 per cent between January 2008 and December 2009. -- Reuters