Final Results

Savills PLC 14 March 2007 OUTSTANDING SET OF RESULTS FOR SAVILLS Savills plc, the international property consultant, today announces its results for the year ended 31 December 2006. Financial Highlights Underlying results Underlying Group profit is calculated by adjusting reported profit before tax to deduct profits on disposals of Â£5.1m (2005 - Â£0.4m) and share based payment adjustment of Â£6.1m (2005 - Â£1.9m) and add back amortisation of intangibles and impairment of goodwill of Â£1.8m (2005 - Â£0.9m). â€¢ Underlying Group profit before tax up 31% to Â£75.0m (2005 - Â£57.2m). â€¢ Underlying revenue up 38% to Â£517.6m (2005 - Â£373.9m). â€¢ Underlying basic earnings per share from continuing operations (based upon underlying Group profit) up 23% to 40.8p (2005 - 33.3p). Reported results â€¢ Revenue up 38% to Â£517.6m (2005 - Â£373.9m). â€¢ Group profit before tax up 44% to Â£84.4m (2005 - Â£58.6m). â€¢ Basic earnings per share 46.3p (2005 - 33.6p). â€¢ Proposed final dividend up 38% to 11p per share (2005 - 8p). â€¢ Shareholders' funds Â£212.8m (2005 - Â£168.3m). â€¢ Cash and cash equivalents Â£124.1m (2005 - Â£99.9m). Peter Smith, Chairman of Savills plc, commented: 'The commercial and residential markets remain strong and in the absence of a global economic downturn, we are confident that we will continue to make good progress 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 Grosvenor Hill, Berkeley Square, London W1K 3HQ For further information, contact: Savills 020 7409 9923 Aubrey Adams, Group Chief Executive Citigate Dewe Rogerson 020 7638 9571 Sarah Gestetner George 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 outstanding set of results following strong performances from our operating businesses. Underlying results Underlying Group profit is calculated by adjusting reported profit before tax to deduct profits on disposals of Â£5.1m (2005 - Â£0.4m) and share based payment adjustment of Â£6.1m (2005 - Â£1.9m) and add back amortisation of intangibles and impairment of goodwill of Â£1.8m (2005 - Â£0.9m). â€¢ Underlying Group profit before tax up 31% to Â£75.0m (2005 - Â£57.2m). â€¢ Underlying revenue up 38% to Â£517.6m (2005 - Â£373.9m). â€¢ Underlying basic earnings per share from continuing operations (based upon underlying Group profit) up 23% to 40.8p (2005 - 33.3p). Reported results â€¢ Revenue up 38% to Â£517.6m (2005 - Â£373.9m). â€¢ Group profit before tax up 44% to Â£84.4m (2005 - Â£58.6m). â€¢ Basic earnings per share 46.3p (2005 - 33.6p). â€¢ Proposed final dividend up 38% to 11p per share (2005 - 8p). â€¢ Shareholders' funds Â£212.8m (2005 - Â£168.3m). â€¢ Cash and cash equivalents Â£124.1m (2005 - Â£99.9m). Dividends In the five years to 31 December 2006 reported earnings have increased by an average of 33% per annum and dividends by an average of 27% per annum. This year the Board has recommended an increase in the final dividend of 38% to 11p per share to those shareholders on the register on 13 April 2007, payable on 15 May 2007. This gives a total ordinary dividend for the year ended 31 December 2006 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 of individuals and acquisition of businesses in the UK, Europe and Asia Pacific. Of particular importance was the acquisition of a 55% holding in Korea Asset Advisors and BHP Korea, which reinforces our position in this region. We also acquired Hamilton Osborne King in Ireland which was later rebranded as Savills Hamilton Osborne King, opening a new market to Savills as well as reinforcing links with Irish investors. Trammell Crow Company (TCC) As a result of the acquisition of TCC by CB Richard Ellis Group (CBRE), our association with TCC ended and shortly after the year end their 19.2% holding in Savills was placed in the market. Share buyback programme and share split At the last Annual General Meeting shareholders gave authority for a limited purchase of Savills shares for cancellation of up to 10% of the issued share capital. During the year ended 31 December 2006, no shares were repurchased for cancellation under this programme. On 11 January 2007, coincidental with the placing of the shares previously held by TCC, we purchased 3.5m shares for cancellation. The Company may make further purchases of shares under this authority 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 resolution to approve the repurchase of shares. This is outlined in the Notice of Annual General Meeting which will accompany the Report and Accounts for the year ended 31 December 2006 and which will be distributed to shareholders at the beginning of April 2007. At the Annual General Meeting on 10 May 2006, the shareholders passed a resolution 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 the Board. First, following the acquisition of TCC by CBRE, the two TCC nominated Directors, William Concannon and Derek McClain, resigned with effect from 20 December 2006 and the entitlement by TCC to retain a Director on the Board lapsed. Secondly, as planned, a new Non-Executive Director has been appointed. I am delighted to welcome Martin Angle, who was appointed as a Non-Executive Director with effect from 2 January 2007. We welcome the experience he will bring and the contribution he will make to our discussions. Details of the Board, its Committees and their composition are outlined in the Report and Accounts for the year ended 31 December 2006. The Board currently comprises a Non-Executive Chairman, four Independent Non-Executive Directors and five Executive Directors, which the Board considers is an appropriate balance and meets the present needs of the Group. The Non-Executive Directors have a wide range of business experience and expertise and provide a strong independent element to the Board. However, the Board will keep under review the need for any changes. Savills' continued growth is a result of the committed and dedicated efforts of our people whose continued ability to provide a professional service to our clients is the basis for the excellent results achieved; I thank them all for their contribution. Our reward system, which is essentially based on team profit performance, is an important mechanism in providing a balance between the interests of staff and shareholders and is more fully described in the Remuneration Report in the Report and Accounts for the year ended 31 December 2006. Outlook The commercial and residential markets remain strong and in the absence of a global economic downturn, we are confident that we will continue to make good progress 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 comprehensively reviewed our strategy. Pre-tax profits increased from Â£58.6m to Â£84.4m. Underlying pre-tax profits increased from Â£57.2m to Â£75.0m. Underlying profit is calculated by adjusting reported profit before tax to deduct profits on disposals of Â£5.1m (2005 - Â£0.4m), share based payment adjustment of Â£6.1m (2005 - Â£1.9m) and add back amortisation of intangibles and impairment of goodwill of Â£1.8m (2005 - Â£0.9m). In the UK, we saw exceptional performance, exploiting the opportunities of rising commercial and residential markets. Acquisitions and organic expansion brought new teams and new expertise into our commercial capability. We also expanded our residential teams and partnered with major clients on a number of very significant projects. In Europe, the main focus of our business was investment, where we expanded our services in all areas. Increased economic activity and renewed confidence across the region created a number of opportunities which were capitalised upon by our teams. In Asia Pacific, we recorded 38% growth in revenue with a significant increase in profitability; 48% of the growth was attributable to our acquisition in Korea, while the remainder was largely due to organic growth in existing geographical and service lines of business especially in our Property and Facility Management businesses. This achievement was generated against a backdrop 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 total shareholder returns, achieving a total return of 898% compared with a return of 117% provided by the FTSE 250 and 233% provided by the FTSE All Share Real Estate Index. Recognising the need to sustain this high level of growth, the Board undertook a Strategic Review during 2006 to map the path for the business over 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 the major markets of the world'. By doing so, we aim to deliver superior total returns to shareholders compared with our peers. Through this combination of market leadership and financial success, our aim is for Savills to be the employer of choice for outstanding individuals. The market for real estate services There is no doubt that our core customer groups still value expertise, local knowledge, our breadth of experience across the disciplines, innovation, professionalism and high calibre individuals. Building strong local businesses and offering this local expertise and experience remains central to our approach. However, we are also seeing an increasing requirement from our customers to support them across borders, this is particularly true of property investors, for whom we are increasingly handling multinational assignments. The competitive environment is also evolving, with more competitive tendering for business than ever before. Savills is strong in many markets, with leadership positions in the major cities of the UK and Ireland, Hong Kong and other areas of Asia. However, we recognise the need to achieve stronger competitive positions elsewhere. We will focus our efforts on other major cities in Europe, Asia and the US, in large economies that have the strongest domestic real estate markets and which are important sources/destinations for real 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 for talent' is more intense than ever before, and the need to reward and retain key individuals is vital as competitors recognise the quality of Savills people, our distinguishing asset. We have a unique culture that is the envy of our competitors and we will do everything we can to ensure Savills remains the most attractive place to work in the industry. Investment markets in which we are already the leader remain central to the success of Savills' business model. However, uncertainty remains over future economic growth in mature markets, reinforcing our need to develop further non-transactional sources of revenue and to diversify geographically. The Savills Strategy The strategy revolves around five key objectives: â€¢ To invest in teams of excellent people, achieving scale and brand recognition in the major cities of the world. â€¢ 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. â€¢ 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. â€¢ 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. â€¢ 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 sharp focus on profit and financial measures will continue to be of greatest importance. However, we will also be introducing new measures to help review progress against our strategic objectives. These will include a combination of people and organisational measures, customer and market leadership measures, and operational 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 31 December 2006. In the UK, we achieved our programme of expansion into the retail sector by completing the acquisition of Blair Kirkman LLP and we now offer an extensive range of retail experience. In Europe, we successfully established our Munich office and completed recruitment for the opening of our office in Hamburg. We also recruited key directors into investment and valuation for our Netherlands operation. The Hungarian business was successfully incorporated with our Budapest office now up and running. The acquisition of Hamilton Osborne King in Ireland promises to be a success with an increased European network for Irish business to access and greater contact for our European and UK investment clients to Irish money. In Asia, we acquired a 55% stake leading Korean businesses, Korea Asset Advisors and 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 for this expansion in Europe. There are initiatives in place to grow and broaden the domestic UK, Irish, and German businesses, followed by Italy, Spain and France. There is also scope for expansion in Asia, and the short term priorities for building broad-based domestic businesses include Japan, Hong Kong, Singapore, Seoul, and major cities in Greater China. In addition, several new offices are planned across the European and Asian regions to enhance our cross-border investment position and to establish an initial presence. The US is a top priority, especially following the termination of the Alliance Agreement with Trammell Crow Company now that the acquisition by CBRE is complete. A number of options are presently under consideration including the potential to acquire one or more established businesses. Having invested in infrastructure within Cordea Savills, we are now confident that it will deliver solid growth through the launch of several new funds. We will also be driving closer co-operation between SPF and the UK commercial and residential businesses, which should enhance its performance. Our organisation and brand are key to the way in which we will deliver our strategy. 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 we continue to grow. Marketplace Overview UK The year's major story in the UK commercial market was the return of upward rental growth in the office market, on the back of a recovery in tenant demand in London and the South East. Following the downturn in 2001-2003, tenant demand has returned to, or exceeded, average annual levels. This demand has driven vacancy rates downwards which has had the effect of driving rental growth upwards. 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 have nevertheless continued to expand. Retailer demand is increasingly focused on the best locations, and this favours prime shopping centres, retail warehouse parks and high streets around the country. 2006 was another strong year for investor demand and we estimate that the level of investment in UK commercial property was broadly in line with 2005's record level. Around 30% of the purchases of UK commercial property in 2006 were by non-domestic investors. Investor demand continued to drive up prices. Yields in all 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 in the office and industrial markets is likely to stay at or slightly above average levels due to an improving macro-economic environment. Retailers will continue to be cautious in their expansion plans as consumer confidence stays low. Although we anticipate that retailers will look to open new outlets, this demand will be highly location specific. Investor demand for commercial property is likely to remain high over the next 12 months, with both domestic and international investors still showing interest in the asset class. The introduction of REITs to the UK in 2007 may well increase this interest in the sector, leading to further upward price movement. In terms of the leasing and development markets, we expect that the Central London office market will continue to show the strongest rental growth and returns. UK residential markets were also strong during 2006. Despite higher interest rates, price growth approached 10%. London and the South East were the strongest markets; most notably prime Central London markets, where prices grew by an average of 24%. Recent surveys of asking prices, new sales instructions and buyer enquiries indicated positive sentiment in mainstream markets, leading up to January's increase in interest rates; but thereafter there has been evidence of more buyer caution. 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 markets concerns purchasers' perceptions of where interest rates will be by the year-end. If expectations are of a further 25 basis point rise to 5.5%, with no fall thereafter, then households are likely to rebuild incomes, reducing their spending on housing. This will lead to lower turnover and price growth. However, we do not expect price falls, as the interest rate trigger for such market 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 end prime markets are less sensitive to the cost of borrowing. With last year's City bonuses fuelling demand and global economic growth set to continue, we anticipate at least another year of high price growth in prime markets, assuming that current uncertainty in financial markets is a short term issue. Longer term, barring an unexpected economic shock, the top end prime markets seem likely to show continued growth. Whilst the new homes markets are still driven by overall housing scarcity at a national level, the way in which new housing supply is being delivered to the market has created imbalances. This means that some local markets have reached saturation and developers must know their markets well in order to deliver the right product type and fully target all new demand. Europe Improved economic activity and the upturn in employment growth translated into higher tenant take-up levels in most European markets in 2006. The imbalance between demand and supply is gradually being restored and vacancy rates are slowly falling in most markets. Prime rental growth has accelerated during the course of the previous year: we estimate that it reached 10% on average at the end of 2006 across the main European central business district markets. The level of demand for modern warehouses remains high, driven by the growth of trade and logistics activity in Europe. Consolidation is creating large scale requirements, with demand focused around the main conurbations, airports, ports and motorways. However, new locations are emerging as occupiers look to balance cost, availability of labour and accessibility. We have seen rental values increase mainly in those areas where demand exceeds supply. The predictions for strong labour market conditions in Europe in 2007 and an improving economic climate support a positive outlook for the property sector. As market fundamentals recover, developer interest is renewed, driven by the anticipation of higher demand and positive rental growth. The expansion of large international retailers in Europe goes hand in hand with the expansion of out-of-town retail concepts, which are still underdeveloped in a number of European countries, especially the recent entrants to the European Union. The projections for strong consumer spending growth and the swift move towards new shopping habits in these regions offer an attractive environment for developers and investors. We experienced significant yield compression in 2006 and this should continue in 2007. Investor demand was also strong in all markets but in particular for offices and warehouses due to the perception that the leasing markets are improving or likely to improve soon. There is an evident yield convergence, especially across the prime commercial markets. Furthermore, we have seen strong investor interest in more specialist asset classes. We expect European property to remain high on the agenda of many investment managers in 2007, despite the limited supply of product. The introduction of REITs 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 yield compression are more positive in developing markets and locations with good rental growth prospects. Asia Increasing maturity in the China real estate market will offer opportunities for investment sales and purchase fees. However, frequent intervention by the government into the property sector, either by increasing property taxes or restrictions on available credit for property lending, may reduce investor attraction. 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 European and US demand for exports as well as increasingly significant levels of domestic consumption and intra-regional trade. Japan began to turn around in 2006 while China and India continued to enjoy growth rates of more than 8%. Strong growth is forecast for 2007, supported by intra-regional trade, domestic consumption expenditure and foreign direct investment, factors which will continue to drive the regional economy even if the US were to experience a soft landing. Many of Asia's major office markets reported exceptional levels of occupier demand in 2006 at a time when supply of prime office space has proved to be limited. The result has been rapidly rising rents in Singapore, Hong Kong, Tokyo and Shanghai and this trend is expected to continue into 2007. Cost increases in some of these markets are prompting tenants to look to non-core office locations to accommodate all or part of their operations. In Beijing and Seoul, relatively high levels of new Grade 'A' office supply in 2007 should cap any rental upside for the time being although high rates of pre-commitment in Seoul suggest that there may be room for some growth. In the residential markets, fortunes were mixed. In Japan, a broad based and stable recovery should continue to underpin demand for housing and prices should make 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 cool the housing market have succeeded in moderating price rises and cooling sentiment, while strong economic growth should render any major price correction unlikely. Slower economic growth combined with tough new government measures should see the residential market in South Korea cool over 2007. Robust economic growth, rising household incomes, more leisure time and generally positive population growth rates are all factors which have benefited the Asian retail economy over recent years. International retailers continue to make in-roads into new markets while developing markets continue to experiment with new retail formats. Intra-regional tourism is having a significant impact on consumption patterns in some areas as Mainland Chinese flood into Hong Kong and Macau, and Japanese travellers re-visit the region. After two or three years of rapid rental growth, however, markets such as Hong Kong and Seoul are showing signs of exhaustion while supply-demand imbalances have caused retail rents to stabilise in Beijing and Shanghai. US US GDP has been following the global trend with a 3.3% growth rate in 2006 and an expected 2.3% expansion in 2007. Going forward, major economic indicators are predicted to remain stable with slight increases in unemployment and interest rates expected in 2008 and beyond. 2004 and 2005 saw record capital inflow into commercial real estate. Despite the sentiment of a cooling US investment market, office property sales increased by 33% to $134bn in 2006 and over $307bn of commercial real estate transaction volumes were reported 2006 (source: US National Association of Realtors). Performance is closely tied to the general health of the economy, and as a result the market has experienced stable growth in the past two years as the economy recovers from the burst of the high-tech bubble and September 11. The current health of the commercial market is reflected in rising net absorption, falling vacancy rates and increases in rents in the office, industrial and multifamily sectors. Commercial real estate markets are expected to continue to grow and individual sectors in many areas are seeing tighter vacancy rates and higher rents. Segmental reviews Operating Operating Revenue 2006 Revenue Profit 2006 Profit Segment 2005 Change 2005 Change Transactional advice Â£247.2m Â£166.9m +48% Â£48.6m Â£32.2m +51% Consultancy Â£98.8m Â£71.9m +37% Â£16.4m Â£12.8m +28% Property & Facilities Management Â£137.2m Â£104.5m +31% Â£9.9m Â£7.5m +32% Financial Services Â£26.9m Â£25.8m +4% Â£4.0m Â£4.3m (7%) Fund Management Â£7.2m Â£4.7m +53% Â£0.8m Â£0.6m +33% Transactional advice 2006 2005 Change Revenue Â£247.2m Â£166.9m +48% Operating profit Â£48.6m Â£32.2m +51% Our Transactional Advice business stream comprises commercial, residential, agricultural agency and investment. Marketplace Investment markets are becoming increasingly global, with cross border transactions becoming more and more significant. This is the driving rationale behind having regional investment platforms, entering the US market and opening offices in secondary cities. Our Investment teams across the UK reported continued interest from investors in all property sectors with the biggest challenge being a lack of quality investment stock. We believe the advent of REITs will be a positive move for the industry as companies transferring into REITs will wish to trade assets to suit their new status. Certainly, there is likely to be increased interest in the regions as investors look beyond London due to the continued pressure on yields in the capital. As office and retail yields compress, investors are now focusing on other asset classes such as healthcare, leisure and logistics. It is likely that in 2007 we will see a widening of the yield gap between prime and secondary stock. An increased presence and strength in the industrial and logistics markets is enabling us each year to gain share in this expanding market. There is continuing demand from investors both at UK and international level for all types of investment products and continuing demand from occupiers as economies improve. In the residential agency market, the year started with great confidence. The City was buoyant and we saw a continuation of the strong market which had started in the second half of 2005. In Central London, 42% of our buyers work in the finance sector and 56% are under the age of 40. In addition, 25% of our buyers in London are international purchasers and two-thirds of these are looking to spend in excess of Â£4 million. The market remained confident throughout the year, leading to an excess of demand over supply which forced values even higher. In Central London, the market for prime properties rose by 24%, taking our average sale price to Â£1.45m. The new homes market strengthened through the year, particularly in London where a shortage in supply of second-hand sales resulted in higher prices. Certain provincial cities showed signs of oversupply with marketing incentives required to move stock. The farmland market strengthened in 2006 with demand from lifestyle purchasers forcing prices up by 15% to an average of Â£2,690 per acre. The total area of land 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 retain and recruit the best talent in the market was fundamental to the on-going success of the business. Key achievements of 2006 Our Transactional Advice business stream saw many highlights during 2006 with key 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 Â£10bn of commercial property, an increase in excess of 25% on 2005, cementing the team's top three ranking by revenue amongst agency practices in the UK. Notable transactions included the Retail Warehousing Investment team advising on the disposal on behalf of Hercules Unit Trust and Bank of Ireland Private Banking of Gallions Reach Shopping Park, Beckton to Standard Life for Â£208m. In Brighton, the Business Space Investment team advised Irish Life Assurance plc on the Â£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's Central London Office Fund on the Â£127.4m acquisition of Belgrave House, a substantial office building let to Google, American Express and BAA Plc. During the year, our UK Residential business acquired Buckleys in Clapham, to enhance our coverage in South West London. In December, we acquired Chesterfield, a practice based in Knightsbridge specialising in the top end of the prime Central London market. We also opened new residential offices in Truro, Reigate, Haywards Heath, Bury St Edmunds and Locksbottom as well as expanding many of our existing teams. Across both the London and Country sectors, we sold 4,236 second-hand units, a 32% increase on the previous year, including the sale of 66 properties over Â£5m. Among the most notable sales was a house in Eaton Square which had a guide price of Â£20m and Bignell Wood near Lyndhurst in Hampshire which once belonged to Sir Arthur Conan Doyle. The Residential Investment team was consolidated during the year, enabling us to extend our wide range of professional and transactional advice to an ever-increasing mix of clients interested in residential products as an asset class. The Residential Investment team was particularly active in forward selling off-plan student and residential investment opportunities. Highlights included the disposal of an entire scheme of over 100 residential units on behalf of Bellway Homes plc and forward selling over 2,500 student bed spaces for various specialist developers. Our purchasing advice business, Prime Purchase, which operates independently, recorded its fifth year of sustained growth. New offices were established in Dorset and Oxfordshire. The average length of search fell to four months in London and seven months in the Country, with over half of the properties bought for clients secured before they were advertised. A key achievement was the acquisition of the 365 acre Alderley Estate in Gloucestershire. From 22 New Homes offices we sold 4,790 units for Â£2.1bn and new sales were secured in London on properties worth in excess of Â£1.6bn. Sales of new homes included off-plan sales of all eight houses at Phillimore Square for prices in the region of Â£10m. The entire development, including 35 apartments, was sold within six months of completion. Our recent investment in the Auction business produced encouraging early returns. In the first full year's trading, the Commercial and Residential teams produced sales of Â£412m, up from Â£278m in 2005. This comprised 1,171 lots sold, with an average success rate of 87% and an average lot size of Â£352,000. These figures place us as the third largest auction house in the UK. Although the Residential business is now mature, it nevertheless produced sales of Â£215.8m, up from Â£177m last year. We sold 800 lots and achieved an average success rate of 89% and an average sale price of Â£270,000. Many Housing Associations and Local Authorities use our auctions services as a successful sales method. The Nottingham Auction team raised sales to Â£22.3m from Â£12m in 2005. This comprised some 121 lots sold and an average lot price of Â£184,000. In 2006, our Affordable Housing team advised a number of residential and mixed-use developers, helping them to optimise affordable housing obligations driven by evolving planning policy. We assisted Development Securities plc on a planning application for a mixed-use scheme at Oriental City in the London Borough of Brent and assisted in justifying the level of planning contribution made for the scheme. Our Leisure business provided valuations of the Bannatyne Fitness and Livingwell Premier Health Club chain following acquisition of 24 Livingwell Premier Clubs by Bannatyne for approximately Â£90m. The combined portfolio comprised 61 clubs with a value in the region of Â£250m. Our Farmland business marketed 17.5% (31,823 acres) of land marketed in the UK consolidating our market-leading position. The influx of foreign money into the UK continued with Danish farmers buying over 9,700 acres at a cost of around Â£34m over the last 12 months. In Asia, we opened an agency office in Bangkok in 2006, recruiting a team of ten to conduct commercial and residential agency operations in the city as well as in 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 believed to be the largest single asset transaction undertaken to date in mainland China. We are beginning to see the signs of a developing market for commercial property sales both to private and institutional buyers, and our Capital Markets teams in Beijing and Shanghai are well-placed to take market share as the disposition activity gathers pace. We also opened new offices in China, in Chengdu and Tianjin. In Hong Kong, our Capital Markets team were responsible for concluding over HK$10.8bn worth of commercial real estate transactions during 2006. The team have an enviable reputation in the marketplace, being responsible for between 35-50% of all known deal flow in the Hong Kong market, irrespective of whether it is whole bloc site, collective sales, retail or office/industrial. In Japan, considerable organic investment was undertaken. We recruited a landlord leasing team of 12, opened a new serviced office in Osaka and also a major high street residential office in a key high-value ward in Tokyo. In Australia, our senior management team was rebased and this incurred some significant restructuring costs. Our Sydney business also moved office and secured 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 total of AUS$465m. Future plans Following our strategy of the last two years to strengthen our Investment and Agency teams through targeted recruitment, we continue to focus on ensuring that we have a breadth of outstanding expertise across all sectors to meet client needs. High on our agenda is to establish an investment business in the US, where we are reviewing a number of options. We also aim to add further specialist investment services, including additional recruitment to our Private Client department. This business experienced an exceptional year in 2006 and we see a clear opportunity to improve our service in what is an increasingly important and expanding market. Following the exceptional performance of the Investment teams in our eight established European markets, our strategy is to continue growth via recruitment and to use our reputation and market share to improve brand recognition and strengthen our European presence. In 2007 we are aiming to expand our Corporate Finance capability, working closely with our existing transactional teams. We will continue to be involved in the most exclusive developments, an example of which is One Hyde Park, on behalf of Candy & Candy, project managers for the scheme. This development will comprise 80 of the world's most sought-after properties, many with direct views across Hyde Park. Our Asia Pacific business continued its growth strategy of investment in the region and will remain focused on the high value real estate markets through 2007. Our Hong Kong business continues its objective of organic recruitment and maintaining its strong market position in investment sales and purchase, leasing and property management services. In South East Asia we will continue to expand our Singaporean business in all real estate service lines and look to strengthen our brand awareness in Indonesia, Malaysia and the Philippines through associations with the premier local real estate service providers. Our most significant objective in Asia Pacific will be to achieve further penetration into major cities in Japan, arguably the most difficult real estate market in Asia, through organic recruitment and small scale acquisitions. The development of our business in the Japanese market requires taking a long-term view, the significant benefits of which will take several years to materialise. Consultancy 2006 2005 Change Revenue Â£98.8m Â£71.9m +37% Operating profit Â£16.4m Â£12.8m +28% Our Consultancy business generates fee income from a wide range of professional property services including valuation, building consultancy, landlord and tenant, rating, planning, strategic projects and research. Marketplace The continuing attractiveness of commercial property as an investment class, as well as recovery of the office leasing markets throughout Europe led to strong demand for consultancy services across Europe. Development activity picked up steadily in 2006 and this combined with strong investor interest in the sector, stimulated demand for building consultancy, planning and valuation services in particular. During the year there was strong growth in all areas of UK Valuations. 2006 saw positive rental growth returning to the majority of markets, in particular the West End office market. Key achievements of 2006 Savills' Commercial Valuation Department has been nominated for Professional Agency Team of the Year (Valuation) at the Property Week Awards Ceremony on 17 April 2007. We value investment and development properties across the commercial, residential and mixed-use sectors, both in the UK and Europe. We act for all the main banks, providing independent valuations for loan security purposes and also providing advice to investment banks seeking to acquire financial stakes in major portfolios. 800 property lenders attended our annual Financing Property Presentations in June 2006 in London City, London West End, Manchester, Edinburgh and Dublin, the latter in conjunction with Savills Hamilton Osborne King. Of the development projects valued in 2006, the completed development values were as follows: 35 exceeded Â£100m, 15 were between Â£200m and Â£500m, seven were between Â£500m and Â£1bn and five were above Â£1bn. High profile instructions included: 'The Gherkin', One Hyde Park, Middlesex Hospital and The London Stock Exchange. The year was characterised by extraordinary growth in residential values in prime central London with our Private Bank Valuation team valuing 35 houses and flats with capital values of between Â£10m and Â£32m in London and the Home Counties. The Residential Valuation department in London increased its staff by 30% resulting in a 50% increase in turnover in our Loan Security and Landlord and Tenant business. The key strategy of this department is to develop teams of individual specialists across the business. This has resulted in retention as valuers to a number of the national house builders, such as Ballymore Properties Limited 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. Each office continued to recruit senior high calibre staff in order to focus on high value projects. The Technical Due Diligence and Project Monitoring team were particularly active in 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 â‚¬2.5bn in value, in nine European countries. The largest single property was the Cevahir Centre in Istanbul, one of Europe's largest shopping centres. In addition to the European work, we have been active advising investment clients on new build retail schemes at White City and Victoria Square Belfast, two London landmark office buildings and two student housing schemes. Other projects included Triton Court and Milton and Shire House in the City of London for 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 the country has continued to win a plethora of high profile instructions in the office, retail warehouse, retail and industrial sectors. In 2006, we represented over fifty landlord clients in the out of town retail sector and acted on over 3m sq ft. We were also retained on some of the highest value single let office properties throughout Central London and having one of the most senior and established teams in this niche specialisation, are well placed to capitalise upon the enhanced rental growth predicted within not only Central London but also the provinces. Our expertise in this specialisation was complemented during the year by the corporate acquisition of Blair Kirkman and with that the synergy of an established and highly respected team with a bias towards the high street, shopping centres and food stores. We now have one of the most senior and experienced Landlord and Tenant teams in the Country and with leading specialists to cover all sectors. The Lease Management team provided strategic dilapidations advice on 1.5m sq ft of dilapidations and expert instructions totalling Â£31m in value and contract administered some Â£2.3m of works. On average, they reduced landlord's claims by 66%. On one Romford warehouse they were able to reduce a landlord's Â£1.7m dilapidations claim by 95%. They advised on 33 new service charge audits and expert instructions for notable clients such as Mapeley STEPS and American Express. Our Project Management team was responsible for advising on, and delivering office fit out and refurbishment projects totalling more than 1m sq ft. The occupier fit out sector remains buoyant and a key market, however, with the benefit of the team's extensive experience and broad skill base, their focus and growth is towards larger scale refurbishment and redevelopment projects on behalf of landlord, developer and investor clients, where value enhancement from growing levels of second hand stock is absolutely crucial towards realising maximum return. The Industrial Building consultancy has continued to expand over the past 12 months. We have provided specialist pre acquisition and project management support for our leading developer clients on over 3m sq ft of new distribution space. We have also provided due diligence and asset monitoring for a range of funds across 2.5m sq ft of industrial development. Our principal clients include Gazeley, Helios Properties, MetLife Investments, Mothercare and Terrace Hill. In the social housing sector, our specialist Stock Condition Survey and Procurement Advice team had another busy year carrying out a record number of surveys and substantially increasing our market share. The sector looks set to remain buoyant and we are well placed to continue to expand our business in this specialist area. During the year, we expanded our Capital Allowances team to take advantage of the strong investment markets. The telecoms sector continues to dominate our Strategic Projects business. We are rolling-out the mobile phone operators' networks in spite of the much publicised uncertainty at the take-up of the technology. As the sector matures, operators are focusing on identifying opportunities to reduce expenditure. For example, we have been awarded a three year project by Siemens to reduce Vodafone's BT fixed line rental costs. The second main contributor to our Strategic Projects business is landowner liaison work. We work with both Scottish and Southern Energy Ltd and EDF Energy, helping their construction teams refurbish high voltage overhead lines. A complex mix of overall housing scarcity and localised market saturation is proving to be fruitful ground for our Residential Market Research consultancy, with most of our investor and developer clients now insisting on research as part of a total advisory service. In fact in some cases, scheme funding depends on research. Our Planning teams based across the UK also achieved a record year, advising on a wide variety of projects across the UK. Our London based Planning team handled several high profile development projects, among them the Arsenal regeneration scheme which has won several awards, including Regeneration Magazine's Best Mixed Use Project in 2006 and the Mayor of London's Award for Planning Excellence. In the regions, important successes included the allocation of a 1,200 house urban extension at Andover for Persimmon Homes, and the securing of detailed planning consent for a flagship regeneration project at Ocean Village, Southampton, for MDL Developments. In Housing Consultancy, a key project of 2006 was the strategic asset appraisal of Glasgow Housing Association's 74,000 unit housing stock. Our teams in Bristol, York, Birmingham and the City also continued to perform well and were strengthened by the acquisition of PCA Holdings Limited, a 14 strong specialist team based in St Albans. Our Research team provided valuable input to Land Securities on the development of 10,000 new homes at Ebbsfleet Valley in Kent Thameside. This is a good example of the way in which our approach can help the development of larger scale projects. We helped to provide answers to a number of important issues concerning the type of environment that can be created at Ebbsfleet, taking on board the existing housing stock in the area and substantial volumes of competition. We also looked at potential demand and how values could be enhanced by the high quality design aspirations of our client. In Hong Kong and China, the Valuation team of thirty-five which were recruited in 2005 continued to increase their presence in the Hong Kong, Macau and mainland China markets. During 2006, our Valuation and Professional Services team in Hong Kong were involved in the property valuations associated with the listing of 16 separate IPO and notifiable transactions on the Hong Kong Stock Exchange. Included in these were the Sunlight REIT, Champion REIT, China Coal and Energy Company and China Communications Services Company. In Australia, we were appointed by the Australia Post to value their property portfolio annually for the next three years. The portfolio comprises 450 properties and worth in excess of A$1bn. Also in Australia, the Strategic Project Delivery team has an ongoing appointment for the Sydney Opera House known as the 'Venue Improvement Plan'. This will encompass strategic planning/staging, authority approvals, brief preparation, 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 high quality people who are able to drive our growth. For example, a major new initiative for 2007 will be the creation of a new pan-European Valuation team based in London but working closely with colleagues in Europe. This team will expand our capability in order to meet the growing demand from London based clients for quality valuation advice in Europe. In the Netherlands, the aim is to develop a recognised due diligence advisory practice, following on from our success in Sweden. During 2007, we will expand several of our teams into the UK regions, including Hotels Valuation, Capital Allowances and Building Consultancy where we already have ongoing recruitment plans in operation in Glasgow, Manchester and Birmingham. Our Hotels Valuation capability will also be extended into Europe where we aim to exploit the increasing demand for professional services. At the start of 2007, we acquired Hepher Dixon, the award-winning national planning and regeneration specialists. With 160 planning and related professionals operating across 12 offices nationwide, we can integrate planning and regeneration skills with residential, commercial and mixed use property consultancy. Our enhanced environmental, urban design and master planning skills mean that we are well equipped to embrace the new planning policy framework and the emerging sustainable development, energy efficiency and climate change agendas. The strategy of our Development business is to create strong and diverse development teams which offer both consultancy and agency services. This broad range of services not only meets our clients requirements in the public and private sectors but also provides a sustainable and balanced income stream. For 2007, the Strategic Projects team is looking closely at the renewable energy sector and has a contract to roll out a large number of small 2MW plants throughout the UK. It is anticipated that as the listed property trust market in Asia gathers momentum, the need to appoint independent valuation and research consultants will increase and Savills is well-positioned to secure a substantial share of that business. Our Australian and Hong Kong Valuation teams are working closely together to utilise their combined experience in a bid to secure more of the growing listed property trust requirement for valuation services. Property and Facilities Management 2006 2005 Change Revenue Â£137.2m Â£104.5m +31% Operating profit Â£9.9m Â£7.5m +32% Our Property and Facilities Management business continued to grow, generating fee income from managing commercial, residential and agricultural properties. Marketplace Property management remains a fiercely competitive market sector throughout the UK and Europe. Legislative changes in many areas including Health & Safety and Employment law ensure that liabilities for managing agents continue to increase year on year. Robust commercially practical procedures are required to ensure these changes do not become onerous for management companies. As yields harden landlords' reliance on managing agents' ability to assist with asset management initiatives increases as does the need for an agent to be able to accommodate portfolios including holdings across Europe, not solely in the UK. The Rural Management business saw significant change in 2006 with CAP reforms generating a marked improvement in confidence. This was further enhanced by a rise in soft commodity prices and the prospect of enhanced demand for bio crops to drive an increase in land values and farm profitability. The Property Management business in China continued to grow as local developers increasingly seek international service providers to maintain their buildings to very high standards, and maximise holding value through proven asset management skills. In Hong Kong the market remains healthy, although there is increasing competition amongst the major players. In Australia, the business is seeing increasing pressure on margins as the listed and unlisted property trusts attempt to squeeze operating costs to maintain some form of positive yield over lending costs. Our Facilities Management business in Hong Kong has had to come to terms with the introduction of the Wage Protection Movement for Cleansing & Security Guards which pushed up wage costs in the private sector. Nevertheless, the market remains 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; we established new management teams in Bristol and Leeds. The acquisition of Hamilton Osborne King introduced a new income stream within the Irish Market, whilst our UK team secured significant portfolio instructions. This included our appointment as managing agents on behalf of Resolution Asset Management. At the same time, portfolios under management on behalf of many existing clients including British Land, GE Commercial Finance Real Estate and Reef increased notably. The Rural Management business expanded substantially, taking on 18 significant new estates across the country totalling 64,000 acres. A key instruction concerned St John's College, Cambridge, where we advised on the strategic review and management of the College's property portfolio. New clients have also resulted from our close involvement with our Agency teams in the UK by Danish buyers. In Asia Pacific, the Property and Facilities Management business is pursuing its continuing growth path in mainland China, Macau and Hong Kong. In Beijing, Savills secured the mandate for the Yin Tai Centre, a Grade A office building 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 over 200,000 sq ft. In Hong Kong, Savills was awarded the asset management for the Vicwood Plaza, together with 181 Queens Road which comprise a total ground floor area 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 has 14.7m sq ft of mostly Grade A prime office and retail in Seoul under management. In addition, the business secured a major asset management instruction in Busan, including office, retail and residential and requiring an on-site team of six. In Macau, we opened a full service office to take advantage of the huge increase in property management activity generated by developments in the gaming and entertainment business. Our Facility Management business in Hong Kong was awarded the contract for the EcoPark in Tuen Mun Hong Kong as it seeks to expand its service lines into related avenues. The contract was awarded to Savills Guardian on its technical qualities, rather than on the lowest bid basis. Future plans Property management remains of high importance to us as a source of high quality, secure income and not just as an extension to our other services. It is an opportunity for us to work closely with clients to improve and enhance value through active, hands-on asset management. We employ the highest quality managers, 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 emphasis on London and the shopping centre market. In order to better service new and existing clients, we are opening a new Property Management department in Bristol and are continuing to expand the teams in Glasgow, Manchester, Birmingham and London. In addition, we are expanding our services in Germany where there is great demand from international investors. Property management continues to be a priority growth service in Asia where we have an established reputation and where the margins and quality of income are high. Where there are clear synergies to be gained, we are also actively considering growth through the acquisition of niche property management businesses. The growing need for proven international expertise in the Property and Facility Management business in China, will enable us to increase our presence into the secondary cities. With the opening of Chengdu and Tianjin in 2006, we now have seven offices in mainland China, with the possibility of several more in 2007. Financial Services 2006 2005 Change Revenue Â£26.9m Â£25.8m +4% Operating profit Â£4.0m Â£4.3m (7%) The Financial Services division comprises Savills Private Finance Limited, which provides residential mortgage broking services, commercial debt broking services, commercial and private insurance services and associated financial planning products. Marketplace The 2006 UK mortgage market was valued at around Â£340bn, of which approximately 50% was accounted for by the re-mortgage business. There is an increasing impact of regulation in the market and we aim to be in the forefront to ensure that we follow the highest standards. Interest rates rose in both November 2006 and January 2007, and this will undoubtedly have an impact on the buy-to-let mortgage market as the pressure on yields increases. The base rate remains historically low for the UK but the cumulative 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 is possible that the overall market may shrink, but we are confident of increasing our market share. Key achievements of 2006 The 2006 performance was pleasing. Strong contributions were made by all areas of the business, most notably from the Commercial Debt Broking team which continued to excel in the areas of healthcare, leisure and investment. Increased regulation in this market has inevitably resulted in additional costs. As part of our policy of being 'best in class' we have invested substantially in improving our compliance systems and operating procedures. The residential mortgage market remained strong despite additional operating costs and the business continued to trade well. Future plans We will continue to follow our strategy of selective diversification and expect to see further progress within our Channel Islands business, our affordable mortgage operation SPF Sherwins and the International Mortgage team. The traditional Residential Mortgage Broking business now operates from 18 offices and we expect further growth through 2007. Part of our strategy will be for closer co-operation in terms of deal flow between Savills L&P and SPF. Fund Management 2006 2005 Change Revenue Â£7.2m Â£4.7m +53% Operating profit Â£0.8m Â£0.6m +33% Although revenue was in line with expectations, the operating profit was below plan principally due to abortive costs incurred in the second half of the year relating to products that did not launch due to short term market weakness. Expenditure on infrastructure development accelerated sharply throughout the year in line with the budgeted expansion of the business. Funds under management increased to Â£2.1bn. Cordea Savills was formed three years ago to grow the existing UK-based fund management division into an independent and international property fund manager. We have now developed a European investment and business platform, employing 50 people in offices in London, Milan, Munich and Paris. With this significant expenditure in infrastructure, we anticipate strong growth in revenues going forward, as we invest capital raised over the last two years and launch further funds. Funds under management in the current year are expected to rise by over Â£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 of property is reflected in our client base which is drawn from European countries and Asia. Marketplace There has been a steady rise in allocations to property as an asset class by institutions and private investors over the past few years. However, as yields have compressed across European property markets, investors are becoming increasingly discerning in their investment requirements. With investment in pooled funds, investors are seeking fund managers with an investment strategy designed to achieve above market returns, a team of experienced investment professionals with proven transaction capabilities and tax-efficient structures through which to invest. Cordea Savills is now well positioned to meet such requirements. Key achievements of 2006 In a strongly performing property market, we managed to achieve superior returns for most funds. For example, we are once again on target to outperform the benchmark for our largest pension fund client, something we have achieved in every year except one since 1988. Several of our existing funds also grew in size during the year, such as the Charities Property Fund, which increased from Â£309m to Â£376m, and Europa Immobiliare No.1, which increased its gross asset value from â‚¬286m to â‚¬460m. We launched a number of new funds during the year including: Italian Opportunities No.1, a vehicle which draws on our strong local presence to deliver attractive returns and which, based on the equity raised, is expected to have a gross asset value of â‚¬800m; Serviced Land No.2, which follows on from the successful original fund dealing in residential land in the UK; the Student Hall Fund, which offers long term secure income streams in an undersupplied UK market; and the Accommodation Investment Fund for Charities, which is a diversified UK residential fund. Future plans The success of our business is dependent on our ability to create innovative investment opportunities and deliver performance. Understanding the requirements of clients, matching these with investment opportunities and delivering performance is central to our business. We have a pan-European investment capability and are in the process of launching further European funds designed to meet the particular needs of Italian and German institutions. This strategy is complemented by market and sector specific funds. In response to the increasing globalisation of capital flows and demand for property investment, we are investigating investment opportunities and new product lines in a selected number of Asian markets. During 2006, Savills plc provided capital to support growth, particularly in relation to fund launches and is continuing to support the business in the current year. We believe that Cordea Savills is about to enter a period of accelerated and sustained growth, which will result in an increasing need for capital to both co-invest in funds and purchase seed assets. As such, the partners of Cordea Savills LLP consider that this is now the appropriate time to bring in an additional strategic investor to help maximise opportunities for clients and enhance shareholder value. British Linen Advisers have been appointed to provide advice in relation to this strategic investment, which is expected to be concluded within the first half of 2007. Financial Highlights The key financial information for the year was as follows: â€¢ Underlying Group operating margins of 13.7% (2005 - 14.3%). â€¢ Strong cash balances with a year-end balance of Â£124.1m. â€¢ 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 of acquisitions and disposals of businesses or interests in ventures, both in the UK (in aggregate Â£21.1m) and overseas (in aggregate Â£50.9m) including: â€¢ 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 Â£4.5m. â€¢ 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 Â£8.9m. â€¢ On 28 April 2006, the Group's investment in the Student Halls Long Lease 1 Unit Trust was sold at carrying value of Â£16.5m with Â£1.0m invested in the new Cordea Savills Student Hall Fund. â€¢ On 13 June 2006, the Group acquired Hamilton Osborne King (HOK) in Ireland for consideration of Â£39.4m, in line with our strategy to grow Savills across all the key markets where our clients do business. â€¢ On 1 July 2006, the Group disposed of its investment in Managed Office Solutions for a profit after costs of Â£0.5m. â€¢ 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 Â£20.5m. Earnings per share and dividends EPS growth is the change in EPS adjusted for share based payments, amortisation of intangibles and impairment of goodwill and profit on disposals. Basic earnings per share amounted to 46.3p (2005 - 33.6p). Underlying basic earnings per 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 full year, a 33% increase on last year. The decision to increase our dividend is both a reflection on profits and in line with our current progressive dividend policy. Capital and Shareholders' interests Minority interests Minority interests increased to Â£4.3m (2005 - Â£0.6m) and reflects acquisitions and increased profits during the year. Share capital At the AGM on 10 May 2006, the shareholders passed a resolution that the existing ordinary share capital of the Company be split; each existing 5p ordinary share was divided into two new ordinary shares of 21/2p. The share split became effective on 11 May 2006. Relevant figures in this preliminary statement have been adjusted to reflect this. During the year ended 31 December 2006, 570,000 shares were issued to participants in the Savills plc United Kingdom Executive Share Option Scheme and 1,516,788 shares to participants in the Savills Sharesave Scheme. No shares were 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 its acquisition of Trammell Crow Company we re-purchased 3.5m shares for cancellation. The total number of ordinary shares in issue at 31 December 2006 was 135.1m (2005 - 133m). Cash Flow and Liquidity Cash generated from operations is defined as cash earned from the principal revenue-producing activities of the Group that are not financing or investing activities. This is a key indicator for the ability to maintain our operating capability, pay dividends and make new investments without external financing. Net cash inflow from operating activities totalled Â£76.1m (2005 - Â£32.6m) which, after allowing for cash flows including taxation, dividends, investments and capital expenditure, produced a net increase in cash of Â£28.7m (2005 - Â£7.5m). At 31 December 2006, the Group's cash at bank and on short term deposit amounted to Â£124.1m. This was deposited with banks and financial institutions with top credit 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 year provides the Group with substantial resources to fund operating and investment activities. The Group also has undrawn facilities of Â£8.9m, however, in order to achieve our growth strategy we may arrange long term bank borrowings if required. Net Assets Net assets continue to grow with an increase of 26% from 31 December 2005 to Â£212.8m. Goodwill increased significantly from Â£54.3m to Â£99.9m largely due to the Â£22.5m Hamilton Osborne King goodwill capitalised. Pension Scheme During the year the Company and the Trustees undertook a review of the Pension Plan of Savills ('the Plan') and a number of rule changes were made to accommodate and meet the legislation changes effective from 6 April 2006. Forward Looking Statement In preparing this Group Chief Executive's Review of Operations and Financial Review, whilst we have provided a detailed management commentary on our markets, activities and prospects all forward looking statements and forecasts involve risk and uncertainty because they relate to events and depend upon circumstances that 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 Â£m Â£m Continuing operations Revenue 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 0.4 available-for-sale investments Operating profit 2 80.2 54.8 Finance income 4.8 4.0 Finance costs (1.1) (0.5) 3.7 3.5 Share of post tax profit from associates & joint ventures 0.5 0.3 Profit before income tax 84.4 58.6 Income tax expense (including foreign tax of Â£4.4m and 2005 - 4 (25.6) (17.8) Â£4.0m) Profit for the year from continuing operations 58.8 40.8 Discontinued operations Profit/(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 40.0 Minority interest 1.4 0.3 59.1 40.3 Earnings per share From continuing and discontinued operations Basic earnings per share 7 46.3p 33.6p Diluted earnings per share 7 44.2p 31.3p From continuing operations Basic earnings per share 7 46.0p 34.1p Diluted earnings per share 7 44.0p 31.7p From discontinued operations Basic earnings per share 7 0.3p (0.5p) Diluted earnings per share 7 0.2p (0.4p) Dividends per share Final dividend proposed 5 11.0p 8.0p Dividends 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 Â£m Â£m Assets Non-current assets Property, plant and equipment 16.5 14.7 Goodwill 99.9 54.3 Intangible assets 19.1 4.7 Investments in associates and joint ventures 5.6 3.4 Deferred income tax assets 20.6 23.9 Available-for-sale investments 8.8 10.5 Financial assets at fair value through profit or loss 1.5 - 172.0 111.5 Current assets Assets classified as held for sale - 64.9 Work in progress 3.2 3.2 Trade and other receivables 163.9 115.2 Cash and cash equivalents 124.1 99.9 291.2 283.2 Liabilities Current Liabilities Borrowings 7.3 1.9 Derivative financial instruments 0.2 - Liabilities directly related to assets classified as held for sale - 48.9 Trade and other payables 191.8 136.1 Current income tax liabilities 10.3 5.6 Employee benefit obligations 3.0 1.7 Provisions 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 249.1 199.8 Non-current Liabilities Borrowings 12.0 1.5 Derivative financial instruments 0.3 - Trade and other payables 2.0 1.0 Retirement and employee benefit obligations 19.0 25.0 Provisions for other liabilities and charges 1.6 1.7 Deferred income tax liabilities 1.4 2.3 36.3 31.5 Net assets 212.8 168.3 Equity Capital and reserves attributable to equity holders of the Company Share capital 10 3.4 3.3 Share premium 10 82.4 80.9 Other reserves 10 (1.8) 6.5 Retained earnings 10 124.5 77.0 208.5 167.7 Minority 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 Â£m Â£m Cash flows from operating activities Cash generated from continuing operations 8 87.4 44.9 Interest received 4.7 3.8 Interest 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) 0.1 Proceeds from sale of property, plant and equipment 0.2 0.1 Proceeds from sale of associates, joint ventures and 7.9 0.5 available-for-sale investments Dividends received 0.5 0.3 Net 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 investments Purchase 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 activities Proceeds from issue of share capital 1.2 38.1 Proceeds from borrowings 0.2 0.7 Repurchase 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 7.5 Cash, cash equivalents and bank overdrafts at beginning of the year 99.9 89.9 Effect 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 Â£m Â£m Profit for the year 59.1 40.3 Revaluation of available-for-sale investments 0.4 6.6 Actuarial gain/(loss) on defined benefit pension scheme 2.5 (7.3) Tax on items directly taken to reserves 3.5 9.5 Foreign 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 51.6 Minority interest 1.6 0.2 61.2 51.8 Effects of changes in accounting policies Attributable to equity shareholders of the parent - increase in retained earnings due to revaluation of available-for-sale investments on adoption of IAS 32 & IAS 39 - 1.0 Attributable to minority interest - - - 1.0 NOTES 1. Basis of preparation The results for the year ended 31 December 2006 have been extracted from the audited financial statements. The financial statements have been prepared in accordance with International Financial Reporting Standards and IFRIC interpretations as adopted by the European Union and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. The financial information in this statement does not constitute statutory accounts within the meaning of s240 of the Companies Act 1985. The statutory accounts for the year ended 31 December 2006, on which the auditors have given an unqualified audit report, have not yet been filed with the Registrar of Companies. The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements 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* Total December 2006 Advice Facilities Management Services Management Â£m Â£m Â£m Â£m Â£m Â£m Â£m Revenue United 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 0.3 335.0 Rest of Europe 32.6 5.3 10.2 - - - 48.1 Asia 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 profit United 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 64.5 Rest of Europe 4.3 0.7 (0.1) - - - 4.9 Asia 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 3.7 Share of post tax profit from associates & joint ventures 0.5 Profit before income tax 84.4 Income tax expense (25.6) Profit for the year from continuing operations 58.8 Year ended 31 Transactional Consultancy Property & Fund Financial Unallocated* Total December 2005 Advice Facilities Management Services Management Â£m Â£m Â£m Â£m Â£m Â£m Â£m Revenue United 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 0.1 254.6 Rest of Europe 15.1 2.1 4.7 - - - 21.9 Asia 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 profit United 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) 41.8 Rest of Europe 3.0 0.3 (0.1) - - 0.1 3.3 Asia 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 3.5 Share of post tax profit from associates & joint ventures 0.3 Profit before income tax 58.6 Income tax expense (17.8) Profit for the year from continuing operations 40.8 The unallocated segment includes holding company costs, Group bonuses and other expenses not directly attributable to the operating activities of the Group's business segments. *For the purpose of the segmental information above, and to assist in the comparison of segmental information, the benefit arising from the amortisation of the share based payment charge as discussed in more detail in Note 6, is retained within the unallocated segment. The segmental analysis has been adjusted to allocate European central costs against the relevant business streams. These costs were previously shown as part of the unallocated United Kingdom - Commercial segment. 3. Discontinued operations Year ended Year ended 2006 2005 Â£m Â£m Revenue 1.1 0.2 Expenses (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 units were disposed during the year. The Group's share of the Fund was diluted to a 2% holding of Â£1.0m, which is classified as an available-for-sale investment. The profit for the year includes a fair value gain of Â£1.4m arising on mark to market valuation of two interest rate swaps taken out on loans secured on the properties within the Fund. All operating results are classified under discontinued operations. 4. Income tax on profit from continuing operations The income tax expense has been calculated on the basis of the underlying rate in each jurisdiction adjusted for any disallowable charges. Year ended Year ended 2006 2005 Â£m Â£m United Kingdom corporation tax 18.7 13.0 Foreign tax 4.7 4.0 Deferred tax 2.2 0.8 25.6 17.8 5. Dividends Year ended Year ended 2006 2005 Â£m Â£m Amounts recognised as distribution to equity holders in the year: Interim dividend of 5.0p per share (2005 - 4.0p) 6.2 4.9 Ordinary final dividend of 8.0p per share (2005 - 6.3p) 10.0 7.0 Special 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 at the Annual General Meeting on 9 May 2007. These financial statements do not reflect this dividend payable. If approved the dividend will be paid on 15 May 2007 to shareholders on the register as at 13 April 2007. Following shareholder approval at the Annual General Meeting on 10 May 2006 a two for one share split took place. The above quoted dividend per share figures have been adjusted to present comparable figures following the split. 6. Underlying profit before tax Year ended Year ended (a) From continuing operations 2006 2005 Â£m Â£m Reported profit before income tax 84.4 58.6 Adjustments: Amortisation of intangibles (excluding software) & impairment of goodwill 1.8 0.9 Share 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 of the underlying results of the Group for the period. The adjustment for share based payment relates to the transitional impact of the accounting standard for share based compensation. The annual bonus is paid in a mixture of cash and deferred shares and the proportions can vary from one year to another. Under IFRS the deferred share element is amortised to the income statement over the vesting period whilst the cash element is expensed in the year. The adjustment above addresses this by deducting from profit the difference between the IFRS 2 charge and the value of the annual share award. (b) Geographical information Year ended Year ended Underlying profit before tax 2006 2005 Â£m Â£m United Kingdom - Commercial 32.5 24.1 - Residential 24.6 19.4 57.1 43.5 Rest of Europe 5.5 3.2 Asia 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 share split (see Note 5) had taken place at 1 January 2005 so as to present comparable information. a. Basic and diluted earnings per share Earnings Shares EPS Earnings Shares EPS Year ended 31 December 2006 2006 2006 2005 2005 2005 Â£m m Pence Â£m m Pence From continuing and discontinued operations Basic earnings per share 57.7 124.7 46.3 40.0 118.9 33.6 Effect of additional shares issuable 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 operations Basic earnings per share 57.4 124.7 46.0 40.5 118.9 34.1 Effect of additional shares issuable 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 EPS Year ended 31 December 2006 2006 2006 2005 2005 2005 Â£m m Pence Â£m m Pence From discontinued operations Basic earnings per share 0.3 124.7 0.3 (0.5) 118.9 (0.5) Effect of additional shares issuable 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 EPS Year ended 31 December 2006 2006 2006 2005 2005 2005 Â£m m Pence Â£m m Pence From continuing operations Basic earnings from continuing 57.4 124.7 46.0 40.5 118.9 34.1 operations Amortisation of intangibles 1.3 - 1.0 0.6 - 0.5 (excluding software) & impairment of goodwill after tax Share based payment adjustment (4.3) - (3.4) (1.3) - (1.1) after tax Less sale of subsidiary, associate, (3.5) - (2.8) (0.3) - (0.2) joint venture & available-for-sale investments after tax Underlying basic earnings per share 50.9 124.7 40.8 39.5 118.9 33.3 Year ended Year ended 8. Cash generated from continuing operations 2006 2005 Â£m Â£m Profit for the year from continuing operations 58.8 40.8 Adjustments for: Income tax 25.6 17.8 Depreciation 5.6 4.6 Amortisation of intangibles 2.4 1.2 Impairment of goodwill - 0.3 Net finance income (3.7) (3.5) Share of post tax profit from associates & joint (0.5) (0.3) ventures Profit on disposal of subsidiary, associate, joint venture & available-for-sale (5.1) (0.4) investments Loss on sale of property, plant and equipment 0.4 0.4 Increase/(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 of Korean Asset Advisors and BHP Korea and a further 5% was acquired in December 2006 for total consideration of Â£8.9m. On 13 June 2006, Savills Overseas Holdings Limited acquired the businesses of Hamilton Osborne King (HOK) in Ireland for total consideration of Â£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 Â£m Â£m Â£m Â£m Â£m Â£m Balance at 1 January 2006 3.3 80.9 6.5 77.0 0.6 168.3 Total recognised income and expense - - (4.2) 63.8 1.6 61.2 for the period Employee 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 - - - 1.2 Purchase 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 Â£m Â£m Â£m Â£m Â£m Â£m Balance at 31 December 2004 3.0 43.1 (1.2) 58.6 0.2 103.7 Adoption 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 51.8 for the period Employee share option scheme: - Value of services provided - - - 1.9 - 1.9 Issue of share capital 0.3 37.8 - - - 38.1 Purchase 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: vgrady@savills.com 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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