Savills plc (SVS) Earnings Call Transcript & Summary

I'm conscious everybody will be busy today. So I'm going to start. And good morning, ladies and gentlemen, and welcome to this morning's virtual presentation of Savills preliminary results for the 6 months ending 30th of June 2021. I want to thank all of you for joining us today, and Simon and I hope that we can present results in person to many of you at the year-end. Despite this lack of face-to-face contact, I'm delighted to say that the entire business continues to perform very strongly, thanks to the efforts of our dedicated workforce, the support of our loyal clients and the commitment of our shareholders. At our full year results in March of this year, I highlighted our continued strategy, which was to maintain our operational bench strength despite the obvious headwinds affecting some of the transactional markets. And this was making sure we invested for the future recovery. I'm pleased to say that we're already seeing the benefits from this strategy in our results. Whilst the world has been turned upside down, new opportunities have been created, and I for one am very excited about the future as markets continue to unlock. And by following the recent coverage of the Olympic Games in Tokyo, it reminds us all of the need for international connection and celebration, something I know we're all looking forward to. The format of today's session will be very familiar to you. I will provide you with highlights of our results, together with an overview of the main dynamics, market dynamics as well as some of the key development initiatives we've undertaken during the period. Simon will then take you through a detailed financial review, and I will conclude with our summary and outlook for the second half of the year. So turning now for the highlights. Despite the continued uncertainty created by the successive waves of the pandemic, I'm delighted to announce that the group has traded better than anticipated and substantially ahead of the prior equivalent period. In the 6 months to June 30, 2021, we delivered revenues of GBP 932.6 million, an increase of 18% against the prior year. Underlying profit increased to GBP 66 million, some 400% higher than the first half of 2020. Our policy of maintaining balance sheet strength has resulted in a net cash position of GBP 106.7 million at the period end, allowing us to maintain investment in the business through the recovery cycle. We are therefore declaring an interim dividend payment of 6p per share, reflecting the confidence in our business model and the progressive recovery we are seeing. The drivers of this better-than-anticipated performance include the strength and depth of our less transactional businesses, particularly Property and Facilities Management and Consultancy, an area in which we're continuing to invest in. Property and Facilities Management revenues were up 6% and Consultancy revenues increased by 20%, thanks to the growth strategy. And whilst there are varying speeds of recovery in the global transaction markets, our commercial transaction revenues increased by 15% overall, with particularly strong growth experienced in the U.K. and Asia Pacific markets. I also want to highlight an absolute standout performance from our U.K. residential business with revenue up 97%, thanks to the exceptional reputation we have built on the highest level of service delivery, our strong market share and also the buoyant market conditions. The growth of Savills Investment Management also continues with revenue up 25% and assets under management increasing by 16% to EUR 23.7 billion. I am delighted with these results, which I believe validates our strategy to maintain the bench strength across the business into recovery, whilst continuing prudent cost control but also to invest in the business areas as the market recovery accelerates. Moving now on to the diversified business model. It's probably no surprise to see the relative weighting to transactional revenues increase as market conditions improve. Although with 61% of our global revenues deriving from less transactional business lines, the general balance of our business has been maintained. I've already highlighted the strong performance from our residential transaction businesses, both in the U.K., but also across many Asia Pac markets, where revenues have increased and which now, in total, represents 13% of our global income. Turning to the individual regional segments on the bottom of the page. You can see that the strategic balance between transactional and less transactional businesses is maintained across the U.K., across APAC, Europe and the Middle East, also with a continued increase in our consultancy income in North America as we develop these service lines further. I now want to highlight the principal areas, which we are prioritizing for strategic growth. Our market-leading property and asset management business now accounts for 38% of our global revenue. And this growth continues, following the prior year acquisition of OMEGA, our Property Management business in Germany and more recently, the former Knight Frank Spanish property management business which we acquired during the period with a team of 75 professionals. Within Project Management and Consultancy, we are continuing to enhance our services across all regions, primarily through organic growth but we're also continuing to consider some strategic bolt-ons. Within Savills' Investment Management, we've had a very busy first half, including the accelerated acquisition of the outstanding 75% shareholding of DRC Capital, the specialist debt investment manager as well as announcing the strategic partnership with Samsung Life Insurance, which we will detail later. Our expertise in the life science sector, primarily based in the U.K. and Europe has been significantly enhanced by our acquisition of T3 Advisors, a leading business operating in the life science and technology sectors in North America and further development of our global platform is underway. Not surprisingly, the logistics market has also continued very strongly capitalized by the greater online shopping and we have strengthened our platform across the regions, particularly in North America and key Asian markets. And this has included the acquisition of LCA, a specialist supply chain consultancy business headquartered in Malaysia. The undoubted performance of the residential sector in all these forms continues as a key focus for us. We are opening a number of new European offices and post the half year, we've acquired Real Plus, a specialist residential agency in Vietnam. Simon will also later update you on our investment in technology and data. So now moving on to the subsidiary businesses, starting with the U.K. And this year, I have split activity between the commercial and residential sectors as the latter's expect performance is definitely worth highlighting. On a macro level, optimism continues to improve due to the successful vaccination program in the U.K. and GDP growth estimates are upgraded for this year. However, the return to work programs for many corporate occupiers have been delayed, impacting heavily as we know, on a number of major city centers despite the reopening of the retail and hospitality sectors. From a market perspective, the commercial investment volumes increased by 19% year-on-year, the best half since 2018, and the U.K. overtook Germany to become the most heavily invested property market. Demand remains focused on meds bed sheds or life science multifamily and logistics. But we also saw a significant improvement in investment in retail warehousing and a resurgence of activity in the office sector. Within the leasing markets, we've also seen improving activity with record leasing volumes and logistics. And despite some forecasters predicting the demise of the office sector, office leasing volumes were up 23% nationally and only down 1.5% year-on-year in Central London, but albeit off a relatively low base. Across our own platform, our teams remain very active, advising union investments on the GBP 500 million acquisition of the London HQ of the British Telecom, advising Aries on their student housing portfolio in excess of GBP 1 billion, and our Birmingham Logistics teams acquired a major distribution site for Primark at Magna Park. In addition, we were delighted to advise St. John's ambulance in setting up 38 COVID vaccination centers nationally. Our market share of the U.K. national investment markets remained strong at over 15%. Whilst in London, this has increased to 18%. And in terms of outlook for the second half, we anticipate office leasing volumes particularly Grade A offices, improving further in the second half and investment volumes to continue to increase across all sectors. Now moving to residential. The strength of recovery in the residential markets has taken many commentators by surprise, albeit we consort the continued momentum building from the second half of last year. In the mainstream market, levels were up 103% year-on-year as well as 52% up on 2019, a better comparison, resulting in strong annual price growth. We do expect the normalization of market conditions as the stamp duty holiday ends and demand moderates in the second half, but we do anticipate very much a soft landing. And within the prime markets, transactions over GBP 1 million were more than double that of 2020 as well as 78% up on 2019, and we have experienced particular demand within the prime country house market which short saw annual price growth of 12.9%. In Prime Central London, price growth was obviously more muted, standing at 0.5% by the end of June, but we do expect this market will continue to improve as international travel restrictions are lifted. In fact, activity is already improving, evidenced by our recent sale of an apartment at Eaton Square guided at GBP 37.5 million, the highest price ever achieved in the square. We maintained our #1 position in prime London sales over GBP 5 million as well as commanding an 18.3% market share in prime country property whilst our virtual auctions business also sold 85% more property by value during the period compared with 2019. Overall, the strong activity we have experienced across both the commercial and residential markets in the U.K. increased our first half revenues by 40% overall to -- sorry, to GBP 417.4 million. Now moving on to Asia Pacific. The momentum created by the H2 recovery seen in 2020 in the region continues across many markets, particularly across Mainland China, but also notable improvements in Singapore, Australia and Japan, with a strong rebound in Hong Kong's economy during H1. Some of this growth is likely to be tempered by the further wave of COVID-19 infections with many markets, again operating under lockdown restrictions. The markets with the strong domestic economies and more advanced vaccination programs are obviously showing greater resilience. In light of this, overall commercial investment activity across the APAC region increased by 8% year-on-year, driven by strong activity in retail and industrial, with the office sector, the only area of decline. We saw investment activity pick up in many markets with China overtaking Japan, but also Singapore, Taiwan and Hong Kong, all showing good growth. Office leasing volumes recovered in a number of markets, led by China, where first half volumes now exceed the entire take-up for last year. Grade A office rents across the region also remained pretty resilient with declines reducing in Hong Kong and Japan. And demand very much focused again on higher-quality Grade A specification offices. In line with the residential market resurgence we've seen elsewhere in the world, demand across Greater China, Singapore and Australia all continue to improve, driving price increases. And with the improved momentum, our teams across the region were involved in some of the largest investment transactions, including in Hong Kong, the sale of the Kowloon Bay International Trade and Exhibition Center totaling some 1.7 million square feet, the largest deal of the year and where our overall market share increased to over 67%. In Australia, we also undertook some of the largest transactions to date, including a AUD 3.8 billion portfolio of national logistics assets and also the sale of a prime office building on Bligh Street, Sydney for AUD 395 million. Our occupier services and project management teams also enjoyed greater activity across the region, actually for major occupiers, including Samsung Electronics, Lazada and Alibaba amongst many others. Our overall revenues in Asia Pac increased by 3% year-on-year to GBP 287.2 million, reflecting the reemergence of some of those localized restrictions I mentioned earlier. Moving now on to North America. Moved on? Yes, there we go. Our focus in the region is primarily providing transactional and consultancy services to corporate occupiers in the office and logistics sectors, and confidence is starting to recover. This again is a direct result of a successful vaccination program and the lifting of restrictions with many occupiers now encouraging their workforces to return to a more regular office environment post Labor Day. And this is already feeding into greater activity in the office sector with market improvements already evidenced in many of the major metro markets. The return to the offices has also reduced the national sublease inventory from occupiers, which has swelled, who are starting to reoccupy surface space and also refit their office formats to encourage staff to want to return by providing a better environment with more collaborative space. In light of this renewed activity, we could continue to expand our workplace consultancy and our project management services nationally, following, if you remember, the successful acquisition of Macro last year. And again, we've also expanded very recently our expertise in life science and technology sectors with the acquisition of T3 advisers operating out of 4 offices nationally. This renewed activity has resulted in us undertaking major transactions for ViacomCBS in Washington, NetApp in San Jose as well as the Port of New York and New Jersey on the site of the new 5 World Trade Center in New York. We've also strengthened our industrial logistics capabilities nationally and opened a new office in Edmonton, Canada. Our international retail team also completed the subletting of Ralph Lauren's flagship store on Fifth Avenue, New York to Mango in 1 of the largest prime retail transactions. With this improving transaction pipeline, our revenues grew by 8% year-on-year to GBP 114 million for the H1 period. Now turning to Europe and the Middle East. Here, again, the stronger economies showed greater resilience, in particular, Germany, the Netherlands and the Nordic region. And from a market perspective, European investment volume were down by only 8% in the first half against the 5-year average as the second quarter gathered momentum. And investors were focused on those larger markets where there was greater liquidity. Office leasing remains more subdued. H1 turnover was down 24% against the 5-year average across major markets and vacancy rates also continued to increase during the year. Similar to the U.K., investor demand remains very weighted towards logistics, prime offices, multifamily sectors. And we've really yet to see any real resurgence of investor demand in retail but we're starting to see that in the U.K. as I've said. Our own revenues across Ireland, France, Sweden and the Middle East grew well, and we've continued to invest in the platform by strengthening our occupier services, office leasing and consultancy business lines. This is in line with -- in addition to the acquisition I mentioned earlier of the Spanish Property Management business. Thanks to this, we secured a number of new occupier services mandates for clients, including Société Générale, Manulife and Citigroup and these covering a number of the European and Middle East markets. The teams also acted for CA Immo on a new 350,000 square foot building in Berlin, which when developed, will be one of the most innovative and sustainable buildings within the city. And continuing to focus on sustainability. Our teams in the Netherlands are also advising on a 220,000 square foot scheme to be developed in Amsterdam, which on completion will be the tallest wooden office building in the world. Across the Middle East, we have continued to accelerate our growth, particularly in Saudi Arabia and also Egypt where we have developed a business from scratch over the last 2 years and now have a team of over 80 star acting for major occupiers, including AstraZeneca, Microsoft and Chevron. The improving market momentum allowed us to grow revenues by 6% year-on-year to GBP 114 million. Finally, Savills' Investment Management. As you're aware, SIM operates primarily across the U.K., European and Asia Pac markets, the effects of the pandemic, also the market recovery, I highlighted earlier, are similar for this business. Our capital raising has continued successfully despite the restrictions imposed by the pandemic, and this has allowed us to grow our assets under management to EUR 23.7 billion, a 16% increase year-on-year. And we entered the second half of the year with a solid transaction pipeline as those markets unlock. Liquidity in the market remains a challenge for all investment managers, but I'm pleased to confirm that we've successfully grown our logistics platform to over EUR 5 billion AUM with further equity to deploy. And our fund launches and equity raising programs remain on track, including the successful launch of our Asia pan regional Core+ fund as well as our specialist Japan residential Fund II, where we've undertaken strategic key recruitments in both Australia and Japan to support this growth. The performance of our funds remained strong with 75% of our funds by AUM continuing to exceed their benchmark returns on a 5-year rolling basis despite some of the challenges I've highlighted. In terms of deployment, our teams have successfully transacted over EUR 900 million of capital, including major transactions in Japan, Australia and Central Europe. I mentioned earlier in the presentation, the acquisition of the remaining shareholding in our partner, DRC, which allows us to become one of the leading debt investment managers in Europe with potential to grow into other regions. Finally, we are delighted to announce the agreement for a strategic partnership with Samsung Life Insurance, which we anticipate will complete later this year on which Simon will provide clarification in his financial review. Moving on to ESG. We continue to make positive progress on the 9 UN sustainable goals we have committed to and to provide -- we will provide you with regular updates on the progress we make. In truth, we are focused on 4 key areas: developing talent and promoting diversity and inclusion, enhancing our social impact through education, health and well-being, developing a progressive road map to achieving net 0 in our business and also using our energy, our expertise and consultancy services across the entire spectrum of sustainability. If I look at the diversity and inclusion program, it's focused very much on 6 key pillars, which we've adopted globally. Our Board is Hampton Alexander target compliance and comprehensive regional strategies are in place including in the U.K., our Savills schools and apprenticeship programs and our commitment to the race at work charter. In the U.S., this includes our junior broker development program and support for the national diversity and sales initiative. Our particular emphasis is on improving gender and ethnicity balance in the real estate industry as a whole. On social impact, we focus on our commitment to maintaining our employer of choice status. And of particular importance is the health of the well-being of all our staff. This is being supported through Mindup, our mental health partner and individual regional health programs. We're also committed to our living wage status and our teams worldwide continue to support the communities in which we operate through a combination of voluntary work, charitable contributions and fundraising. Moving on to sustainability. We've already committed to net 0 by 2030 in our U.K. business, and we'll be publishing our progressive road map covering commitments across other regions at our full year results in March 2022. It is perhaps worth highlighting, we've already reduced our global greenhouse gas emissions by over 30% and within the U.K. business, 97.3% of our electricity is now provided from renewable sources, allowing us to reduce our emissions by 38% since 2018. Helping our clients achieve their own ESG agendas has been a key focus for some time, allowing us to develop those consultancy skills, I mentioned. And these cover all forms of energy, waste, technical building efficiency as well as infrastructure development and carbon offsetting. We've also recently launched Savills linking up our global consultancy services in this critical area. I will now hand you over to Simon, who will take you through the financial review.

Thank you very much, Mark. Good morning, everybody. If we start by looking at the overall picture, it shows a very strong performance at the top line, which is actually 21% up in constant currency and a good recovery in margin to generate record first half profits for the group. This really shouldn't be a surprise as the comparative clearly reflects our performance during the original lockdowns of last year. Perhaps the most salient comparison is the next -- is on the next slide, which is to 2019. I'll start by saying I would caution against 2 literal comparison because you will recall that transaction markets were quite affected in H1 '19 by political concerns, chiefly the demonstrations in Hong Kong and a conservative leadership contest in advance of the general election in the U.K. Nonetheless, the business has clearly grown both through market share increases and the business development activity of both 2019 and '20 coming to fruition during this period. There are probably 2 other points to note in this comparison. First is that in the current period, we benefited as, frankly, as the whole industry from completing a number of transactions, which were either delayed or postponed during the lockdowns of Q4 last year. And the second one is that we continue to benefit significantly from the pandemic-related reduction in marketing, particularly events and travel and entertainment expenses. So by way of illustration, the difference in that spend between H1 '21 and the '19 reference period here amounts to approximately GBP 10 million of pretax profit. So it's not an inconsiderable effect. And the key point here is that we're seeing some of these costs start to come back as lockdown ended and the face-to-face interaction becomes possible again. So I do expect that gap to narrow considerably through the second half and into '22, albeit that we don't expect to return to the absolute levels of 2019. It goes without saying that the other observation on this slide is that our financing position continues to remain very strong, which more in a moment. If we first turn to our service line performance though. This really shows that all service lines posted good improvement and is particularly gratifying obviously, to see the strong recovery in our transactional businesses, which are also most significantly benefiting from that discretionary cost containment, too. The less transactional businesses, as you can see, are collectively growing revenue by 11%, which is at the higher end of our normal expectations. And you could clearly see the strong performance of our Consultancy business. We'll draw a bit more detail out of the service lines in a second, but let's first look at geography. It's pretty clear from this chart where the standout performance has come from. The U.K. has been exceptionally strong across most service lines and particularly in residential, as you're aware. But perhaps the general observation here on this slide is that regions have tended to recover activity levels in a way which is consistent with the level of local vaccination rollout or indeed inversely proportional to the level of pandemic-related restrictions imposed during the period. In general, when you look at this chart, the pandemic effect is more noticeable as you move from left to right. Before we look at the service lines in more detail, I'll turn to cash flow. Our net cash position at 30th of June is higher than we had originally anticipated, and this is largely down to the operating cash flow being just under GBP 42 million compared with GBP 13 million last time out. As predicted during the recovery, the working capital consumption has doubled period-on-period to just over GBP 57 million. We've also invested more significantly in acquisitions at GBP 51 million spend versus GBP 16 million in H1 2020. The principal ones obviously being the DRC acquisition, and the acquisition of T3 Advisers in the States. CapEx is slightly up year-on-year as we continue to invest in our own technology internal technology programs. And if I can digress for 1 minute, we supplemented this during the period with a small private equity investment in income analytics, leading a Series A round alongside MSCI. And this data analytics business creates a real-time forward looking risk of tenant income default, which can be analyzed either at tenant level, asset level or indeed at the entire portfolio level, which obviously has enormous utility for a lot of our service lines, but also for the industry as a whole. Back to cash. The other key change this time around is the payment of the final dividend from 2020, amounting to just under GBP 24 million. You'll also recall that this time last year, we were fortunate enough to benefit from VAT deferrals to the tune of about GBP 61 million. By the 30th of June, we had paid down approximately half of that number, so you should assume a further GBP 30 million repayments through the balance of this year and just into next year as well. In summary, cash generation has continued strongly, and we're in a good position both to develop our business and to resume the shareholder distributions you would expect. So turning now to our individual service line performances. Starting with commercial. Overall, some good growth, it's 20% in constant currency and turnaround in the bottom line performance of last time. In general, as anticipated, capital transactions are recovering faster than leasing transactions, particularly in the metro office markets globally. In APAC, we saw a progressive recovery across the region, tempered more recently by various pandemic-related lockdowns in Singapore, Australia and Vietnam, in particular. But indeed, we've seen this week, 20 Chinese cities relocked even just now. The U.K. has shown a stronger performance across the board, although to date, recovery has clearly been more obvious in the regional cities than in London. And in Continental Europe and the Middle East, the variable rollout of vaccination programs has to some extent, dictated the rate of recovery in local markets. So improvement in our business has been more modest there with losses reduced by GBP 1.3 million year-on-year. And finally, in North America, it was gratifying to breakeven, and we've seen much greater levels of pre-transactional activity among corporates, which supports our view of progressive recovery in leasing markets through the second half of this year, particularly Q4 and into '22. So if we turn now to residential, the star of the show has clearly been the U.K. and in particular, our segment of the market, where the search for space has driven significant increases in transaction volumes, particularly but not exclusively outside London. Indeed, regional markets have experienced their best period in both volume and price appreciation since the global financial crisis. Travel restrictions, though have meant that overseas buyers have been far less active than the historical norms. Although we have seen improvements in the prime London housing market and continue to build share in the core London market. Overall, though in residential, as Mark said, we do let volumes to taper and to normalize over the course of the second half of this year. The space story is also fundamentally the driver of improved performance in Asia Pacific. Particularly led by China in this period, but we are seeing recovery in Singapore as well. If we move to the less transactional businesses starting with Property Management. Overall, a good performance tempered slightly by the termination of some sizable but low-margin FM contracts in Korea and Hong Kong, which obviously affect the Asia Pacific market. But this is primarily a revenue effect. On the profit line, in Asia, we no longer have the benefit from employment support programs of last year, particularly in Hong Kong. So you will note that the margin has returned to more normal levels of just under 6%. And we obviously anticipated that back in March at the full year results. In the U.K., we saw good revenue growth, the majority of which came from the large contract win of 2020, which was the former into shopping centers, together with an improvement in residential management, including lettings, which were up 9% period-on-period with an increased margin. And in Continental Europe and the Middle East, growth came from Germany, France and the Middle East in fact, in particular, with profitability tempered by platform investment cost. We turn now to Consultancy. Through the pandemic, clients have had need of both conventional and more specific consultancy advice around issues such as return to work protocols and workplace generally, as you've heard. And as a whole, the Consultancy business has performed very well with good growth in revenue and profits. In the U.K., we've seen most Consultancy service lines growing well with consequent improvements in profitability. In Asia and Continental Europe, pandemic-related delays to projects, in particular, and the cost of new teams that we've recruited has held back profitability, albeit that collectively in constant currency, they did see profit growth year-on-year. In North America, we benefited from the full period effect of the March 2020 acquisition of Macro Consultants, project manager, together with enhanced workplace activities as we have already heard. Finally, if we turn to Investment Management. This was SIM's best ever H1 performance in some challenging conditions for capital raising and deployment. We saw the rise in base management fees off the back of higher AUM position from last year and a little downward valuation in underlying assets. And here, our relative exposure to logistics versus retail is obviously a benefit to us. Whilst transaction fees were lower than historical norms, we did benefit from improved performance fees on a small number of funds that carry that type of structure. On the debt side, DRC has performed very well, and we were delighted to accelerate the purchase option to acquire the remaining 75% at the end of May. Finally, we announced the strategic alliance with Samsung Life, which, as you'll know, is one of the most significant life assurers and therefore, real estate investors in Asia which assuming it receives regulatory ascent will close in Q4 this year. As part of this alliance, we are selling a minority interest in SIM to SLI who've committed to deploy a minimum of $1 billion of capital through the SIM platform over the first 5 years of the relationship. This deployment won't have a significant effect in 2021 as it will largely commence next year. So at this stage, we've got a huge amount of business product development activity in train, all of which bodes well for the future of that business. And with that, I'll hand you back to Mark to summarize.

Simon, thank you. What a difference a year makes. I'm delighted with our record H1 performance, which reflects the improving sentiment and also the long-awaited market recovery. But most importantly, the amazing efforts of the talented people we employ around the world. Our less transactional businesses have continued to be the backbone and support for the group, which has allowed us to capitalize on new business opportunity thanks to the strength of our balance sheet. Going forward, this allows us to be on the front foot to further develop in the strategic areas we've highlighted, assisted by the momentum and energy in the business and also the ability to attract high-quality recruits to our platform. Clearly, we have benefited from lower than normal costs in certain areas, which Simon has highlighted. And whilst we expect some normalization going forward, we anticipate maintaining some long-term savings here. Obviously, as the current lockdowns in Asia Pac show, pandemic risk remains. Many of the world's real estate markets are beginning to live -- learn to live with COVID. Subject to any material future lockdowns as well as the progressive normalization of residential market activity, we currently anticipate that the group's performance for the year as a whole will be meaningfully ahead of our previous expectations. Simon and I now are very happy to take any questions you may have.

And we have a few questions on the ticker. I'll read them, and we'll take them forward between us. The first one is from Chris Millington, which is how has residential trading been in July, particularly with respect to front-end indicators such as valuations and buyer inquiries? Okay. So I'm pleased to say, Chris, the momentum is maintained itself. It's been pretty strong. And I've got Justin on the quarter, if you need any further detail, but what we've seen is new buyers registering was down about 30% month-on-month but that's 44% up on 2019. So that normalization is occurring. And actually, the value of transactions that we were looking at was down but very, very small reduction. So overall, I would say to you that the momentum is maintaining itself, and I'm very happy to bring Justin in if there's any further detail that's needed on that question. Okay. The second one is also from Chris, which is how do you expect the recent COVID lockdowns in Asia to impact the recovery of these markets?

You want to tell?

Yes, I do. I think, Chris, the way that the Asia Pac region has reacted throughout the pandemic has been pretty resilient. And Simon referenced the 20 cities being locked down in China, but business momentum maintains itself pretty well through that period. I think I highlighted the improvement in the leasing volumes in China, particularly. So whilst it is a concern at the moment, we're watching carefully Australia, Malaysia, India, I would say to you that it will have an impact maybe in the last quarter's pipeline. But it may not be as significant as we anticipate. So I feel that the markets will react positively. They are accelerating their vaccination programs as we know. So I'm hopeful that it will maintain the momentum, but it will be tempered to some degree. Particularly leasing, investment, I think, will continue in a stronger fashion because people need to deploy capital.

Thank you, Mark. The next one is also from Chris, which is what's your appetite for further acquisitions? What areas are the key focus and how much capital could you deploy? Shall I give you a rest for a second.

Yes, you do that a bit.

I think if you -- Mark outlined the areas of priority for us. A lot of this is around consultancy, project management in particular. And we are, as you know, far keener on little and often bolt-on type acquisitions rather than what I call the sort of road warrior big deals. So we are looking at a number of opportunities around the world, as we always do. And clearly, we've -- as you've seen from the first half, had an appetite to invest into the recovery. So I think that's probably the key first part of the answer. In terms of the capital, clearly, we have a strong balance sheet that enables us to pretty much whatever we would want to do. And that's really no change there. I'd say the last question that I can see at the moment, maybe a few more coming. Joe Spooner, Regionally, Continental Europe and the Middle East didn't participate in the profit rebound seen in other regions, any overall color to that? And shall I take that initially as well?

Yes, please do and I can talk about maybe some of the improvements. Yes. I think there are 2 things here. One is that typically, we do see at Central Europe and the Middle East in all normal years, much more skewed to the second half. That is the normal pattern. And I don't think that, that is going to change this year. And the second one, which is very specific to this year, as you saw from the geographic chart, Continental Europe and many countries in Continental Europe have been somewhat slower and perhaps a bit stuttering in their vaccine rollout programs, which has simply caused the delay in the early part of the half. And I think we see a lot more activity in pipeline currently, which we would expect. I'll probably add to that, Joe, if I may, that the market activity. Europe's investment volumes were down 8%. That was a comparison to increases in both the U.K. and Asia PAC region. So we haven't seen the resurgence of activity for the reasons Simon has outlined. I think we are going to see it continue to improve as that vaccination program as the unlock occurs primarily in capital markets, but then moving into the leasing market. And the balance, we've been investing in the business as well during the period, Simon. So that also has an impact on the profitability of the first half. And we're going to continue to do that. But I do think, as Simon said, it's going to be second half weighted. And then I think Joe's next question is consulting profits were strong in the period, how sustainable is that? I think there are 2 things going on here. I don't see that sustainably grow at the rates that you've seen in this first half because of some of the quite COVID specific activities that have been going on. But countering that, we're also increasing significantly in the whole project management arena. And as you look forward, the area of sustainability in buildings is becoming an ever more present concern and need for action. So I think we went to the same sort of stratospheric performance in the future, but we should see good continued growth. Yes. I think, Joe, on next one, first half PBT improvement in North America seems to have had a cost focus, what signs are you seeing for the top line recovery?

I mean you take that bit.

Yes. I mean I think in terms of what we are definitely seeing is across North America, the corporate messaging to return to the office environment, which is primarily the biggest sector of exposure we have there. That is very much underway. And that is now translating into the pre-transaction focus. So what our pipeline is stronger that are set than ever. But obviously, we need to make sure that, that translates into actual revenue. So I don't want to predetermine how quickly that will translate, but it will translate over the period -- over a period. So I'm much more positive about that opportunity for us, whether it's upsizing, downsizing or as I've mentioned, just upgrading. We're seeing an awful lot at and we can provide much more holistic services across that area. The other piece, which I just should highlight, a smaller part of our business in North America is logistics, like every other market, it's red hot. So we're seeing a very significant increase of activity there, too. So we will look at extending our activity in that sector.

I think on the cost line, I think I articulated this last year that we had spent in the previous periods, a fairly significant amount on the platform investments, so not just brokers, but the supporting platform, which was largely done by the end of last year. So we haven't seen the growth in that cost. And I'll put one other observation into the pot on this, which is that in terms of broker recruitment, market conditions have meant that there is a lot more capability to have an earn-out type recruitment packages in place rather than fixed guarantees, which also has an element of benefit to our initial cost of recruitment. So that's another theme that is happening in the States.

Just going to check on other questions. And Joe, you've got another one here, which is what shape do you expect to the unwind of the residential market strength? So again, Joe, by all means, take this up with Justin, who would say is available to discuss this with you. But I think the perspective that we anticipate is going to be that normalization. It's not going to be a particular unwind. We are still seeing strength. People are regarding the residential environment they're in, not just in the U.K., but they at all world markets as more of a premium, whether it's more space, more amenity, people are valuing it to a greater degree. And I don't think that's going to change in the short term. So we are seeing that activity. As each market unlocks worldwide, we're seeing the same activity going forward. So the normalization definitely, but not an unwind to a greater degree, if that gives you the shape.

Yes. And I think the other factor obviously is that H2 is an extraordinarily strong comparative for '21 to fight again. So I don't see us necessarily matching that but we have made an awful lot of our profit, as you've seen for the year in the first half. So I think we said at the half year -- sorry, the full year results that what we expected the shape of '21 to look at transactionally -- to look like rather, was that we would see the strong residential position, just tapering, but at the same time, the commercial transaction environment to be on the recovery path. So a little bit of a split between the 2. I don't see anything at the moment that changes that view.

I think we've got one more. That's Chris Millington. So this is the margin on incremental revenue. It's very high between H1 2019 and 2021 at 32%. I understand certain costs are lower in T&E and marketing. So what should we consider a sensible drop-through margin going forward?

Well, obviously, there's a T&E element to this, which, as I've said before, will progressively normalize but not quite to the same level. I think probably you should consider it overall margin terms, that T&E benefit between the 2 periods is over 1% on the group net margin. That will clearly diminish, but not necessarily to 0. Incremental revenue flow-through in the transaction business lines is pretty consistently in that 25- to 30-odd-percent, depending on exactly which transaction arena you're talking about and which regional market you're talking about. So I think that's a fairly reasonable assumption. If we look -- I think that is everybody. So Mark, do you want to?

Yes. Well, thank you all very much for joining us today. And also thank you very much indeed for your continued support. We look forward to updating you again at the year-end. And if there are any specific questions that people haven't asked or would like to pick up with any of our experts on the call today, then we'll be delighted for you to do so. So thanks very much.

Thank you.

Bye-bye.