Savills plc (SVS) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to this morning's presentation of Savills' preliminary results for the 12 months ending 31st December 2021. Whilst this presentation remains virtual, I'm determined that we will return to physical presentations in the future alongside continued virtual presentations for those that cannot attend. The timing of these results coincide more or less with the second anniversary of the start of the COVID pandemic. And if one looks back over the last 24 months or so, so much has been achieved on a journey to ending the pandemic. And the strong performance of our business, which I will highlight today is a fitting testament to the commitment of our outstanding global workforce, together with our strategy to maintain our bench strength and continue to invest in our business at a future recovery as world markets reconnect. This reconnection I look forward to, enjoying the familiarity of the return to normal in many things that we do, but also appreciating the changes and opportunities presented on the experiences we have gained. Against this backdrop, new and grave challenges have occurred as evidenced by the humanitarian tragedy unfolding from the war in Ukraine, and I sincerely hope that the spirit of collaboration that we've seen across the world during the pandemic will end this crisis and are suffering it's brought. It is perhaps highlighting that Savills does not have any shareholding in a business in Russia, any work in the region that, up to now, has been done by a long-standing associate with this agreement suspended. So the format of today's sessions remain consistent with previous years, which will include the highlights of our results, a summary of our regional operations and then a detailed financial review of the segments of our business. Turning now to the highlights. I am delighted to announce that group revenue has risen to over GBP 2.1 billion, a record level and representing a 23% increase year-on-year. This has resulted in group underlying profits increasing by 107% year-on-year to over GBP 200 million, again a record level. Our continued policy of maintaining balance sheet strength has resulted in our net cash position increasing to over GBP 340 million, allowing us to maintain our strategy to invest in the business going forward. In light of this performance, we are declaring an aggregated dividend distribution of 61.4p per share, reflecting the group's very strong recovery and cash generation since the lockdowns 2020. This includes a special dividend of 27.05p, similar to the proposed 2019 final distribution, which was canceled for obvious reasons in March 2020. The drivers of a substantially improved performance have been a recovery in our global Transaction Advisory revenues, increasing by over 34% and representing a 400% increase in underlying profits year-on-year. Of particular note has been the recovery of the U.K. Commercial and residential transaction businesses going well beyond their pre-pandemic levels, with annual revenue growth of 44% and 38%, respectively. Equally across the Asia Pacific region, transaction revenues significantly increased across the major markets, driven by Hong Kong, Australia, Singapore and Japan. And within both Continental Europe and the Middle East as well as North America, our business has experienced a very positive swing as transaction revenues recovered, allowing us to negate previous years' losses and provide a positive return to overall group profits. The balance of our significant Consultancy, Property and Facilities Management businesses, combined with our Investment Management platform, delivered increased revenues of 17% and improved profit levels globally. These results reflect our strategy to continue to invest in our business, recruiting the best people, enabling them with enabled technology, as well as evolving the business to provide greater focus and innovation across the spectrum of ESG. Now turning to Savills' diversified model, a slide you've seen before. Our continued strategy to invest in key markets where our clients require services has remained throughout the pandemic, and this will accelerate as markets continue to unlock. And the benefits of this broad geographic spread have been well evidenced during the successive waves of the pandemic. We've seen a faster emergence in locking up markets in the U.K. and North America, primarily due to the vaccination programs, allowing government policies to relax earlier, improving the transactional volumes. Across Continental Europe and the Middle East, market improvements were delayed into the second half of last year, particularly the last quarter. Whilst across Asia Pacific, many markets still continue to experience operational restrictions, although significant relaxations have occurred in Singapore and Australia. If we look in more detail at the composition of our business lines, you'll see that we've maintained a strong balance between Transactional and Less Transactional businesses, with our Property Management portfolio increasing to over 2.45 billion square feet, and Property Management represents our largest single business line worldwide. As you will then see from the individual pie charts here, the regional balance of our business has also been maintained, with a significant increase in the Less Transactional segment of our income in North America due to the accelerated growth in our Consultancy sales. The proportion of revenue derived from transactions not surprisingly increased year-on-year as the markets recovered. However, the weightings remain in proportion to our 10-year revenue growth and I'll show you this on the next slide. As you can see, this clearly illustrates our continued growth since 2012, averaging over 11% per annum during the period, which, ignoring the effects of the pandemic during 2020, remains consistent. Equally, the growth is balanced between the Transactional and Less Transactional growth income streams as we continue to diversify the platform. It is also worth reiterating that circa 70% of our revenue growth during this period has come from organic growth as opposed to corporate acquisitions. Turning now to the macro picture and its effect on the real estate markets. I think this is important to provide the context for the direct investment we've been undertaking, providing a summary of the main influences perhaps affecting the real estate markets. On a macro basis, concerns for public health have given way to rising concerns or inflationary pressures, particularly energy as well as the much greater geopolitical tensions around the world. However, real estate is often regarded as a safe haven by investors. And whilst meds, beds and sheds, as you'll see, remain high on the shopping list, strong asset prices are now forcing investors to look at other sectors as they search for value. The impact of flexible working and work-from-home policies has affected the rate of recovery of office leasing volumes, but investment interest has recovered, particularly for office assets with greater sustainability credentials. This has also fed into retail following a recalibration of rental levels. As tourism returns, no doubt we'll see the same in hotels and hospitality. Finally, residential, where we've seen the strongest demand recovery worldwide. This has created localized shortage of stock in some markets as well as significant price increases which are likely to normalize in the medium term. Moving on to new and enhanced service lines that we've created. I mean there remains much commentary on the lasting effects of the pandemic on the real estate markets. And one thing is for certain, we, at Savills, will continue to evolve and invest in enhanced services. Our brand is synonymous with high-quality advice from the residential sector, and we will continue to develop our global platform in the identified markets. We also continue to invest in property and asset management. You've seen us extend our platforms recently in Spain and Germany. And this will continue as landlords have to take a more active role in providing better quality services to their occupier base. The redesign of the workplace, the competition for talent as the well as the need to improve efficiency and sustainability is an enormous challenge and opportunity as many buildings will need repositioning. This allows both Savills Earth and Savills Flex, our environmental and flexible space consultancy businesses, to expand to meet this demand. We also have significant geographic growth opportunities. In most cases, these are already advanced, but that will continue. In fact, since preparing this presentation, we have just acquired a new full-service business in Indonesia. In mentioning Savills Earth earlier, I think it's important that I give you a brief insight into the -- our services in this critical area. And within Savills Earth, we have developed a comprehensive environmental consultancy service designed to assist our clients as they develop their own plans on their journey to net zero. Whilst Savills Earth is headquartered in London, we have teams globally and the demand for these services continues to accelerate, particularly in more developed markets. Our holistic approach allows us to provide sustainable strategies to drive in-depth advice on all renewable energy sources and grid consultancy, as well as the maximization of sustainable materials and supply chain and the minimization of waste. Moving into the built environment, Savills Earth can assist both owners and occupiers in repositioning these assets to meet the improved standards required, particularly through refurbishments and refitting, and of course, this links with our Project Management services. An example of this growth and evolution is our energy team, which is based in Cardiff, and this has now grown to over 55 consultants, sourcing green energy for our clients within our Property Management sphere and where 95% of our clients now use green energy. Thanks also to our expertise across land and natural capital and biodiversity, we can also provide advice from environmental economics, natural capital accounting as well as social value impacts. In all, a comprehensive menu of services, which adds to -- we add to this all the time. Now moving on to the individual markets. In the U.K., I have split activity between the commercial and residential sectors. So starting with commercial. During the year, we saw continued improvements in investment volumes due to pent-up demand, with volumes actually reaching the highest level since 2017. And domestic activity was in line with the long-term average at just over 46% of total, with the main cross-border demand coming from American and pan-European investors. Despite all the rhetoric around work-from-home, national office take-up increased by 35% year-on-year, still below the 10-year average by 5%, but improving. Demand was polarized to better quality grade A stock, reflecting its green premium; whilst secondary offices experienced rental declines of around 9%, potentially linked to a brand new discount. In anticipation of this improved activity, we strengthened our Central London investment and leasing teams with new leadership, and this allowed our investment teams to transact on some of the largest deals in 2021, including Union Investment's acquisition of the British Telecom headquarters, as well as acting for Generali on Times Square. These, together with many other notable transactions, allowed us to increase our investment share in London to over 28%. Nationally, our teams also advised Blackstone on their circa GBP 1.3 billion acquisition of St. Modwen. And thanks to the strength and depth of our retail teams, we took advantage of the market recovery trading 32 retail warehouse parks and allowing us to claim top spot in terms of market share. Our leasing teams were also appointed by Bridgeland at Canada Water, which will become London's first net zero neighborhood, delivering 3,000 new homes and 3 million square feet of commercial space. Outside London, we continue to expand our life science and agency platforms where we were appointed on Oxford North, which will deliver over 1 million square feet. Now turning to residential. While we continued to experience significant market momentum nationally, particularly for houses outside London, where our transactions over GBP 1 million were up 83% on 2019 levels. This resulted in strong house price growth, the highest in the East of England, Wales and Scotland, whilst demand continued to recover across Central London, particularly on houses. This activity has resulted in reduced stock levels. And as we start this year, U.K. national stock levels are actually 19% lower than a year ago and 30% lower outside London. But we do anticipate the availability levels will improve during the second half of the year. In light of the ongoing activity, we continue to invest in our platform, growing our network to over 98 offices and increasing our staff numbers by 7% during the year. Our own sales volumes increased 45% year-on-year in the country and up 41% in London, resulting in our market share increasing in London sales over GBP 5 million to almost 28%, as well as maintaining a commanding 17.4% share in prime country property. During the year, we transacted our highest single value residence at over GBP 100 million, whilst our new homes business in the regions increased their revenues by 27%. Alongside this, we also continued to grow our residential lettings platform, where revenues increased by 10%. Across the U.K. in entirety, thanks to our strong market share in both commercial and residential, we therefore increased our full year revenue over 30% to GBP 925 million. Now moving on to Asia Pacific. Across the region, the economic bounce back was led by India, China and Singapore, but also improvements in Hong Kong. Similarly, the real estate recovery was strongest in Singapore and Australia, with Australia's commercial investment volumes doubling year-on-year. In the office sector, Grade A rents remained generally stable, but with declines focused in Hong Kong, which fell 5.4% during the year. Office investment volumes here also fell by 48%. Investment demand remains polarized across the region to the larger global centers as well as a search for alternative assets. In Greater China, we focused our growth on Property Management and Facilities Management winning a number of new mandates, and also developing a national industrial and logistics capability. Across the rest of Asia Pac, we grew -- we strengthened our residential business, including the acquisition of RealPlus in Vietnam, as well as supporting the development of our co-owned Huttons business in Singapore with the acquisition of 1,000 new residential brokers. We also acquired Merx, an established Project Management platform across -- operating across Southeast Asia and Hong Kong. Thanks to the strength and depth of our teams across the region, we increased our commercial investment market share to 61% in Hong Kong. And we also took #1 market position in Singapore, with over 32% market share. And transactional highlights include acting on landmark deals at 1 Bligh Street and 200 George Street in Sydney, and in Singapore acting on the disposal of the Suntec City office portfolio as well as advising Alibaba Lazada on its brand new logistics facility. Across other parts of the region, we acted for Mercedes AG on its new logistics center in Malaysia, as well as Louis Vuitton on a new flagship store in Hanoi, Vietnam. Thanks to our continued investment, our revenues here grew 9% year-on-year to GBP 626.5 million despite some of the headwinds that continue to affect the region. Turning now to North America. As many of you will be aware, our principal activity across North America is focused on tenant advisory work in the office and logistics sector. And both of these recovered well, with annual office take-up increasing 20% year-on-year and Q4 actually achieving record volumes. Our own revenue growth of 27% in this sector shows the market gain we made during the period. The strongest markets were not -- but not understandably, New York, L.A. and San Francisco, with also a recovery in Chicago and Washington. Whilst logistics, like many other markets reached record levels. In line with our continued investment across the platform, we have strengthened our leadership team, including a new President, Chief Strategy Officer, Chief Diversity Officer, as we continue to push our growth forward. I mentioned at our interim results last year that the recently acquired T3 Advisors, a specialist consultancy in life science and tech, and we've integrated this business into our network, allowing us to expand our worldwide activities in this key sector. Balancing our strong transactional capability with further Consultancy services is a key theme. And with the extension of our Project Management and Workplace Consultancy teams, this is set to continue. This has resulted in the extension of our platform by further 5 offices, including Edmonton and Kentucky. And we also have strengthened our operations in Detroit, Tampa, Boston, and expanded our tenant advisory team in New York. Finally, our market-leading Knowledge Cubed software has been stalled out -- has been rolled out across multiple [ mandate ] clients accounts within occupier services business. This resurgence in activity resulted in us acting for -- with T3 for HubSpot, one of the largest leasing deals in Boston. Our teams also advised Kirkland & Ellis in Chicago on their new headquarters. And in New York, we advised Kipp Schools to service its expanding student base in the Bronx. By capturing more market share in these key markets, our revenues grew 38% year-on-year, with our revenue totaling just under GBP 294 million. Next, Europe and Middle East. Well, here, the successive waves of pandemic meant that markets in Europe unlocked slightly behind the U.K. with recovery weighted to H2. Commercial investment volumes actually recovered exceeding the 5-year average by 4%, and the strongest gains were noted in the Nordics and Germany. Like most other markets, office leasing remains subdued and still well below the 5-year average, with an improvement note in Q4. Moving on to our business development. We focus on the largest European economies, with a particular emphasis on logistics and residential. And this is one illustrated in Germany, where we expanded both our logistics capability in Frankfurt and opened a brand-new residential business in Berlin. We also appointed a new Head of National Logistics in France and opened 4 new residential offices, covering the French Riviera as well as the Alps. In Spain, where we enjoyed a market -- strong market share of over 19% in commercial investment transactions, we acquired a new shopping center property management business and now have one of the most comprehensive businesses in the region. We also invested in Italian logistics, and across the Middle East, the record growth of our Egyptian and Saudi Arabian business continues, with over 50 new hires in Egypt alone. The benefits of this continued growth led to our worldwide occupied services team being appointed by Electronic Arts to advise on both their EMEA and Asia Pacific office portfolios. Whilst in capital markets, we also advised in some of the largest European transactions, including the sale of by Macquarie of Elite on the sale of a pan-European logistics portfolio for over EUR 0.5 billion. Our European Property Management platform also continues to win greater market share. And in Ireland, we were appointed by Irish Life to manage their entire portfolio covering 45 buildings. The continued growth resulted in our staff numbers here increasing by 250 employees, and the strong turnaround we experienced allowed us to grow our revenues to just over GBP 301 million, representing revenue growth of 25% year-on-year. And finally, Savills Investment Management. Well, with record levels of dry powder in the market, this not surprisingly pushed asset prices to new highs, particularly in Logistics and Residential. Demand obviously for prime offices remain strong, and we're starting to see greater liquidity on pan-European logistics as some investors take profits. Within our business, thanks to a very active year, both our revenue and profits achieved record levels linked to higher performance fees, new fund launches as well as the benefit of the acquisition of the remaining shareholding in DRC Capital, our specialist debt investment management platform. Despite the effects of the pandemic, we managed to raise just under EUR 3 billion of new equity, both for real estate equity and debt products. And other highlights include new fund launches in the U.K., such as the Value Box fund, specializing retail warehousing, as well as several new Italian funds in Europe. Base management fees also increased year-on-year by 30%. With the successful integration of DRC, this has also allowed us to grow into Asia with a new Australian team, and we're considering new opportunities in other markets. Finally, and most significant, we entered into our strategic alliance with Samsung Life Insurance at the year-end, and this will lead to substantial capital allocations for our fund programs from H2 onwards this year. It's also important to highlight that our fund performance continues to remain ahead of target, with over 76% of our capital deployed outperforming its 5-year benchmark, and on income-related products over 81% have performed above their 5-year benchmark, indicating the quality of our platform. This outstanding performance has allowed revenues to grow by some 58% year-on-year to GBP 111.8 million. I will next move on to the Savills Group net zero targets and our own commitments. Last year, I highlighted the Savills strategic commitment to align to 9 UN Sustainable Development goals, with particular emphasis on climate action, clean energy and sustainable cities. And in light of these commitments, I'm now able to update you on the net zero targets that we have adopted. The group has adopted science-based carbon reduction targets, with the commitment to achieve net zero across the entire office network within Scope 1 and 2 by 2030. We've also committed to net zero across our controlled value chain, Scope 3 by 2040. We will also collect and report Scope 3 data in relation to properties which we manage on behalf of clients. And we will continue -- but these are areas we do not have direct discretionary control. Through these commitments, we're joining the Race to Zero and business ambition for 1.5 degrees C and will build upon the reductions that we have already made, namely, a 30% reduction on Scope 1, 2 by 2018; and a further 20% reduction between 2019 and 2021. Turning now to our social commitments. At Savills, our people are our assets and we continue to invest in them, namely, developing talent and promoting diversity and inclusion as well as enhancing social impact through education and health and well-being. Within our D&I program, we've added to our worldwide programs in support of these commitments. In the U.K., this has included our graduates and apprenticeship schemes, partnering with many schools in deprived areas, promoting careers in real estate. We now employ circa 117 apprentices and over 220 graduates in our U.K. business. In North America, our Junior Broker Program has had a 90% diverse class for the last 2 years, and all candidates who have completed the course have been given full-time positions in our national business. Across the APAC region, we've introduced a staff wellness initiative, supporting mental and physical health, as well as Savills Academy, which fast-tracks education and training, leading to direct employment in our business. Whilst we've made considerable progress across D&I, we know that a lot more is needed within the real estate industry, and we will continue to push forward changes to our business to achieve this. As a business listed in the U.K., we are both Hampton-Alexander and Parker Review compliant, and we ran 46 in the FTSE 250 on women in senior positions. We also continue to support many charities worldwide, both through considerable monetary work as well as financial support where it's desperately needed. And this is evidenced recently by the war in Ukraine, where both at group level as well as locally through our Polish business, we've made and will continue to make significant contributions to provide the urgently needed humanitarian aid, as well as a number of our staff becoming directly involved in the relief efforts. I will now hand you over to Simon, who will take you through the numbers.

Thank you, Mark, and good morning, everybody. This is really a fantastic recovery from the pandemic. And as you've heard, it's due in no small part to our strategy of retaining our bench strength and really out-servicing clients during the dark days of 2020. But there's also no doubt a degree to which we have benefited from nonrecurring profitability during the period, particularly in the areas of discretionary expenditure. And as you heard, a super-normal U.K. particularly residential market. So perhaps the most main comparison really is not in 2020, because everybody should be performing well in that comparison, but with 2019. And you can see here that the underlying performance is very encouraging, with double-digit revenue growth and significant operating leverage driving an enhanced margin and earnings. I would say to my point about the nonrecurring element, the margin is clearly flattered by super-normal profitability, which is progressively going to normalize over 2022. So I guide you to the impact of that being somewhere between 100 and 130 basis points of margin. Clearly, the dividend proposal is substantially up year-on-year. Bear in mind that in March 2020, we canceled the 2019 final dividend for obvious reasons. So let's turn to the componentry of that shareholder distribution. This slide shows the reinstatement of our normal distribution policy, which resulted in an ordinary dividend of 18.75p for the year, supported by our Less Transactional business of which 6p was paid at the interim. Alongside this and based on the strong transactional results that we've seen, we're declaring a supplementary or transactional interim dividend of 15.6p. Collectively, these 2 amount to 34.35p, which compares with an original 2019 declaration of 32p. So up about 7% or so on an underlying basis. In addition to this and reflecting the strong net cash position and the outperformance that I've talked about, we're declaring a onetime special dividend of 27.05p, which is similar to the final dividends kindly foregone by shareholders as they supported us during the early days of COVID. So let's turn now to the performance of our business segments, and I apologize that this is quite a busy slide, but I do think it's important for your analysis purposes that you have not just the 2020 comparative, but the 2019 comparison as well, and that's in the light blue on these slides. The outstanding performance here is obviously the U.K. which has significantly eclipsed both 2019 and '20 with highly attractive growth characteristics, although I should caution you that the majority of the extraordinary or nonrecurring performance I've mentioned really sits here in this market in the U.K. as does the surge in residential transactions we've covered already. In Asia, we saw a return to pre-COVID levels and profits stepped up significantly. And elsewhere, in North America and Continental Europe and the Middle East, you can see the broad return to 2019 levels of performance, and that was particularly driven through the last half and particularly last quarter of the year. So let's turn now to our service lines. The good news here is that there's growth in revenue and profits across the board of our service lines, which is clearly evident from this chart. I would draw your attention to the operating leverage in the Transactional business through the recovery. It's clear to see that were GBP 226 million of incremental revenue between '21 and '20, that flowed through to the pretax line at a 35% incremental margin. This is a segment which traditionally carries most of the discretionary cost spend I've mentioned, and therefore, you should expect that to temper somewhat in the coming period. The Less Transactional businesses performed very well in aggregate, with 17% revenue growth and 33% profit growth over 2020 and not dissimilar numbers over 2019. Consultancy in particular has benefited from the acquisition of T3 in the U.S. and additional work advising of return to work and fit-out strategies as well as sustainability as lockdown eased around the world. And Investment Management, too, performed very strong as occurred and benefited from 7 months of the full acquisition of DRC Capital, our new growth asset manager. Let's turn now to our cash flows. Here, you can see the continued growth in cash flow performance from operating activities, driven largely by the profit growth but also the expected level of working capital improvement, which at GBP 50 million was half the rate that we registered last year in 2020 and entirely consistent with our expectations. Spend on acquisitions grew as did CapEx, and the employee share scheme purchases grew significantly by about GBP 40 million as we increased the hedging level in our employee benefit trust, which obviously support the longer-term share-based incentive schemes for staff around the world. The larger yellow positive flow in the middle of this bridge is the proceeds Samsung transaction, which completed on 31st of December. So in summary, it was a strong year for cash generation and supports the higher shareholder distribution for 2021. You should expect our cash position to normalize further during '22, partly through the normalization of trading but also on terms as a result of business development and the increased dividend payout for '21. We now go to the regional and business segments. Starting with the Commercial Transaction business. In aggregate, our businesses recovered to 2019 levels globally, and this was led, as you've heard, by capital markets activity, with leasing progressively recovering during the year but have not been universally reaching pre-pandemic levels by year-end. Asia and the U.K. posted significant income growth over 2020 and 2019, and it was particularly gratifying to see some of the 2019 investments in our capital markets team, particularly in Singapore and Australia, come to fruition strongly during this period. In North America and Continental Europe and the Middle East, recovery as you've heard is more protracted. There's greater exposure to leasing in those markets for us, but it was ahead of our expectations. So if we shift now to residential, clearly, the U.K. had an outstanding performance versus all comparatives as the super-normal year of post-pandemic search for space continued. Markets outside London, as you've heard, led that charge but we did see a significant pickup in Prime Central London activity during the second half, particularly fourth quarter of the year. In Asia, we saw a decline in Transactional activity in Hong Kong for a variety of very well rehearsed reasons, you will understand. But Mainland China and Australia performed well. And at the profit line, we benefited from improved contribution from our 40% holding in the Huttons joint venture in Singapore. We now go to Property Management. In Asia, the numbers don't quite tell the story as we saw a material reduction in COVID-19 employment subsidies, particularly in Facilities Management in Hong Kong. And there's a trace lag effect of this into '21, ensures that the business continued to deliver a margin of over 7%, which is higher than our normalized expectation of around 5.5% to 6%. In the U.K., we had a very strong year, boosted by both recent and in-year contract wins and a very strong letting performance in the Residential Management service line. And finally, in Continental Europe and the Middle East, we benefited from the full year effect of last year's -- or the previous year's acquisition of OMEGA in Germany, and together with poor growth across the region, to improve the profit performance year-on-year. In terms of Consultancy. This is another great year for our Consultancy business worldwide, with strong aggregate revenue and profit growth versus both 2020 and 2019. In the U.K., which is obviously our broadest portfolio of offerings in this segment, we benefited from recovery across the board, together with increased activity in workplace and ESG consulting alongside all aspects of planning, development and Project Management. In Asia, valuation growth was somewhat offset by pandemic-related delays in Project Management, particularly in Australia, where, as you're aware, lockdown restrictions continued for a very long period of time, that really have only just started or released. In Continental Europe, general consultancy growth was offset at the profit line by fewer due diligence assignments, particularly in Germany. And finally, in North America, we saw the benefits of our Project Management acquisition in the prior year in 2020, that's macro; and the technology practice, T3, midyear to post a maiden profit in this segment. Finally, if we turn to Capital Investment Management, we obviously, as you've heard, have a material increase in both revenue and profit versus both comparative periods. You should note that the reclassification of fundraise costs, which had previously been netted from revenue and is now a grossed up in revenue and cost, affected and flattered frankly the revenue line. Absent this, revenue underlying grew at 34% on a like-for-like basis. But clearly, that adjustment has actually no effect on profitability or profits. SIM's performance was driven by strong fund performance in both equity and debt, and we were delighted to accelerate the acquisition of the remaining 75% of DRC Capital. This contributed to an acquisition-related profit of GBP 5 million during the year, alongside its very strong underlying performance. And whilst a cautious approach to capital deployment during the pandemic limited the year-on-year increase in transaction fees to 12%, we did have a super-normal year for performance fees, which were up over 90% year-on-year. Set against this though, we have executed a significant amount of recruitment in preparation for the deployment of Samsung Life plans into both recently launched and new fund launches. And we expect this deployment to commence in H2 once various product-level regulatory approvals get obtained. So in summary, it was a very strong year for Savills Investment Management. And you should note that from this year onwards, we will see growth in the minority interest in fund management profits, reflecting Samsung's now 25% stake in the business. And with that, I'll hand back to Mark.

Thanks, Simon. So the key priorities. Well, despite the greater risk and uncertainty now evident, our priority and overall strategy remains consistent with the approach we adopted during the pandemic, namely, this was to hold on the -- hold our course, but maintain bench strength as we look forward to a more certain future and the recovery in the real estate markets we operated in. And in transaction in particular, we continue to accelerate our growth across many global markets, focused on residential, capital markets and also occupier services. Within Property Management, our largest service line, we will continue to develop our services, particularly across the U.K., Continental Europe and Middle East and the APAC regions, whilst adding more services as those needed by our landlord clients. Within Consultancy, we've already highlighted Savills Earth and growth here. This will link with our Project Management capability globally so that we can enact on the ground sustainable solutions. Savills Investment Management, our focus will remain on key markets across Europe and the Asia Pac region, creating scale in our equity and debt products together with the development and launch of the new funds Simon mentioned, including residential and selective retail markets. And whilst we continue to invest for the future, we are focused on tight financial control, which has obviously served us so well during the pandemic and allowed us to strengthen our balance sheet. So moving on to summary and outlook. I am delighted by the record performances the business has achieved, driven to a large degree by the recovery in the commercial and residential transaction markets. This recovery, though, is supported by the balance of our business, with continued growth in our Less Transactional businesses with further growth to come. And the recovery in Transactional markets has resulted in some localized stock shortages affecting both the prime residential and commercial markets, which may limit transaction volumes in the near term despite the continued allocations for property as a safe haven asset. World markets are -- obviously experienced much greater geopolitical and inflationary risks, and the effects of these are hard to predict going forward. However, we have started the year in line with our expectations and do remain confident on our outlook. Finally, and most importantly, several thank yous. Firstly, to our tremendous workforce and their fantastic efforts they've made throughout the year. It's a great privilege for me to be their CEO. Secondly, I would like to take the opportunity to thank all our loyal clients who partner with Savills teams globally, as well as the continued commitment of all our shareholders. Thank you for attending today's webinar. Simon and I will now be very happy to take any questions you have. Thank you.

Excuse me while we read the first question. And this is from Joe Spooner. What quantum of discretionary costs need to feed back into the business? And what profile should we expect for that? In Less Transactional units, U.K. Consulting was notably strong, is the '21 performance at a sustainable level to build from? And what is the experience to date in terms of lifeline at Savills Investment Management? And what milestones are therefore in '22 and beyond? So there are really 3 questions of that. Perhaps I'll start with the first one, move to Mark for second, and I'll take the third. In terms of quantum of discretionary costs, if you look to -- and this is a bit of an art rather than a science, to be completely candid. But if you look to be capturing the travel and entertaining, major marketing events, et cetera, you see something in the region of about GBP 19 million of pretax benefit effect in '21 compared with 2019. And obviously, we've got the superior trading in residential on top of that as well. The rates of return of those costs is very difficult to predict because it does also depend around the world on where markets are unlocked, et cetera. And obviously, you'll be aware that in Greater China, we're still suffering significant restrictions in those markets. I suspect we will see a gradual return through '22. And the key question is to what level of percentage of pre-COVID levels will we see that return. At the moment, my estimate is something around 70% to 75%, of that order. And I should actually say that the GBP 19 million is assuming the difference between '21 and 75% of 2019. So in terms of math terms, if that gives you the number, the rate of return is the question, I suspect that will be progressive in '22. Mark, do you want to talk about U.K. Consultancy?

Yes. Well, it is -- it is the strongest consultancy base we have. The largest portfolio of services we have are based in the U.K. Consultancy, and it covers a very wide spectrum and mentioning that Savills there as part of that portfolio, you can see why things are growing significantly. I suppose -- to answer the question straight away, I would say that it is sustainable. But of course, the profit increase that we had was significant last year. And that's because we have plans sitting -- maybe not doing as much, whether it be in planning, whether it be in Project Management, we're delaying things. And of course, we saw an uplift, significant uplift, thanks to that sort of pent-up demand, if you like. But the portfolio as a whole is continuing to strengthen as we add more services within Consultancy, and then these connect with our services in other international markets. So yes, I do see it sustainable and it will continue to grow going forward. But I'd say, I think the uplift of profitability was significant because of that.

And I would add that I think we're sustainable incredibly to [ May ] last year given the activities within Savills Earth and the growth of that, which occurs within the Consultancy business and Property Management as well. So I think that's a solid base from which to build. The final part of Joe's question is what was experienced today, it sounds like, which the Investment Management business on the milestones for '22 and beyond. I said, it is very early days. Obviously, we completed the deal on 31st of December. And we've had the first round of quarterly Board meetings, et cetera, with Samsung personnel participating. And I'd say it's a very strong relationship and actually growing stronger now the transaction has been executed. But as I said earlier in my piece, the -- we are awaiting product level regulatory approvals, particularly from the Korean regulator, which is what enables Samsung to make their investment to these funds, which we're expecting to come through over the next couple of months or so, the first product, which does mean that the commitment -- and to remind you the firm commitment from Samsung is $1 billion of seed capital type investments over the first 5 years of the relationship, and there is opportunity, obviously, for them to go over and above that. I suspect we'll see a reasonable commitment in the second half of in 2022. And then the only question is the rate at which we are able to deploy that capital as those has been committed, together with a buildup in '23 in terms of the basic commitment. I think that's a core milestone for me over the next 2 years. And of course, then the relationship is permissive of future growth together as well there. I think unless anybody else has any questions, that has covered what you want to know. We do have a new one come in, yes. And this is from [ Sam Cullin ]. You mentioned you thought residential stock levels would increase this year, why do you think that is other than mean reversion? Are you seeing increased competition to staff as markets recover? And can you comment on the M&A pipeline by region and business type? And are you at all exposed to the cladding fire safety issues seen in U.K.? So we've got a bit of a mixture of -- Mark, right there. Okay.

Should I start with the residential stock levels? The demand, [ Sam ] Is being maintained. So we're seeing actually applicants for properties on the market key demand measures actually increasing. So the demand hasn't gone away. We do start the year with reduced national stock levels, but the national stock levels are back 19% nationally, as I mentioned, and 30% outside London. So we've gone back to that. But I think what we are going to see is that capital, we've seen significant price increases and we are going to see more stock coming through, and we're certainly pitching on more stock as we speak. So naturally, that demand drives supply over a period of time. So I do think it will improve. But what I would say, though, there is that we've already said in the past that we expect market levels to normalize during this year. And then we still have that view. It doesn't mean they will reduce, it just means that they will not have the super-normal trading that they had in maybe last year and the part of the year before. So that is, I think, what we will see. It will be driven, and we do expect stock levels to improve in the second half of this year. Second one, are you seeing increased competition for staff as market recovers? Yes. Look, I mean truthfully, we always have competition because we employ good staff. High quality people, they always have opportunities. But we are seeing significant salary inflationary pressures in many markets that might pass that to Simon. One thing I would say on that though is because our strategy of maintaining bench strength looking after our people through thick and thin, that has created a great deal of longevity and loyalty within the business, and the culture of the business does allow us to look after them and say -- make them feel part of the family. So I do feel -- it doesn't stop if you pay them properly. But it's important that, that aspect is made clear. Simon, in terms of the...

Obviously, we're seeing, particularly salary inflation, for the first time of any significance in my 13 years here. And that's reflected in a salary bill that probably averages around 6% growth globally for '22. Although do bear mind that's off the back of nothing much in '20, so -- for '21. So it's not in any way outrageous. And I would add the point around competition, because we've maintained our bench strength, unlike many of our peers in this market, we are not seeking to fill gaps in the recovery. What we're doing is recruiting for growth, and that is a much better position to be in, in markets like this. The next question was, can you comment on the M&A pipeline? And obviously, the answer, the direct answer to the question is no. But I think, Mark, a bit thematic here.

Yes. I mean I think you've seen -- as we look back at what we've been doing, we've been building our Property Management platform through acquisition and we've also been building our Project Management capabilities, and Merx being an example of that just before year-end. So what you'll see us continuing to develop there across APAC and across EMEA, and that will continue as well as growth of our Consultancy services in North America. So I feel that if I give you some views, I would say that, still, as we have shown in the past, we -- a lot of it, this is organic growth. When we do acquire businesses, it's where you need a platform. You can't just do it organically. You could actually create something to develop further. So there will more likely be strategic bolt-ons than great M&A road warrior stuff. We will look at sort of smaller but more frequent acquisitions in the regions that we feel we need, and adding services to it. So I think that will still be the tendency. So I'd expect us to perhaps be slightly more active in the coming year or 2 because there are more opportunities presenting themselves. And we will look in North America. We will look to continue to grow across the European markets and also develop the Asia Pac region. And I think I mentioned, we already just acquired something in Indonesia, not yet formally announced, but you'll see us continuing to develop growth markets because of our strength of our brand there. And the final one I would just say is residential, global residential, we are pushing forward on that. The fact that we've had such good demand-led recovery. And also our brand is strong in it, we have very good operators within that region and that sector, that's something we'll continue to promote as well.

The final one, what is your exposure to fire safety issue you've seen in the U.K., I think the short answer to this is we advise on these matters, and we're obviously advising on restitution activity, but we don't have direct liability on it. And if we can move on then, we've got another question which is, what should be the pace of normalization in U.K. residential PBT? And how are activity levels at the moment? I think we've probably answered the activity level point. Strong occupants but less stock available, clearly has an impact on activity. I won't answer, for obvious reasons, the direct question around PBT for residential. I would say that in our pure secondhand residential business, we're probably looking at something around 15% to 20% reduction in activity in the market in '22 versus a super-normal level of transactions in 2021. And I think we've been probably pretty consistent with that at the last four -- - that part of our residential business. The last one from [ Jane Carter ], congratulations on the numbers. Thank you very much. Can you give us any color on how sanctions on Russia may impact the business?

Okay. Well, look, I mean I think I've covered the fact that the Russian influence in residential is actually quite small in -- and this is national, [ not ourselves ]. But nationally, it's very small outside of London, less than 0.3% of residential transactions will go to Russian nationals. And in London, I think it was a -- Central London is 1.4%. So this has been a diminished area of activity significantly. . So that means it's not going to have any major impact on the market, per se. Much more important are actually domestic buyers, North American buyers, Asia Pacific region buyers. So it's very small, commercially, non-existent. What I would say, though, is the effect on the economy, not necessarily the sanctions, it more about the impact on potentially the world economy. Russia GDP, as we know, is not very significant in relative world order merit. However, concern around that activity and what's going on is significant and obviously can affect maybe Central and Eastern Europe. Decisions being made in some of those markets may get delayed. But I don't think it's a direct level of sanctions. So I would say for real estate, it's -- we probably will see more money being allocated to real estate investment, certainly because of some of the turbulence on some of the equity markets. So I think interesting to see how it will play out. Obviously, we're very concerned about it. We're taking it -- obviously, we hope that it will end soon.

And I might add something to that made, [ Jane ]. I think the -- and this is the Russian sanctions AML/KYC stuff. You should be aware that, particularly the top end agents are highly regulated and have been for quite a long period of time in terms of compliance. And HMRC is actually our regulators for these purposes. So we are -- we've got an enormous compliance team that is checking not just at the beginning of any transaction, but all the way through the sanction stages, the AML status, et cetera, of all of our clients, not just Russians. And we -- so we -- we're very comfortable with the impact here in Savills.

Just to scroll down sort of...

I think that is it for questions, unless anybody has a -- wants a final go. And with that, Mark?

Well, thank you all for attending. As I say, I look forward to seeing you at our interims, hopefully, in person. But thanks for all your support. And any other further questions, please, send them to Simon and I separately by email. Thank you.