13 Savills plc Report and Accounts 2006 Our Business Group Chief Executive’s Review of Operations and Financial Review 2006 was a year of achievement; we delivered an excellent financial performance, expanded our range of global property-related services and comprehensively reviewed our strategy. Pre-tax profits increased from £58.6m to £84.4m. Underlying pre-tax profits increased from £57.2m to £75.0m. Underlying profit is calculated by adjusting reported profit before tax to deduct profits on disposals of £5.1m (2005 – £0.4m), share based payment adjustment of £6.1m (2005 – £1.9m) and add back amortisation of intangibles and impairment of goodwill of £1.8m (2005 – £0.9m). In the UK, we saw exceptional performance, exploiting the opportunities of rising commercial and residential markets. Acquisitions and organic expansion brought new teams and new expertise into our commercial capability. We also expanded our residential teams and partnered with major clients on a number of very significant projects. Aubrey Adams Chief Executive In Europe, the main focus of our business was investment, where we expanded our services in all areas. Increased economic activity and renewed confidence across the region created a number of opportunities which were capitalised upon by our teams. In Asia Pacific, we recorded 38% growth in revenue with a significant increase in profitability; 48% of the growth was attributable to our acquisition in Korea, while the remainder was largely due to organic growth in existing geographical and service lines of business especially in our Property and Facility Management businesses. This achievement was generated against a backdrop of various investments made during the year, including new offices, recruitment and infrastructure projects. Left 88 Wood Street was one of a 88 Wood Street. A City of range of major projects handled London landmark designed by by our International Investment Richard Rogers Partnership, team in 2006. Altogether, 88 Wood Street is multi-let to the team completed over £2bn of a wide range of tenants. transactions, across a diverse range of investments and development 88 Wood Street is a contemporary opportunities. These included: building providing approximately the sale of Linklaters HQ in the 247,700 sq ft (23,000 sq m) of City for CGI for £355m; the sale high quality office space on of Diagonal Shopping Centre in 18 floors in the heart of the City. Barcelona on behalf of Deka for Multi-let to a wide cross-section 1325m; and a number of other of professional and financial tenants, UK sales including Colmore Gate it produces a total annual income in Birmingham for £80.5m, The Ark of around £12.5m. in Hammersmith for £49.5m, We acted for MPC Fund Sachwert Times Place on Pall Mall for Renditefonds England GmbH Co £85m and a City portfolio for KG, in the sale of the building by Deka for £355m. Muenchmeyer Petersen Real Estate Consulting GmbH to ING Real Estate in September 2006. This was the single biggest asset purchased by ING Real Estate Investment Management in the UK. 14 Savills plc Report and Accounts 2006 Our Business Group Chief Executive’s Review of Operations and Financial Review Group Strategy Context and vision Over the past five years, we In these cities, Savills will be building scale, service, Right PaddingtonCentral. have delivered outstanding growth in total shareholder breadth, brand recognition and team strength. We provided comprehensive returns, achieving a total return of 898% compared Excellent people remain at the heart of success consultancy services on the with a return of 117% provided by the FTSE 250 PaddingtonCentral scheme, in this market. The ‘war for talent’ is more intense and 233% by the FTSE All Share Real Estate Index. which will include some of the than ever before, and the need to reward and retain largest office buildings in the Recognising the need to sustain this high level of key individuals is vital as competitors recognise the West End of London. growth, the Board undertook a Strategic Review quality of Savills people, our distinguishing asset. PaddingtonCentral is a mixed during 2006 to map the path for the business over We have a unique culture that is the envy of our use redevelopment scheme which the next five years. Our vision is at the heart of this competitors and we will do everything we can to forms a major part of the urban new strategy: regeneration of Paddington. ensure Savills remains the most attractive place to Once complete, the project will ‘To become one of the leading providers of real estate work in the industry. comprise 1.6m sq ft (148,650 sq m) of space for residential, retail, health services in all of the major markets of the world’. Investment markets in which we are already the and fitness and office use, including leader remain central to the success of Savills’ some of the largest office buildings By doing so, we aim to deliver superior total in the West End. The next phase of returns to shareholders compared with our peers. business model. However, uncertainty remains over 260,000 sq ft (24,155 sq m)of Through this combination of market leadership and future economic growth in mature markets, reinforcing offices is under construction and will complete in January 2008. financial success, our aim is for Savills to be the our need to develop further non-transactional sources employer of choice for outstanding individuals. of revenue and to diversify geographically. We provided comprehensive advice through all stages of the The market for real estate services There is no The Savills strategy The strategy revolves around project including development five key objectives: consultancy, purchase, funding, doubt that our core customer groups still value scheme design, marketing expertise, local knowledge, our breadth of experience – To invest in teams of excellent people, achieving scale and leasing. across the disciplines, innovation, professionalism and and brand recognition in the major cities of the world. Ultimately, PaddingtonCentral will high calibre individuals. Building strong local businesses – To serve investors, developers, and occupiers provide a 24 hour environment, and offering this local expertise and experience remains completely transforming and in those major cities, from a broad range enhancing an area of formerly central to our approach. However, we are also seeing an of regional platforms including investment derelict land directly adjacent increasing requirement from our customers to support brokerage, valuation, leasing, development to the mainline railway station. them across borders this is particularly true of property and property/asset management. investors, for whom we are increasingly handling – To continue to grow our leading positions in the UK, multinational assignments. Ireland, Hong Kong and parts of Asia, as well as growing our business in other major financial and The competitive environment is also evolving, institutional locations. with more competitive tendering for business than – To exploit our depth of real estate expertise ever before. Savills is strong in many markets, with and market leadership through improving and leadership positions in the major cities of the UK growing our fund management business, and Ireland, Hong Kong and other areas of Asia. Cordea Savills, and our financial services However, we recognise the need to achieve stronger business, Savills Private Finance. competitive positions elsewhere. We will focus our – To increasingly invest in the Savills business and efforts on other major cities in Europe, Asia and the US, brand to ensure the long-term sustainability of in large economies that have the strongest domestic earnings, whilst maintaining a focus on short-term real estate markets and which are also important financial returns. sources/destinations for real estate investment flows. UK PaddingtonCentral London, W2 UK Kemsley Fields Sittingbourne, Kent Group Chief Executive’s Review of Operations and Financial Review 17 Savills plc Report and Accounts 2006 Our Business Group Chief Executive’s Review of Operations and Financial Review Group Strategy continued Left Measuring success At Savills, we have a long history Priorities for 2007 and beyond Geographically, we Kemsley Fields, Sittingbourne. Our involvement with the of maintaining a sharp focus on profit and financial aim to expand and believe there is considerable scope development of the Kemsley measures will continue to be of greatest importance. for this expansion in Europe. There are initiatives in Fields Business Park place to grow and broaden the domestic UK, Irish, However, we will also be introducing new measures to is both long-standing and and German businesses, followed by Italy, Spain and wide-ranging. help review progress against our strategic objectives. France. There is also scope for expansion in Asia, These will include a combination of people and Kemsley Fields is one of the largest and the short-termpriorities for building broad-based development sites in the South East organisational measures, customer and market domestic businesses include Japan, Hong Kong, of England, with outline planning leadership measures, and operational measures. consent for around 1.8m sq ft Singapore, Seoul, and major cities in Greater China. (167,220 sq m) of B1, B2 and B8 Achievements in 2006 There have been numerous In addition, several new offices are planned across employment use. highlights of the past 12 months, some of which are the European and Asian regions to enhance our The 126 acre (51