Savills Blames Brexit and HK Protests for 12% Drop in Profits

Savills has posted a half-year drop in group underlying profit of 12 percent in constant currency terms to £38.4 million, blaming Brexit and political unrest in Hong Kong, according to a stock exchange announcement.

Group underlying profit for Asia Pacific fell 17 percent to £15.5 million ($19 million), compared with £18.6 million for the same period last year.

“Underlying demand for the secure income qualities of real estate remains high, but these macro uncertainties weigh on investor sentiment and make predictions in respect of near term market activity difficult to determine with accuracy,” Savills group CEO Mark Ridley said, while adding that continued investor demand, restricted supply and expectations of continued low interest rates suggest that the medium and long term dynamics of the real estate markets are positive, on the condition that “political clarity emerges”.

Savills group chief executive, Mark Ridley, said the drop in profit was due to political and economic uncertainty in many markets, particularly in the UK and Hong Kong, which had reduced the volume of real estate trading activity in recent months.

Hong Kong Investment Volumes Slide 34%

Savills said in its announcement to the bourse that Trump’s tariffs and the Sino-US trade tiff had affected investment confidence, particularly in Hong Kong, where the company’s office investment volumes declined by 34 percent during the first six months of the year.

The domestic housing market slowdown in Australia and Singapore, and reduced retail growth in Hong Kong, Singapore and Japan, also had an impact on trading, according to the property consultancy.

Despite the problematic profits, the London-listed firm’s income from commercial transaction fees in Asia Pacific increased by 14 percent, or 12 percent in constant currency, to £68.2 million, driven by a recovery in transaction activity in Japan, Singapore and China.

However, Savills’ overall underlying profits from its Asia Pacific commercial transaction business fell 26 percent to £4.2 million for the half year, which the firm blamed on uncertainty within the Hong Kong market, as well as a “lag effect” of investment made in growing teams in China, Singapore and Australia.

Savills said that income from residential transaction fees in the region  had been hit by last year’s cooling measures in Singapore and weaker markets in Australia and Shanghai, which had pushed income down 17 percent to £14.7 for the year until the end of June, or 19 percent in constant currency.

Underlying profits in the region for Savills’ residential business fell 48 percent to £1.4 million for the half year.

UK and Eurozone Knocked by Brexit

In the UK, underlying profits in the firm’s residential business plunged 44 percent to £3.5 million, while group-wide transaction advisory profits halved to £9.9 million.

The company said the decline was due to a “decline in capital markets activity in some of our key commercial markets and the impact of investment in key teams, the benefit of which will materialise in future periods.”

In Europe and the Middle East, the company’s transaction fee income increased by 4 percent to £43 million, despite business in this region making an underlying loss of £7.2 million for the first half of the year.

“Slowing Eurozone growth has led to a flight to quality and a lack of supply of prime assets has restricted investment activity,” Savills said in its statement, adding that logistics assets had continued to experience yield compression as investors priced in future growth in demand.

As of 30 June this year, the company’s net debt was £139 million, up from £94.6 million for the same period last year, the company said.

Shares in London-listed Savills PLC were down 2 percent following the announcement.