Knight Frank’s operating profit increases 67%
Date: 2 December 2007 | 
PDF version 
London, UK – Knight Frank LLP (“Knight Frank”), the leading independent global property consultancy, today announced its final results for the year ended 30 April 2007.
Highlights
• Group turnover increased by 32% to £284.4m (2006: £214.9m)
• Underlying group operating profit increased by 67% to £59.6m (2006: £35.7m)
• Strong balance sheet and cash management – cash from operations increased by 72% to £69.8m (2006: £40.6m)
• Income per fee earner up 23% to £189,000 (2006: £154,000)
• Average number of staff increased by 9% to 2,979 (2006: 2,731)
• Staff bonus pool increased by 62% to £51.4m (2006: £31.7m)
• Average earnings per Proprietary Partner increased by 47% to £1.10m (2006: £750,000)1 with a range from £400,000 to £1.8m
• New landmark Global HQ ready for full occupation by its 850 staff in early 2008
International
• Overseas turnover increased by 33% to £79.8m (2006: £60.2m)
• Continental Europe and Asia Pacific focus for global growth
• Acquired one of Ireland’s leading commercial and residential property consultancies: Dublin based Ganly Walters Limited
• Increased equity to 100% in Indian operations which now total five offices and 650 people
Residential property
• Record year in residential selling more than 700 London and Country properties at over £2m
• London and Country properties priced below £1.5m accounted for 68% of sales
• UK office network expanded by four to include Cobham, Chelsea, Richmond and Sutton Coldfield, with further offices planned for early 2008
• UK Residential Development team sold more than 5,800 residential units totaling £1.5bn
• National New Homes Investment team established
• Knight Frank Finance established to concentrate on financing high end property purchases
Commercial property
• Robust European expansion strategy well underway; Munich office opened with further offices planned
• Central London and regional UK office network strengthened through the recruitment of key individuals for the Building Consultancy, Healthcare, and Retail service lines
• Rutley Capital Partners, the real estate private equity business of Knight Frank, created a European and emerging markets footprint in just two years with £1bn worth of global property assets under management; Indian and East African funds currently being launched
Nick Thomlinson, Senior Partner and Chairman of the Knight Frank Group said:
“These strong results follow another year of sustained growth. Whilst watchful of the current macro-economic conditions, our diversity and breadth of service offerings will help us to be well placed to withstand market cycles. We are very much wedded to our core values of progressing global growth and capitalising on market share opportunities in both the residential and commercial property sectors. We continue to retain and recruit excellent talent in order to provide exceptional service to our clients.
As we prepare to say farewell to Hanover Square, our home since 1910, and move in early 2008 to our new Global HQ in a landmark building in Baker Street, W1, we look forward to continued growth.”
For further information, please contact:
Nick Thomlinson, Senior Partner and Chairman, Knight Frank, +44 (0)20 7861 1001
Olivia Gallimore, Press Office, Knight Frank, +44 (0)20 7861 1035 / +44 (0)7768 021 873
Chairman’s statement
A strong year in summary
Knight Frank LLP continued to enjoy exceptional levels of growth. In the year ended 30 April 2007, group turnover increased by 32% to £284.4m (2006: £214.9m) and underlying group operating profit rose by 67% to £59.6m (2006: £35.7m).
Excellent financial performance and a strong balance sheet were matched by significant structural growth. Average staff numbers have risen by 9% to 2,979 (2006: 2,731), and our European office network has continued to expand.
Residential property
Our Residential Division experienced another record year, particularly at the top end of the market where we sold more than 700 London and Country properties at over £2m. Meanwhile, London and Country properties priced below £1.5m accounted for 68% of sales.
Our established UK Residential Development team sold more than 5,800 residential units totaling £1.5bn and saw turnover increase by 26%. Our National New Homes Investment team was set up and specialises in bulk investment deals for a wide range of clients including institutional, private and overseas investors.
New UK offices opened in: Chelsea, Cobham, Richmond and Sutton Coldfield. Our new Florence office in Italy is fully operational and further network extension is planned.
The continued expansion of our network has been complemented by major enhancements to our property website, now visited by thousands of people who use it as an advanced online property source.
In response to the growing client demand, Knight Frank Finance was established to advise and arrange property finance across key areas of residential property funding. An expert team was formed with particular focus on financing high end property purchases.
Our view: UK residential 2007 in review
We forecast in October last year that UK residential prices in 2007 would rise by approximately 6%. Whilst the market was stronger during the early part of 2007 than we had expected, weaker conditions anticipated during the final quarter mean that price growth will end this year close to our initial estimate.
Over the course of 2007 sales volumes have remained high by historical standards, and will end the year around 8% above their long term average. Buy to let activity has remained high, and in many markets investment activity has risen to record levels. Despite ongoing affordability constraints, the market has been far more healthy than expected.
The UK market saw a shift in confidence and activity in the third quarter of 2007. The sellers’ market, which had characterised many parts of the country until the summer, has been replaced very quickly by a buyers’ market. The new market sentiment means that vendors are having to compete much harder to achieve timely sales, and ambitious pricing has effectively ended across the prime and mainstream markets.
Our outlook: UK residential 2008 forecast
Our current view is that the UK market is likely to enter a weaker phase. The next 12 months will feel a lot like late 2004 and early 2005, a period when price growth slowed to low single digit levels and, more importantly, a period when buyers looking to strike deals met with over-ambitious vendors. We believe that prices will rise next year by 3% and sales volumes will fall 12% on the level seen this year, although volumes will only be down 5% on their long term average.
The prime markets are likely to perform better than the mainstream markets, although not by a wide margin. Vendors of the very best properties will still see strong demand, but for the rest of the market price growth will be noticeably lower than that seen in recent months.
| Prices changes next year |
|
|
|
| |
2006 |
2007 |
2008 |
| UK |
10.00% |
6.00% |
3.00% |
| Prime Central London |
28.70% |
32.00% |
3.00% |
| Prime Country Houses |
11.20% |
9.40% |
5.00% |
Our view: International residential 2007 in review
2007 has seen a continuation of many of the positive trends witnessed in 2006, although recent events make closer monitoring of these markets necessary over the coming months.
Buyer demand for both city centre and resort properties has remained robust. Within city centres, demand for good quality, well located accommodation has been apparent from both owner occupiers and investors. The latter have been especially prominent in emerging markets which often offer the prospect of higher growth, albeit with a higher risk profile. The strength of demand for core locations such as Paris, New York and Moscow has been reflected in the achievement of some very high prices. However, the overall picture has been one of slowing rates of price growth against a background of higher interest rates and an uncertain shorter term economic outlook.
Within the resort locations, demand remains strong and buyers are more than ever willing and able to consider new markets. The relaxation of restrictive regulatory environments and the encouragement of tourism growth as a means of helping to fast track economic growth are creating opportunities for developers in hitherto largely untapped markets such as Croatia, Greece, Morocco, parts of the Caribbean, Mauritius and the Seychelles. The core second homes markets, including the west, south west and south of France, mainstream Caribbean, alpine resorts, northern Italy and the Balearics, continue to thrive. Elsewhere, the temporary downturn in the Spanish mainland market is proving to be beneficial for the Portuguese market, which displays similar characteristics in terms of climate and accessibility and offers slightly lower prices.
The US sub-prime issue remains, although the impact on residential markets outside the US has been minimal to date. However, we are aware of markets which display signs of oversupply which will inevitably have an additional negative impact on prices. Whilst all markets are cyclical, we should not expect unending upward momentum.
Our outlook: International residential 2008 forecast
We are cautiously optimistic about the 12 month outlook for international residential markets. The fundamentals which have underpinned buyer demand for second homes remain in place.
The prime city centre markets in which supply and demand remain broadly in balance should also perform well, with both end-users and investors continuing to seek out opportunities.
Commercial property
Commercial Division highlights included a successful first year of its robust European expansion programme. The acquisition of Ganly Walters Limited provided us with our Dublin office, and the recruitment of a leading Munich based team enabled us to open our second German office. These offices joined our established network, which includes Belgium, the Czech Republic, France, Poland, Russia, Spain and Ukraine. Further European openings are planned, with a particular focus on Scandinavia.
In Russia, a newly appointed Managing Director is leading a 325-strong team and driving the business forward. As part of our Asia Pacific focus, we increased our equity to 100% in our Indian operations which now comprise a total of five offices and 650 people. Our strategic global partnership with New York-headquartered commercial real estate firm Newmark Knight Frank has enabled us to offer multinational clients uniform property services across the world and to target emerging markets in South America.
Increased activity took place in the Healthcare, Hotel, Logistics & Industrial and Retail sectors; and our professional services teams, including Building Consultancy, Planning, Property Asset Management and Valuations, continued to expand to meet the demands of clients.
Underlining Knight Frank’s commitment to property investment services, experienced industry specialists joined us to bolster our strength in investment management and consultancy. Rutley Capital Partners is our real estate private equity business, with approximately £1bn worth of global property assets under management. Since launching in 2005, it has been extending its emerging market footprint into parts of the world where we have an established presence, with a particular focus on Central and Eastern Europe, Russia and Asia. Rutley European Property Limited launched in 2006 and subsequently listed on the London Stock Exchange’s Main List. Rutley Russia Property Fund Limited launched earlier this year and has completed its first investments. Plans for the launch of Rutley Indian Property Limited and Rutley East African Property Limited are well advanced.
Our view: UK commercial market
The UK commercial property market has experienced an eventful year. The momentum gained in 2006 carried through to the early part of 2007. Average yields reached their lowest recorded level in April under the pressure of continuing weight of money. In the background, borrowing rates were continuing to move steadily upward and, as the summer approached, many debt-backed investors had been forced out of the market and institutions were starting to slow their activity.
The summer, traditionally a quiet period for property investment, included the change in global financial markets and uncertainty surrounding borrowing. This coincided with a paucity of quality stock being marketed. After three years of extraordinary returns, investment activity came to a virtual standstill as the market waited to see if the much anticipated turn in the market had arrived.
Meanwhile, the occupational markets have remained relatively robust. Retail rental growth has slowed but continues to be healthy while the industrial market has continued its steady performance. The office market continues its strength, driven predominantly by phenomenal rates of rental growth in Central London.
Nonetheless, softening yields will ensure low single digit returns in 2007. Stability is expected to return in early 2008, with a narrowing of the gap between vendor aspirations and purchaser expectations leading to a return in market activity. This is unlikely to spur the market back up to stellar results but will be sufficient to underpin positive returns, albeit fairly narrow ones.
Our view: European commercial market
IPD (Investment Property Databank) recorded total returns across the continent of 13.3% in 2006, a figure which is likely to be some way ahead of where total returns will be at the end of this year. Whilst transaction levels were high in the first three quarters of the year, reportedly up 24% in Q3, an air of uncertainty is currently prevalent as the commercial property market awaits the impact of global economic conditions. The majority of deals completed during Q3 would have been instigated prior to the signs of concern in the global economy becoming evident. In view of this, and given that both economic and property data are backward looking, the impact is still difficult to determine. However, markets with a higher level of exposure to the financial sector are considered to be at greater risk than markets with a wider diversity in their tenant mix. There are reports of a number of deals being withdrawn because the bidders have been unable to secure the required leverage or as a result of a chasm between vendors’ aspirations and buyers’ expectations.
On the occupational side, market fundamentals remain healthy. Employment growth has been strong, office market vacancy rents are falling and rents are continuing to rise. However, the office market is likely to be the most vulnerable if the European market suffers a downturn sparked by the sub-prime crisis in the US.
Our view: Rest of the world commercial market
The Asian property market remains a strong draw for both regional and international investors. Healthy performance and sturdy underlying factors such as employment and economic growth support demand, as do the speed of urbanisation, rising incomes and rapid growth of the middle classes in a number of the continent’s major economies. Investors are also beginning to cast their nets wider in order to realise returns with markets such as sub-Saharan Africa now falling within the sights of the international investor.
Sustainably Knight Frank
In our operations, we place great importance on contributing to the community, and on protecting the built and the rural environments at the heart of our business. We have supported many good causes through direct donations and sponsorship, and also through our Give As You Earn scheme. We launched “Sustainably Knight Frank”, an internal programme which ensures our operations and activities are conducted in a responsible manner that takes into full account any impact on the communities in which we do business. We are proud that our new Global HQ will be rated BREEAM Excellent; and we are working towards ISO 14001 certification in Spring 2008, a national standard of recognition for the good environmental practices we apply to the running of our business.
Our new home
In early 2008, an exciting and historic milestone in our long history will be reached. Our 850 Head Office staff will relocate from Hanover Square, the home of Knight Frank since March 1910, to our new Global HQ at 55 Baker Street, London, W1. There we will be combining our commercial and residential teams over three large predominantly open plan floorplates, strengthening our ability to offer our clients a truly multi-disciplined global property consultancy service.
The new HQ will allow us to fulfill our ambitious growth plans. The innovative design of the interior will reflect Knight Frank’s vision and future, ensuring that our headquarters is a place where clients will want to meet and our staff will be inspired to work.
Our people
The bonus pool for staff (excluding Proprietary Partners) increased by 62% to £51.4m (2006: £31.7m). Income per fee earner was up 23% to £189,000 (2006: £154,000). The highest paid Proprietary Partner earned £1.8m (2006: £1.2m) and the average earnings per Proprietary Partner increased by 47% to £1.10m (2006: £0.75m).
We continue to recruit both exceptional, experienced talent and the rising stars of the future. Our average staff complement increased by 9% to 2,979 (2006: 2,731), and, together with staff at offices in which we have minority stakes, now totals 4,360 people worldwide.
This year, UK graduate recruitment across the business increased by 51% to 53 graduates (2006: 35 graduates), reflecting both the demands of the business and the calibre of today’s graduates. Our graduate scheme has proved fruitful, and we are committed to maintaining the high standards which have made our graduate programme an acknowledged industry leader. The scheme enables graduates to gain valuable exposure and experience via rotation through our service lines and from opportunities in our European offices.
We are determined to retain the values which have served us well for over a century. For our staff and clients alike, our commitment to quality is - and will remain - reassuringly unchanged.
I offer my sincere thanks to every one of our people, working in all corners of the world. Our staff contribute tirelessly to the success of Knight Frank and are the essence of the organisation.
In conclusion, whilst watchful of the current macro-economic conditions, I believe that our diversity and breadth of service offerings will help us to be well placed to withstand market cycles. We remain wedded to our core values: our people; our clients; continuing global growth; and capitalising on market share opportunities in both the residential and commercial property sectors. With this four-fold focus, we can look forward to further sustained growth for the Group.
Nick Thomlinson
Senior Partner and Chairman of the Knight Frank Group
Knight Frank LLP Consolidated Profit and Loss Account
| Year ended 30 April 2007 |
|
|
|
|
|
| |
|
2007 |
2005 |
|
Growth |
| |
|
£m |
£m |
|
07 v 06 |
| |
|
|
|
|
|
| Turnover |
|
284.4 |
214.9 |
|
32.3% |
| |
|
|
|
|
|
| Operating profit (Note 2) |
|
59.6 |
41.0 |
|
45.4% |
| |
|
|
|
|
|
| Share of operating profits of associated undertakings |
|
1.8 |
0.8 |
|
|
| |
|
|
|
|
|
| Income from fixed asset investments (Note 3) |
|
0.1 |
5.5 |
|
|
| |
|
|
|
|
|
| Profit before interest and taxation |
|
61.5 |
47.3 |
|
30.0% |
| |
|
|
|
|
|
| Interest receivable and similar income |
|
2.3 |
1.1 |
|
|
| |
|
|
|
|
|
| Interest payable and similar charges |
|
(0.4) |
(0.3) |
|
|
| |
|
|
|
|
|
| Other financial expense |
|
0.2 |
(0.1) |
|
|
| |
|
|
|
|
|
| Profit on ordinary activities before taxation |
|
63.6 |
48.0 |
|
32.5% |
| |
|
|
|
|
|
| Tax on profit on ordinary activities |
|
(4.4) |
(4.1) |
|
|
| |
|
|
|
|
|
| Profit on ordinary activities after taxation |
|
59.2 |
42.9 |
|
|
| |
|
|
|
|
|
| Minority interest |
|
(0.3) |
(0.8) |
|
|
| |
|
|
|
|
|
| Profit for the financial year |
|
58.9 |
43.1 |
|
|
back to the top