S EG RO PLC
ANNUAL REPORT
& ACCOUNTS 2018
CONTENTS
SEGRO is a UK Real Estate Investment Trust (REIT),
and a leading owner, asset manager and developer
of modern warehousing and industrial property.
OUR BUSINESS MODEL IN ACTION
SEE PAGES 12-20
CHAIR’S INTRODUCTION
SEE PAGES 60-61
01-05
OVERVIEW
WHAT WE DO
WHERE WE DO IT
06-58
STR ATEGIC REPORT
CHIEF EXECUTIVE’S STATEMENT
MARKET OVERVIEW
OUR BUSINESS MODEL
OUR BUSINESS MODEL IN ACTION
OUR STR ATEGY
REGIONAL REVIEW
FINANCE REVIEW
KEY PERFORMANCE INDICATORS
RESPONSIBLE SEGRO
PRINCIPAL RISKS
MARKET OVERVIEW
SEE PAGES 09-11
02
04
06
09
12
14
21
28
31
38
40
52
REGIONAL REVIEWS
SEE PAGES 28-30
FOR MORE INFORMATION ON SEGRO’S ACTIVITIES
AND PERFORMANCE, PLE ASE VISIT OUR WEBSITE:
W W W.SEGRO.COM/INVESTORS
RESPONSIBLE SEGRO
SEE PAGES 40-51
FOR MORE INFORMATION WITHIN THIS REPORT
The Directors present the Annual Report for the year ended
31 December 2018 which includes the Strategic Report,
Governance report and audited Financial Statements for the year.
References to ‘SEGRO’, the ‘Group’, the ‘Company’, ‘we’ or ‘our’ are
to SEGRO plc and/or its subsidiaries, or any of them as the context
may require. Pages 02 to 58 inclusive, comprise the Strategic
Report, pages 106 to 107 inclusive comprise the Directors’ Report
and pages 84 to 99 inclusive comprise the Directors’ Remuneration
Report, each of which have been drawn up and presented in
accordance with English company law and the liabilities of the
Directors in connection with these sections shall be subject to the
limitations and restrictions provided by such law.
The Annual Report contains forward-looking statements.
For further information see inside back cover.
59-108
GOVERNANCE
CHAIR’S INTRODUCTION
GOVERNANCE REPORT
BOARD OF DIRECTORS
NOMINATION COMMIT TEE REPORT
AUDIT COMMIT TEE REPORT
REMUNER ATION
REMUNER ATION POLICY
DIRECTORS’ REPORT
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
109-181
FINANCIAL STATEMENTS
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SEGRO PLC
GROUP INCOME STATEMENT
GROUP STATEMENT OF
COMPREHENSIVE INCOME
BALANCE SHEETS
STATEMENTS OF CHANGES IN EQUIT Y
CASH FLOW STATEMENTS
60
62
62
77
79
84
100
106
108
110
117
117
118
119
121
NOTES TO THE FINANCIAL STATEMENTS
122
FIVE-YEAR FINANCIAL RESULTS
181
182-185
FURTHER INFORMATION
FINANCIAL INFORMATION
SHAREHOLDER INFORMATION
GLOSSARY OF TERMS
182
183
184
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
FINANCIAL HIGHLIGHTS
A STRONG PERFORMANCE
01
CHIEF EXECUTIVE’S STATEMENT
SEE PAGES 06-08
In 2018, SEGRO has delivered
another strong set of operating
metrics, completed a record
volume of developments and
continued to strengthen its
capital structure.”
DAVID SLEATH
CHIEF EXECUTIVE
ADJUSTED PROFIT BEFORE TAX1
+24.4%
IFRS PROFIT BEFORE TAX
+12.6%
£241.5m
£1,099.1m
2017: £194.2m
2017: £976.3m
ADJUSTED EARNINGS PER SHARE1
+17.6%
IFRS EARNINGS PER SHARE
+7.0%
23.4p
2017: 19.9p
105.4p
2017: 98.5p
EPR A NAV PER SHARE1
+16.9%
IFRS NAV PER SHARE
+16.2%
650p
2017: 556p
PORTFOLIO VALUE 2
£9.4bn
2017: £8.0bn
644p
2017: 554p
TOTAL DIVIDEND PER SHARE
+13.3%
18.8p
2017: 16.6p
Important Explanatory Notes about Alternative Performance Metrics used in this Report
1 EPRA and Adjusted metrics: The Financial Statements are prepared under IFRS. SEGRO management monitors
a number of adjusted performance indicators in assessing and managing the performance of the business which
they believe reflect the underlying recurring performance of the property rental business which is the Group’s
core operating activity. These include those defined by EPRA as part of their mission to establish consistency
of calculation across the European listed real estate sector. Pages 128-129 contain more information about the
adjustments and the reconciliation of these to IFRS equivalents.
2 Proportionally consolidated figures and metrics: SEGRO owns assets both wholly itself and through stakes in
50-50 joint ventures. In the Financial Statements, the profit from joint ventures is stated as a single figure in
the Income Statement and the net asset value of joint ventures is stated as a single equity figure on the Balance
Sheet; Note 7 to the Financial Statements provides the component parts of these figures. In operational terms,
SEGRO does not distinguish between assets held in joint ventures from those assets which are wholly-owned.
Therefore, unless specifically stated, in the Strategic Report, performance metrics and financial figures are
stated reflecting SEGRO’s wholly-owned assets and its share of joint venture assets (known commonly as a
“proportionally consolidated” basis). Where the Strategic Report refers to the area of a property, it is stated at
100 per cent of the space, irrespective of whether the property is wholly-owned or held in a joint venture.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 02
OVERVIEW
WHAT WE DO
We own, develop and manage warehouse and
industrial properties for our customers in the UK
and Continental Europe.
BIG BOX WAREHOUSES
LOCATED IN NATIONAL/REGIONAL
DISTRIBUTION HUBS
Big box warehouses are typically used for storage
and processing of goods for regional, national
and international distribution by larger trucks. The
requirement for large land plots means that they
tend to be located some distance from the ultimate
customer but on major transport routes (mainly
motorways, but also ports, rail freight terminals and
airports) to allow rapid transit.
EXAMPLES OF USERS OF OUR BIG BOX SPACE:
Retailers (online and traditional)
Third party logistics and transport companies
Manufacturers
Distributors and wholesalers
BIG BOX WAREHOUSE
OUR PURPOSE:
WE CREATE THE
SPACE THAT ENABLES
EXTRAORDINARY
THINGS TO HAPPEN
POSITIONED TO SATISFY
CHANGES IN CONSUMER
AND BUSINESS BEHAVIOUR:
Warehouses have a vital role
to play as part of national and
international infrastructure. They
provide the space to store, sort,
create and distribute products
and are important sources of
employment. We create the
environments that enable our
customers to run their unique
operations and achieve their goals.
OUR VALUES:
Our core beliefs about how we do
business which guide our decision
making, large and small. They are
the way in which we work together
to make things happen.
SAY IT
LIKE IT IS
STAND SIDE
BY SIDE
KEEP ONE EYE
ON THE HORIZON
IF THE DOOR
IS CLOSED…
DOES IT MAKE THE
BOAT GO FASTER?
FOR MORE INFORMATION
SEE PAGE 42
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
EMPLOYEES
CUSTOMERS
TOTAL SPACE
315
1,155
7m sq m
TOTAL AUM
£11bn
03
URBAN WAREHOUSES
LOCATED IN OR CLOSE TO MA JOR CITIES
Urban warehouses are located within easy reach of
population centres and business districts. They are
used by a wide variety of customers who need rapid
access to their own customers and to labour and are
therefore close to main roads and public transport.
Land supply in and around urban areas tends to be
less available so urban warehouses tend to be smaller.
They are often clustered in estates which can comprise
multi-let terraces of smaller units (typically <3,500 sq m),
larger detached single-let warehouses (typically larger
than 3,500 sq m) or a mixture of the two.
EXAMPLES OF USERS OF
OUR URBAN SPACE:
Retailers and supermarkets
Parcel delivery and third party
logistics companies
Food preparation companies
Data centre operators
Air cargo handling companies
Wholesalers
URBAN WAREHOUSES
OUR TOP 20 CUSTOMERS:
Our top 20 customers represent
headline rent of £119 million
in aggregate, 31% of the
Group’s total headline rent at
31 December 2018
1. Deutsche Post DHL
2.
FedEx
3. Worldwide Flight Services
4. Amazon
5. Royal Mail
6. British Airways
7.
Equinix
8. Sainsbury’s
9. La Poste (DPD)
10. Tesco
11. DSV
12. Virtus
13. Mars
14. Leroy Merlin
15. IKEA
16. ID Logistics
17. Geodis
18. Hermes
19. Yoox Net-a-Porter
20. Marks & Spencer
8
1
6
5
7
4
2
3
CUSTOMER TYPE BY
HEADLINE RENT
(SEGRO SHARE)
1. Transport and logistics
2. Retail (physical
and online)
3. Food and
general manufacturing
4. Post and
parcel delivery
5. Technology, media
and telecoms
6. Wholesale and
retail distribution
7. Services and utilities
8. Other
23%
19%
18%
11%
8%
7%
7%
7%
3 1
2
ASSET TYPE BY VALUE
(SEGRO SHARE)
1. Urban warehousing
2. Big box warehousing
3. Other uses
67%
31%
2%
RE AD MORE ABOUT OUR
PORTFOLIO IN OPER ATIONAL
REVIEW ON PAGES 28-30
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
04
OVERVIEW
WHERE WE DO IT
Our portfolio is concentrated in areas expected to benefit
from strong occupier demand with limited supply of
competing product. Our buildings are located in, or close to,
major urban conurbations and around key transport hubs.
REGIONAL PORTFOLIO BY VALUE:
OUR MAIN LOCATIONS:
1
40%
2
3
4
1
2
3
17%
1. GREATER LONDON
2. THAMES VALLEY
Providing modern space in
a supply-constrained market.
Providing modern space
for growing businesses.
BIG BOX WAREHOUSES
1. London Airports
2. Park Royal
3. Rest of London
4. Rest of SEGRO
19%
16%
1. Slough Trading Estate
2. Rest of Thames Valley
5%
3. Rest of SEGRO
16%
1%
83%
Demand for large warehouses for inventory storage
and regional, national and international distribution
is growing, particularly amongst retailers.
60%
1
2
11%
3
1
2
15%
3
4
6 1
5
4
3
2
GEOGR APHICAL SPLIT
BY VALUE (SEGRO SHARE)
1. Greater London
2. Thames Valley
3. National Logistics
4. Southern Europe
– France
– Italy/Spain
5. Northern Europe
– Germany/Austria
– Netherlands
6. Central Europe
– Poland
– Czech Republic
40%
17%
11%
15%
9%
6%
11%
10%
1%
6%
5%
1%
3. NATIONAL LOGISTICS
4. SOUTHERN EUROPE
Facilitating efficient supply chains
and parcel delivery.
Increasing development in France;
building scale in Italy and Spain.
1. Midlands
2. South East
10%
1. France
1%
2.
Italy
3. Rest of SEGRO
89%
3. Spain
4. Rest of SEGRO
9%
5%
1%
85%
URBAN WAREHOUSES
Proximity to major urban areas is of critical
importance to many occupiers: retailers and
parcel delivery companies must distribute goods
efficiently to both store networks and homes
and offices (‘last mile delivery’).
1
23
4
11%
1
2 3
6%
5. NORTHERN EUROPE
6. CENTR AL EUROPE
Delivering quality big box and
urban warehouses in major cities.
Making strong progress in
a competitive market.
OTHER USES
1. Germany
2. Netherlands
3. Austria
4. Rest of SEGRO
1. Poland
2. Czech Republic
3. Rest of SEGRO
9%
1%
1%
89%
5%
1%
94%
The location of our urban warehouse estates and
land holdings, close to major population centres,
makes them ideal for other, higher value uses,
such as car showrooms, self storage facilities and
trade counters which need to be easily accessible
by employees and customers.
RE AD MORE ABOUT OUR
PORTFOLIO IN OPER ATIONAL
REVIEW ON PAGES 28-30
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 05
OUR MAIN LOCATIONS:
MIDL ANDS
HAMBURG
LONDON &
THAMES VALLEY
AMSTERDAM
BERLIN
POZNAN
WARSAW
COLOGNE
DÜSSELDORF
FR ANKFURT
ŁODZ
PR AGUE
K ATOWICE
PARIS
LYON
MARSEILLE
MUNICH
MIL AN
BOLOGNA
BARCELONA
MADRID
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 06
CHIEF EXECUTIVE’S STATEMENT
ANOTHER YEAR OF DELIVERY
David Sleath reports on SEGRO’s performance during
the past year and looks to the future.
SEGRO has delivered another
set of strong operating metrics,
completed a record volume of
developments and continued to
strengthen its capital structure.”
DAVID SLEATH
CHIEF EXECUTIVE
In 2018, SEGRO has delivered another set of
strong financial and operating metrics, completed a
record volume of developments and continued to
strengthen its capital structure. We have stayed true
to our strategy, committing to Operational Excellence
and Disciplined Capital Allocation, and as a result our
business is in robust health and well positioned for
the future.
The main highlights of 2018 include:
££ A strong performance in contracting new rent.
£66.4 million was signed in the period, including
£11.7 million of rent for over 200,000 sq m of
development at our flagship SEGRO Logistics Park
East Midlands Gateway.
££ Continued asset recycling to take advantage of
investor demand for warehousing, while also
reducing our exposure to assets with limited future
growth potential and to non-core markets.
££ Another record year of development, completing
673,400 sq m of space, of which 83 per cent is
already let, generating over £40 million of new
income. This includes our first multi-level warehouse
in Paris.
££ Celebrating a successful five years of partnership
with PSP Investments through our SELP joint
venture. The portfolio has grown significantly over
the period, now totalling €3.5 billion of big box
warehouses, and has delivered a return well ahead
of target, triggering the payment of a performance
fee to SEGRO as venture manager.
££ Acquiring the management platform of Roxhill,
having entered a partnership with them in 2016
which gave SEGRO phased access to a portfolio
of big box warehouse development sites in the
Midlands and South-East regions of the UK.
We welcomed the Roxhill team into SEGRO in the
fourth quarter and look forward to working together
on an exceptional pipeline of development sites.
££ Completing a US Private Placement of €300 million,
using the proceeds in part to repay our remaining
2019 bonds and to provide further capacity to
fund investment opportunities, particularly in our
development pipeline.
WE APPLY OUR
STR ATEGY TO MAXIMISE
PERFORMANCE:
1
2
3
4
1. OUR GOAL
2. DISCIPLINED CAPITAL
ALLOCATION
3. OPER ATIONAL EXCELLENCE
4. EFFICIENT CAPITAL AND
CORPOR ATE STRUCTURE
RE AD MORE ABOUT HOW
WE ARE DELIVERING ON
OUR STR ATEGY:
OUR BUSINESS MODEL
PAGES 12-13
OUR STR ATEGY
PAGES 21-30
PRINCIPAL RISKS
PAGES 52-58
KPI’s
PAGES 38-39
OUR RESPONSIBLE SEGRO
FR AMEWORK HELPS
GUIDE OUR
BUSINESS DECISIONS:
RE AD MORE ABOUT HOW
WE ARE COMMIT TED TO
SUSTAINABILIT Y ON
PAGES 40-51
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 07
In our urban markets, industrial land continues to
be converted into other higher value uses (primarily
residential) and this makes urban warehousing ever
more scarce. As a result rental values have continued
to increase, particularly in urban warehouses in the
UK, and there are increasing pockets of growth in
France, Germany and Poland. It also means that
developers are looking at ways to intensify land
use and in 2018 we completed our first multi-level
warehouse on the outskirts of Paris, which is already
fully let.
Industrial asset values have improved even further,
due to continued demand from investors who seek
exposure to the favourable market dynamics, and
yields are now around 10 to 20 basis points lower than
a year ago.
A PORTFOLIO WELL PLACED TO MEET OUR
CUSTOMERS’ REQUIREMENTS
The portfolio reshaping that we have carried out in the
early-mid part of the decade has left us well positioned
to benefit from the structural drivers at play in our
major markets. Our portfolio is well occupied on long
leases as customers invest more in automation and
fit-out and seek to secure space close to their end
customers for the longer term.
The majority of our acquisitions in 2018 have been
focused on urban warehousing in Continental Europe,
and we have continued to invest in land to provide
future development opportunities.
Our development team has delivered 673,400 sq m
of new space for a diverse range of occupiers across
our markets and we continue to focus on sustainability
in all of our developments, helping us to meet our
SEGRO 2020 environmental targets.
Our development pipeline is an important source of
growth and we have over 800,000 sq m of new space
under construction, capable of generating £46 million
of new rent, of which almost three-quarters has been
secured through pre-lets.
This activity has been reflected in a strong set of
results: adjusted profit before tax is up 24.4 per cent
to £241.5 million (IFRS: £1,099.1 million, up 12.6 per
cent) and adjusted earnings per share are up 17.6
per cent to 23.4 pence (IFRS: 105.4 pence, up 7 per
cent). Our 2018 earnings include a non-recurring
performance fee from our SELP joint venture of
£13.1 million which has an impact of 1.2 pence on
adjusted earnings per share. Our EPRA NAV per share
is up 16.9 per cent to 650 pence (IFRS: 644 pence,
up 16.2 per cent) driven substantially by a 10.7 per
cent increase in our portfolio value, which now totals
£9.4 billion (reflecting our share of £11.0 billion of
assets under management).
Our balance sheet is also in good shape. Our
average cost of debt remains low at 1.9 per cent
(31 December 2017: 2.1 per cent) with an average
duration of 10.2 years (31 December 2017: 10.8
years). SEGRO remains conservatively funded with a
loan-to-value ratio of 29 per cent (31 December 2017:
30 per cent) and we have over £1.2 billion of cash and
available facilities at our disposal, providing significant
financing flexibility.
FINANCIAL HIGHLIGHTS
ADJUSTED PROFIT
BEFORE TAX
£241.5m
2017: £194.2m
IFRS PROFIT
BEFORE TAX
£1,099.1m
2017: £976.3m
ADJUSTED EARNINGS
PER SHARE
23.4p
2017: 19.9p
The combination of a strong set of financial results in
2018 and our optimistic outlook for 2019 and beyond
means that we are recommending a 16.7 per cent
increase in final dividend to 13.3 pence per share,
making a total distribution of 18.8 pence for 2018 as a
whole (2017: 16.6 pence).
IFRS EARNINGS
PER SHARE
105.4p
2017: 98.5p
MARKET ENVIRONMENT CONTINUES
TO BE SUPPORTIVE
Our business continues to thrive as e-commerce and
convenience retailing, as well as urbanisation, continue
to drive the re-engineering of supply chains and the
associated increasing demand for both big box and
urban warehouses. These powerful structural drivers
are proving to be more significant influences on
occupier and investor demand for warehouses than
the rather sedate pace of economic growth.
As a result, we continue to see healthy occupier
demand across all our markets and our portfolio of
well-located, modern space is highly desirable for a
wide range of occupiers, in particular online retailers,
third party logistics operators and parcel delivery
companies. The supply response continues to be
controlled and although there has been a modest
increase in speculative development in the UK big
box market, it is generally well supported by levels of
occupational demand. We continue to take a low risk
approach to development and have already pre-let
73 per cent of our current pipeline, all of which is
expected to complete in 2019.
EPR A NAV
PER SHARE
650p
2017: 556p
IFRS NAV
PER SHARE
644p
2017: 554p
PORTFOLIO
VALUE
£9.4bn
2017: £8.0bn
TOTAL DIVIDEND
PER SHARE
18.8p
2017: 16.6p
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 08
CHIEF EXECUTIVE’S STATEMENT
Our balance sheet is in good shape too, with
conservative leverage and over £1 billion of cash and
available lending facilities. These give us the capacity to
take advantage of investment opportunities that arise,
while also providing a healthy buffer against broader
macro-economic challenges that the future may bring.
We believe that the structural drivers of demand in
our sector (particularly e-commerce and urbanisation)
will continue regardless of short term economic and
political volatility and this should underpin occupier
demand for the foreseeable future, helping to
minimise the impact on our business.
As a result, we continue to see potential for further
rental growth across the portfolio, particularly from
the continued imbalance of limited supply and strong
occupier demand in our urban warehouse markets,
realisation of reversionary potential in our UK portfolio
and from our significant pipeline of developments
currently under construction. Investor demand for
prime warehouses also remains healthy and, whilst it
is difficult to assess the outlook for capital values, our
portfolio is well let to a diverse range of customers and
customer sectors on long leases.
Whilst we remain alert to market risks, we are
optimistic about our prospects for the coming year
and beyond. We will continue to focus on active asset
management to ensure we are maximising returns
from our existing portfolio while also developing new
warehouses where we see strong occupier demand.
Our customers come from a wide range of industries
and sectors and whilst they continue to grow and
adapt their business models, we will respond by
creating the space that enables extraordinary things
to happen.
PEOPLE AT THE CORE OF OUR SUCCESS
Attracting and retaining talented people is key to
our success. We have a strong company culture and
continue to be guided by our Purpose and Values in
every part of our business.
Over 300 people now work in our 14 offices across
Europe and our cross-border working groups ensure
that ideas and best practices are shared amongst the
wider business. Our social media style intranet also
enables more informal communication.
We want everyone to be able to maximise their
potential at SEGRO and continue to develop in our
‘Space to Grow’ programme that offers a broad range
of training. We have invested in technology that allows
our employees to work more flexibly and encourage
diversity and inclusion throughout the workplace.
We held our third SEGRO-wide Day of Giving during
the year and over 200 employees across Europe spent
a day out of the office participating in a wide variety of
charitable activities.
Every two years, we conduct an independent survey
of all our employees, to ensure that we maintain our
position as an employer of choice. The survey was
carried out in December 2018 and the early results
indicate a very high level of employee engagement
and satisfaction, placing SEGRO at the upper end of
the top quartile of companies surveyed by our external
provider, and showing further progress from our
2016 survey.
Our successes are a testament to the skills and
dedication of our people and I am grateful to them for
all of their efforts throughout 2018.
DELIVERING INCREASING
DIVIDENDS
18.8 pence
.
p
4
4
1
.
p
9
4
1
.
p
7
5
1
.
p
6
6
1
.
p
8
8
1
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
1
7
6
5
4
3
2
OPTIMISTIC OUTLOOK DESPITE WIDER POLITICAL
AND ECONOMIC UNCERTAINTY
We own a portfolio of prime warehouses located in
Europe’s most important cities and logistics hubs.
HIGH QUALITY
EUROPEAN PORTFOLIO
BY VALUE (SEGRO SHARE)
1. London
££ Our urban warehouses, making up almost two-
2. Thames Valley
thirds of our assets, are concentrated in and around
Europe’s largest cities, where land supply is tight and
occupier demand is strong. These are well placed to
capture further growth in both rental income and
rental values.
3. National Logistics
4. Germany
5. France
6. Poland
7. Rest of Europe
40%
17%
11%
10%
9%
5%
8%
££ Our big box warehouses, located along Europe’s
main transport corridors and in its major logistics
hubs, are increasingly core parts of countries’
national infrastructure, as companies seek to
improve the efficiency and speed of their supply
chains. These form an important part of our
development activity: the total returns are attractive,
and the development risk is mitigated by securing
pre-let agreements on most of our projects.
Total
100%
FOR MORE INFORMATION
ON OUR PEOPLE SEE
PAGES 42-43
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 09
MARKET OVERVIEW
A LOOK AT OUR MARKET DRIVERS
The performance of real estate, like all asset classes, is driven by the
interplay of demand and supply: investor demand for property assets
and occupier demand for space, with performance dependent on the
supply of properties to buy or lease to satisfy that demand.
STABLE ECONOMIC
OUTLOOK
GDP GROW TH FORECAST FOR OUR
MA JOR MARKETS (% P.A., 2019 – 2020)
%
7
3
.
%
6
1
.
%
5
1
.
%
3
1
.
%
9
0
.
d
n
a
o
P
l
e
c
n
a
r
F
y
n
a
m
r
e
G
K
U
y
l
a
t
I
REAL ESTATE AS AN INVESTMENT ASSET
COMMENTARY:
If investor demand increases, in the absence of additional supply, the value of real estate will
rise; if demand wanes or supply increases, the value will fall. Real estate pricing is commonly
expressed as a yield which is the rent payable for a building as a percentage of its value.
Assuming rents remain static, as the value of real estate rises, its yield falls (often referred to as
‘yield compression’) and vice versa.
REAL ESTATE AS AN OPER ATING NECESSITY
As occupier demand increases, in the absence of additional supply, overall lease terms will
become more expensive for the occupier, including (but not exclusively) an increase in rents.
If demand for space falls, or supply increases ahead of occupier demand, overall lease terms,
including rent, will become cheaper.
It is for this reason that the property market is considered cyclical: as investor or occupier
demand increases, the returns from real estate improve and the supply of assets or space tends
to increase to meet that demand. If supply increases too much, or demand starts to fall, supply
can exceed demand and asset values and rents will fall until such time as demand matches or
exceeds supply, at which point the cycle turns.
We are acutely aware of the cyclical nature of real estate and believe there are six main market
factors which influence the performance of our portfolio.
For definitions of terms used in this Report, please refer to the Glossary on page 184.
Economic growth is an important driver
of demand for space by occupiers, and
our customer base spans most business
sectors. A supportive economic environment
encourages businesses to grow and require
additional space in which to operate.
We expect the economies of all our markets
to grow, albeit at a slightly slower pace than in
previous years.
The UK’s future relationship with the European
Union continues to be a source of uncertainty
and in the event of a ‘no deal’ this could have
a significant impact on UK GDP growth.
WHAT IT MEANS FOR SEGRO:
££ A supportive economic environment
is crucial for our customers and likely
to increase demand for additional
warehouse space.
££ Healthy occupier demand for newly
developed pre-let and speculative space.
££ Lack of clarity around the UK’s future
relationship with the EU could impact
occupier demand both for existing space
and for our risk appetite for speculative
development (see page 52 for more details
about Brexit-related risks).
Source: OCED (data correct as at 19 February 2019), SEGRO
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 10
MARKET OVERVIEW
OUR MARKET DRIVERS
CONTINUED
STRUCTURAL CHANGES IN
CONSUMER BEHAVIOUR
LIMITED SUPPLY OF
MODERN WAREHOUSING
REDUCTION IN INDUSTRIAL LAND
AROUND MAJOR TOWNS AND CITIES
THE IMPACT OF ONLINE SALES ON
EUROPEAN RETAIL AND LOGISTICS
(2009 = 100)
Online sales
Logistics space
Retail sales
Retail space
BIG BOX WAREHOUSE VACANCY R ATES
(31 December 2018)
%
0
9
.
%
7
5
.
%
5
4
.
%
1
4
.
%
0
4
.
%
6
3
.
%
1
3
.
%
0
2
.
300
200
100
0
9
0
0
2
0
1
0
2
1
1
0
2
2
1
0
2
3
1
0
2
4
1
0
2
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
w
a
s
r
a
W
t
r
u
f
k
n
a
r
F
s
i
r
a
P
n
o
d
n
o
L
e
u
g
a
r
P
n
a
l
i
M
a
n
o
l
e
c
r
a
B
l
s
d
n
a
d
M
K
U
i
COMMENTARY:
COMMENTARY:
COMMENTARY:
Structural changes in the nature of retailing
towards e-commerce and convenience
shopping, combined with increasing
urbanisation of European populations, are
forcing retailers to reassess how they sell and
distribute their goods.
Supply chains must be able to handle both
bulk delivery of goods to larger stores
and individual deliveries to homes, offices,
click-and-collect locations and high street
convenience stores. Margin pressure means
that retailers, third party logistics providers
and parcel delivery companies are increasingly
focused on extracting efficiencies from their
supply chain, using modern premises in key
transport corridors, logistics hubs or locations
close to major conurbations.
WHAT IT MEANS FOR SEGRO:
££ Strong occupier demand for our urban
warehouses located on the edge of major
European cities to cater for ‘last mile
delivery’ to multiple destinations, often
houses and offices.
££ More than 60 per cent of lettings in 2018
were from retailers, parcel delivery and third
party logistics companies.
££ See also factors under ‘Stable
economic outlook’.
The relatively short construction time for
warehousing means that rising demand can
sometimes be quickly met by an increase in
supply. However, developers are currently
taking a disciplined approach and, particularly
in urban areas, tight planning laws and
competing uses are restricting the availability
of land. Therefore, although warehouse
development is increasing, it is consistent with
levels of occupier demand and many buildings
under construction are already committed
(pre-let) to occupiers.
As a result, vacancy rates remain low in both
absolute terms and compared to historic
levels. There has been a moderate increase
in speculative development in the UK
Midlands big box market which is manifested
in a higher vacancy rate, but much of this is
outside our core markets and is consistent
with the level of occupier demand for
modern warehouses.
WHAT IT MEANS FOR SEGRO:
££ The shortage of quality urban warehouses
and healthy occupier demand has caused
rental values to rise.
££ Continued investment into development
on a substantially pre-let basis, utilising
our well-located land bank to satisfy our
customers’ need for modern warehouse
space in key European cities and
transport corridors.
Source: CBRE and Euromonitor
Source: JLL
Land zoned for industrial use in and around
major conurbations is important to cater for
occupiers who need to be close to population
centres either for efficient last mile delivery or
for an accessible labour source. However, the
stock of industrial land is being eroded in our
major urban markets by other, higher value
uses, most commonly residential. As a result,
the potential supply response is restricted and,
since demand remains strong, overall leasing
terms are improving.
WHAT IT MEANS FOR SEGRO:
££ In the UK, rental values for our London
assets increased by 6.2 per cent reflecting
the shortage of new supply relative to levels
of demand and we expect continued rental
growth in 2019.
££ The shortage of land supply in urban areas
is leading property developers to consider
ways to use land more intensively, including
multi-level warehouses. We built our first
multi-level warehouse in Paris during the
year and will continue to consider this
where appropriate.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
11
OUR
GOAL
DISCIPLINED
CAPITAL
ALLOCATION
OPERATIONAL
EXCELLENCE
EFFICIENT CAPITAL AND
CORPORATE STRUCTURE
NEED FOR EFFICIENT,
SUSTAINABLE BUILDINGS
ATTRACTIVE YIELD PROFILE IN A
LOW INTEREST RATE ENVIRONMENT
HOW ARE WE
RESPONDING?
PRIME YIELDS IN ALL OUR MARKETS ARE
COMFORTABLY ABOVE RISK-FREE RATES (%)
1.
0
6
.
5
4
.
5
4
.
0
4
.
3
1
.
2
0
.
d
n
a
o
P
l
e
c
n
a
r
F
K
U
y
n
a
m
r
e
G
e
e
r
f
-
k
s
i
r
y
n
a
m
r
e
G
e
e
r
f
-
k
s
i
r
K
U
COMMENTARY:
COMMENTARY:
Monetary policy across Europe – and globally
– means that we are operating in a very low
interest rate environment: 10 year UK gilts
at 31 December 2018 yielded 1.3 per cent
and German bunds yielded 0.2 per cent.
Prime industrial real estate yields in the UK
and Continental Europe are between 3 and 6
percentage points higher than their respective
risk-free benchmarks, making industrial real
estate attractive on a relative basis.
WHAT IT MEANS FOR SEGRO:
££ The attractive relative yield profile of
warehouse properties is enhanced by our
experience and expectations of improving
rental values. Our portfolio increased in
value by 10.7 per cent in 2018, reflecting
continued yield compression across our
markets and improving rental values,
particularly in urban warehousing.
££ Greater competition for standing assets
from investors has increased their prices
meaning that the returns available to us
from developing our own assets are usually
higher than from acquiring existing assets.
With greater awareness of the impact of
buildings on the environment and finite
natural resources, occupiers demand high
levels of environmental sustainability to
minimise their environmental footprint and to
reduce overall occupancy costs, particularly
from heating and other utilities. It is important
that landlords and developers own and
create buildings which are sustainable
in the long term and use those natural
resources efficiently.
WHAT IT MEANS FOR SEGRO:
££ All of our developments are designed to
meet the environmental targets set out
in our SEGRO 2020 strategy (see page
47 for more details). We achieved all of
these targets in 2018 and have now set
our SEGRO 2025 targets, which we will be
working towards over the coming years.
££ A building’s sustainability is an important
factor in our investment decisions, not only
for potential acquisitions but also in deciding
whether to refurbish or dispose of the very
few existing properties which fall short of
environmental standards.
££ We estimate that 98 per cent of our UK
properties by ERV are E-rated or above
for the purposes of Minimum Energy
Efficiency Standards and we now have over
1.8 million sq m of sustainably certified (for
example BREEAM, DGNB, HQE) assets in
our portfolio.
STRONG CUSTOMER FOCUS AND
ACTIVE ASSET MANAGEMENT
Maximising customer retention, portfolio
occupancy, rental growth and asset sustainability
through strong customer service and asset
maintenance and refurbishment.
2.
SUBSTANTIAL DEVELOPMENT
PROGRAMME
To take advantage of growing occupier demand
and limited supply of modern, sustainable
warehousing, particularly in urban locations.
3.
LAND ACQUISITIONS
Have mainly been focused on sites for immediate
development with a limited number of strategic
sites, which can be developed on a phased basis
over a maximum of three to five years. Longer-
term sites secured through option agreements.
4.
ASSET RECYCLING
Taking advantage of strong investor demand
to improve our portfolio quality: selling
assets to release funds for investment in our
development programme, reducing debt
and selective asset acquisitions.
5.
STRENGTHENED AND IMPROVED
CAPITAL STRUCTURE
During the year, we continued to improve our
financial position. As part of the process, we
completed a US Private Placement of €300 million
10 and 15 year notes, using the proceeds in part
to repay the remaining 2019 bonds. As a result
our average cost of debt reduced to 1.9 per cent
and the long average duration was retained at
10.2 years.
Source: CBRE, Bloomberg (at 31 December 2018)
FOR MORE INFORMATION SEE
PAGES 21-37
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
12
OUR BUSINESS MODEL
HOW WE CREATE VALUE
We aim to generate attractive financial and social returns
for our shareholders and wider stakeholders by investing
in high quality, sustainable buildings in prime locations.
WE APPLY OUR
STR ATEGY TO MAXIMISE
PERFORMANCE:
1
2
3
4
THE RESOURCES WE NEED
LAND
ASSETS
PEOPLE
PARTNERS
CAPITAL
We buy sufficient
land to fuel our
development pipeline
We buy and build
warehouse properties
located on the edge
of major cities, key
transport corridors
and hubs
We employ 315
people with expert
skills across all aspects
of real estate
We joint venture with
other organisations
whose attributes
complement our own
We forge strong
relationships with
our shareholders as
well as our banks
and bondholders
who provide equity
funding and debt
SEE PAGES 26-27
SEE PAGES 22-23
SEE PAGES 42-43
SEE PAGES 50-51
SEE PAGES 31-37
1. OUR GOAL
2. DISCIPLINED CAPITAL
ALLOCATION
3. OPER ATIONAL EXCELLENCE
4. EFFICIENT CAPITAL AND
CORPOR ATE STRUCTURE
WHAT WE DO
We will buy assets and land where
we believe our skills can add value
BUY
SMART
ADD
VALUE
We actively manage our
portfolio through leasing
space and servicing our
customers and through
development
SELL
WELL
We sell assets where we believe the
returns are less attractive than can
be achieved from other uses
RE AD MORE ABOUT HOW
WE ARE DELIVERING ON
OUR STR ATEGY:
OUR STR ATEGY
PAGES 21-30
KPI’s
PAGES 38-39
PRINCIPAL RISKS
PAGES 52-58
THE VALUE WE CREATE
FINANCIAL
NON-FINANCIAL
RENT ROLL
GROW TH
£54m
ADJUSTED
PROFIT
BEFORE TA X
£242m
TOTAL
PROPERT Y
RETURN
15.4%
EPR A NAV
GROW TH
16.9%
QUALIT Y
SUSTAINABLE
BUILDINGS
CREATING
BET TER
COMMUNITIES
A COMPANY
WHERE PEOPLE
WANT TO WORK
OR DO BUSINESS
SEE FULL KPI’S PAGES 38-39
SEE PAGES 40-51
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 13
WHAT WE DO IN MORE DETAIL
PEOPLE
LAND
ASSETS
BUY
SMART
ADD
VALUE
SELL
WELL
We invested £140 million in
development land during the
year. We utilised £188 million
of land in new development
projects and sold £70 million
to third parties
We acquired a small number
of urban warehouses assets in
Paris and Warsaw
Investment teams in each
Business Unit source and
negotiate attractive
acquisition opportunities
CAPITAL
We will usually utilise debt
facilities to fund acquisitions
PEOPLE
DEVELOPMENT
MANAGEMENT
PARTNERS
Operations teams in each
Business Unit manage the
relationships with existing
customers, seek new customers
and plan and execute our
development programme
Development is a significant
means of adding value to
our business. In 2018, we
completed 673,400 sq m of
new space, the largest volume
in the Company’s history
Active management of our
assets ensure that we generate
attractive rental growth from a
high quality portfolio and
excellent customer service
Our SELP joint venture allows
us to realise economies of scale
in Continental European big
box warehouses in a
capital-efficient manner
CAPITAL
A significant proportion of
our capital is invested in
development, but is also
invested in maintenance and
refurbishment of existing
properties to ensure they
are well occupied and in
good condition
PEOPLE
The investment teams assess
returns from every asset
compared to other investments,
identifying potential candidates
for disposal
BIG BOX
WAREHOUSES
URBAN
WAREHOUSES
CAPITAL
SALES
Asset recycling maintains high
levels of performance in the
property portfolio, as well as
being an important generator
of capital for future investment
We will sell assets to crystallise value
gains and to provide funding for
identified investment opportunities.
During 2018, we sold £442 million
of assets and land
RENTAL INCOME
LESS OPER ATING COSTS
LESS FINANCIAL COSTS
LESS TA X
PROFIT
The largest source of
our revenue
Primarily essential
employee costs
Primarily the interest payments
on our debt
As a UK REIT, and SIIC in
France, SEGRO only pays
corporate tax on operating
profits outside these countries
SHAREHOLDER
DIVIDENDS
REINVESTED IN
THE BUSINESS
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 14
OUR BUSINESS MODEL IN ACTION
BUY SMART
“ We will buy assets and land where we believe
we can use our particular skill-set to add value.”
BUY
SMART
SEGRO Business Park Warsaw is
a perfect addition to our urban
warehouse portfolio due to its
inner city location and the high
quality of the estate.”
BOŽENA KR AWCZYK
INVESTMENT DIRECTOR, SEGRO CENTR AL EUROPE
With investment yields at historic lows it has become
increasingly difficult to find attractive acquisition
opportunities. We continue to monitor the market
closely and as a result we were able to make
£81 million of targeted acquisitions in 2018, which
will help us to achieve scale in key markets.
We also purchased an additional £140 million of
land which gives us the capacity to continue to grow
our development pipeline.
CASE STUDY: BUYING SMART TO GROW
OUR URBAN WAREHOUSE PORTFOLIO IN
CONTINENTAL EUROPE
Urban warehouses account for almost two-thirds
of our portfolio and we believe they offer attractive
long-term returns as urbanisation and the e-commerce
revolution drive greater occupier demand for
warehouse space in and around population centres.
These warehouses are crucial for ensuring rapid
delivery of goods and services to their final destination
(so-called “last mile delivery”), most notably for parcel
distribution companies, retailers and food producers.
In addition, land zoned for industrial use in cities is
declining as urban populations grow and this land is
used instead to create new housing. This combination
of strong and growing demand and limited (and
often declining) land supply represents a favourable
environment for urban warehousing both now and
into the future.
Although we usually develop urban warehouses
ourselves, we took the opportunity to add to our
Continental European urban warehouse portfolio in
2018 through a number of targeted acquisitions.
In Poland, we acquired IDEAL IDEA Park IV
(since renamed SEGRO Business Park Warsaw), a
18,600 sq m estate approximately 9km from Warsaw
city centre. Poland lags behind the rest of Europe in
terms of e-commerce penetration but it is growing
and as a result urban warehouse space is increasingly
in demand.
In France, we purchased a 19,200 sq m multi-let urban
warehouse neighbouring our existing holdings in
Le Blanc-Mesnil, Paris.
Both of these assets were fully let on acquisition and
are in markets that we believe to have good growth
potential. We will use our expertise in the urban
warehousing sector to add value to these new estates
through active asset management.
We also took the opportunity to acquire a 19.4 per
cent interest in French listed property company Sofibus
Patrimoine. Sofibus’ largest holding comprises 127,000
sq m of urban warehouse properties within Le Parc
d’Activites des Petits Carreaux, a 150,000 sq m estate
located approximately 15km south east of Paris.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 15
PURCHASES OF LAND
PURCHASES OF ASSETS
AVER AGE YIELD
£140m
£81m
5.3%
SEGRO BUSINESS PARK,
WARSAW
A 18,600 sq m estate on the edge
of Warsaw and one of our urban
warehouse acquisitions in 2018.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 16
OUR BUSINESS MODEL IN ACTION
ADD VALUE
“ We actively manage our portfolio, improving
returns through asset management, refurbishment
and development.”
ADD
VALUE
We have considerable momentum
at SLP East Midlands Gateway,
where we are creating a state of
the art, multi-modal logistics hub.”
ANDREW PILSWORTH
BUSINESS UNIT DIRECTOR, NATIONAL LOGISTICS
There are two main ways that we add value to our
portfolio. Firstly, we drive rental growth from our
existing assets, owning prime buildings in the best
locations and by building strong relationships with
our customers. Staying close to them and anticipating
their needs helps us to keep retention rates high
and vacancy rates low. We also pro-actively maintain
and refurbish our assets, ensuring that they remain
attractive to potential occupiers.
Secondly, we look to add value through the
development of new warehouse space, generating new
rental income and development profits. We completed
673,400 sq m of new developments in 2018, capable
of generating £40 million of rent once fully let, of
which £34 million has already been secured.
CASE STUDY: ADDING VALUE THROUGH
DEVELOPMENT AT SEGRO LOGISTICS PARK EAST
MIDLANDS GATEWAY
A great example of adding value through development
can be seen at SEGRO Logistics Park East Midlands
Gateway (SLP-EMG). This site started out as 700 acres
of steeply sloping farmland, secured as part of our
partnership with Roxhill in 2016. The site is adjacent
to East Midlands Airport (which is the UK’s second
largest airport for air cargo) and has direct access to
the M1, making it a very attractive location for big box
logistics warehousing.
However, the local road network was already
overloaded so it required an ambitious infrastructure
scheme for it to fulfil its potential. We have invested
£90 million into the transport infrastructure including
completely reengineering J24 of the M1 and moving
the A50 southbound to the opposite side of the
motorway. In addition, we built a new road to bypass
Kegworth, finally achieving a goal long fought for by
local communities.
A Strategic Rail Freight interchange (SRFI) has been
created that combines a 22.5 acre freight terminal
and a new section of track linking to the Castle
Donnington freight line, which will provide access to
the UK rail freight network as well as major UK ports.
We signed a 25 year lease in early 2019 with Maritime
Transport, the market-leading multi-modal logistics
company, who will operate the interchange and base
their Rail Headquarters at the site.
SLP-EMG is capable of supporting 550,000 sq m
of big box warehouse space which we estimate will
generate more than 7,250 jobs for the region. In early
2018, we agreed transactions with four occupiers
for 250,000 sq m of new warehousing across four
buildings. Construction of the warehouses started
in March and will be completed in Spring 2019,
generating £11.7 million of rental income.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 17
RENT ROLL GROWTH
DEVELOPMENT COMPLETIONS
POTENTIAL HEADLINE RENT
£54m
673,400 sq m
£40m
t
SEGRO LOGISTICS PARK EAST
MIDLANDS GATEWAY
On the left, an aerial view of the
park. On the right, one of our first
units constructed, a 122,000 sq m
distribution facility for a global
online retail company.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 18
OUR BUSINESS MODEL IN ACTION
SELL WELL
“ We will sell assets where we believe the risk-adjusted
returns available to us are less attractive than other
uses of our capital.”
SELL
WELL
We carry out a detailed review of our portfolio every
year to identify assets where we believe we can
maximise returns from recycling them, allowing us
to deploy our capital into other opportunities.
During 2018 we disposed of £372 million of assets
and £70 million of land. These disposals included
the sale of four big box warehouses and adjacent
development land owned by SELP in Belgium
for €83 million (SEGRO share: €41.7 million).
This transaction successfully concluded our presence
in Belgium, in line with our strategy to exit markets
where we do not have, or do not expect to achieve,
a scale position.
CASE STUDY: SELLING WELL TO CAPITALISE ON
STRONG INVESTOR DEMAND AND RELEASE
CAPITAL TO REINVEST
One of our largest disposals this year was the sale of
a 158,000 sq m distribution facility on the outskirts
of Rome, developed by Vailog, SEGRO’s Italian
subsidiary. The unit, the largest SEGRO has ever
developed, was built for one of our major customers
and developed in line with their specific requirements
for a new format fulfilment centre, the first of its kind
in Europe. The building included two mezzanine levels
and was designed with a high degree of automation in
mind, as well as being able to withstand seismic activity
in the region. The unit was signed on a 15 year lease
and completed in August 2017.
Our investment team identified strong investor
demand for such well-let, state-of-the-art buildings
and carried out a process of marketing it for sale.
We completed the disposal in October 2018 for
€118 million, capitalising on the strong investor
demand and crystallising a healthy profit on
development cost, allowing us to recycle the
proceeds into our active development pipeline.
SELL WELL
The warehouse was developed
by SEGRO-Vailog in 2017 for a
global online retail company on
a 15 year lease.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
19
ASSET SALES
£372m
LAND SALES
£70m
PROFIT ON SALES
13%
We sold this state-of-the-art
warehouse to capitalise on strong
demand from a wide range of
international investors.”
PHIL REDDING
CHIEF INVESTMENT OFFICER
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 20
OUR BUSINESS MODEL IN ACTION
SELP
“ Our partnership with PSP Investments has allowed us to
build scale in Continental European big box warehouses
in a capital efficient manner.”
SEGRO EUROPEAN LOGISTICS PARTNERSHIP (SELP)
In 2018 we celebrated the five year anniversary
of SELP, our Continental European big box joint
venture with PSP Investments, one of Canada’s
largest pension investment managers. SELP started
out in 2013 with €1 billion of assets. At the end
of 2018, it has a portfolio worth over €3.5 billion.
It generates €191 million of headline rent and is
97 per cent occupied.
This partnership was a vital element of our strategy
to build scale in Continental European big box
warehousing in a capital efficient manner. By sharing
the capital investment with PSP Investments, we
were able to grow the portfolio further and faster
than we could have done on our own. Both partners
benefit from the attractive yield on the portfolio, the
development potential from the land and from the
economies of scale we can extract from this extremely
high quality, modern collection of big box warehouses.
As a result, SEGRO now has approximately €1 billion
assets in each of Germany, France and Poland, and we
are building scale in the smaller markets of Italy, Spain,
the Czech Republic and the Netherlands. The appetite
for investing in big box warehousing in strategic
locations in Continental Europe remains strong
from both partners and we look forward to further
successful collaboration into the future.
ASSETS UNDER MANAGEMENT
(€bn)
Assets under management at 31 December 2018
Assets under management at inception
m
7
3
0
1
€
,
m
6
4
9
€
m
6
7
7
€
m
2
9
3
€
m
4
9
1
€
m
4
3
1
€
1.2
1.0
0.8
0.6
0.4
0.2
y
n
a
m
r
e
G
/
d
n
a
l
o
P
c
i
l
b
u
p
e
R
h
c
e
z
C
y
l
a
t
I
e
c
n
a
r
F
i
n
a
p
S
s
d
n
a
l
r
e
h
t
e
N
NewLogic V, Tilburg
NewLogic V is a 31,400 sq m
state-of-the-art warehouse in
Tilburg, a key logistics hotspot in
the Netherlands, located close to
a barge terminal that provides a
direct link to Rotterdam harbour.
The building was awarded at
BREEAM Design ‘Outstanding’
award for the approach to
sustainability that has been taken
during its design and planning.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
21
OUR STR ATEGY
A STRATEGY TO GENERATE ATTRACTIVE,
SUSTAINABLE RETURNS
Our goal is to be the best owner-manager and developer
of warehouse properties in Europe and a leading income-
focused REIT.
Our strategy for achieving this goal is to
create a portfolio of high quality big box and
urban warehouses in the strongest markets
which generate attractive, low risk, income-led
returns with above average rental and capital
growth when market conditions are positive,
and are resilient in a downturn. We seek
to enhance returns through development,
while ensuring that the short-term income
‘drag’ associated with holding land does not
outweigh the long-term potential benefits.
Fundamental to our strategy are three key
pillars of activity which should combine
to deliver an attractive, income-led total
property return:
££ Disciplined Capital Allocation
££ Operational Excellence
££ Efficient Capital and Corporate Structure.
The combination of these elements should
translate into sustainable, attractive returns for
our shareholders in the form of progressive
dividends and net asset value growth
over time.
Our portfolio comprises modern big box
and urban warehouses which are well
specified and located, with good sustainability
credentials, and which should benefit from
a low structural void rate and relatively low-
intensity asset management requirements.
Our assets are concentrated in the strongest
European submarkets which display attractive
property market characteristics, including
good growth prospects, limited supply
availability and where we already have critical
mass, or believe we will be able to achieve it in
a reasonable timeframe.
WE APPLY OUR STR ATEGY TO MAXIMISE THE RETURNS FROM OUR BUSINESS
OUR
GOAL
DISCIPLINED
CAPITAL
ALLOCATION
OPERATIONAL
EXCELLENCE
EFFICIENT CAPITAL AND
CORPORATE STRUCTURE
OUR GOAL
Our goal is to be the best owner-manager
and developer of warehouse properties in
Europe and a leading income-focused REIT.
DISCIPLINED CAPITAL ALLOCATION
Picking the right markets and assets to
create the right portfolio shape by actively
managing the portfolio composition and
adapting our capital deployment according
to our assessment of the property cycle.
OPER ATIONAL EXCELLENCE
Optimising performance from the portfolio
through dedicated customer service, expert
asset management, development and
operational efficiency.
EFFICIENT CAPITAL AND
CORPOR ATE STRUCTURE
We aim to underpin the property level
returns from our portfolio with a lean
overhead structure and appropriate financial
leverage through the cycle.
FOR MORE INFORMATION ON
OUR KPIs SEE PAGES 38-39
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
22
OUR STR ATEGY
DISCIPLINED CAPITAL ALLOCATION
ACQUISITIONS OF
LAND AND ASSETS
£221m
2017: £702m
DISPOSALS OF
LAND AND ASSETS
£442m
2017: £525m
INVESTMENT IN
DEVELOPMENT
£548m
2017: £414m
W e invested a net £327 million in our portfolio
during the year, combining acquisitions
of £221 million of land and assets and
development investment of £548 million, funded in
part by £442 million of disposals.
ACQUISITIONS FOCUSED ON BUILDING SCALE IN
URBAN WAREHOUSING
2018 was a quieter year for acquisitions than 2017
as we focused investment on our development
pipeline. We did however acquire a number of urban
warehousing assets in Paris and Warsaw, which will
help us to achieve scale in these fast-growing markets.
One of these transactions involved an asset swap in
Paris, exchanging a retail-focused industrial estate
for a multi-let urban warehouse that neighbours our
existing holdings in Le Blanc-Mesnil.
The consideration for the asset acquisitions was
£81 million, reflecting a blended topped-up initial yield
of 5.3 per cent.
ACQUISITIONS: WHAT TO EXPECT IN 2019
We will continue to look for acquisitions of income-
producing assets in line with our strategy and which
offer attractive risk-adjusted returns. However, the
majority of our investment is likely to remain focused
on development.
PORTFOLIO
VALUATION CHANGE
ASSET RECYCLING TO IMPROVE
PORTFOLIO FOCUS
+10.7%
2017: +13.6%
During 2018, we sold £442 million of land and assets,
taking advantage of strong investor demand to realise
profits and release capital to reinvest in our business.
The largest sale was a logistics warehouse in Rome
which was built for a global online retail company
and designed to cater for its specific requirements.
Shortly after completing construction we identified
a high level of investor demand for such assets and
decided to sell the unit to capitalise on this demand.
The asset was sold for €118 million, a significant
premium to book value.
We also sold four big box warehouses in Belgium
on behalf of SELP for net proceeds of €83 million
(SEGRO share: €42 million), successfully concluding
our presence in the country and in line with our
strategy to exit markets where we do not have, or do
not expect to achieve, a scale position.
As in previous years, we sold a portfolio of Continental
European big box warehouses developed by
SEGRO to SELP for which we received £126 million
net proceeds from an effective sale of a 50 per
cent interest.
We have continued to focus
our investment activity on
improving the quality of
our portfolio.”
PHIL REDDING
CHIEF INVESTMENT OFFICER
WHAT WE SAID WE WOULD DO
Investor demand for high quality assets and land
remained competitive so we expected to continue
to focus our investment activities mainly on
developing new assets rather than on acquiring
completed ones.
WHAT WE ACHIEVED IN 2018
Net investment during the year of £327 million.
We invested £548 million in our development
pipeline, as well as acquiring a number of smaller
urban warehouse assets in Continental Europe to
help us achieve scale in these growing markets.
We sold assets in Belgium and Italy.
WHAT TO EXPECT IN 2019
With investor demand for warehouse assets
remaining strong, we expect to continue to sell
non-core assets to release funds for investment into
other opportunities offering a better risk-return
profile. Investment will still be primarily orientated
towards development but we will look for
opportunities to acquire income-producing assets
offering attractive risk-adjusted returns.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 23
Assets held throughout the year in the UK
increased in value by 12.0 per cent (2017:
15.8 per cent), outperforming the MSCI UK
Industrial quarterly index which increased
by 11.4 per cent. The performance reflects
a combination of yield compression across
the portfolio and the capture of reversionary
potential in lease reviews and renewals,
particularly in London. The true equivalent
yield applied to our UK portfolio was 4.8
per cent (31 December 2017: 5.0 per cent),
while rental values improved by 4.7 per cent
(2017: 3.9 per cent).
Assets held throughout the year in Continental
Europe increased in value by 5.1 per cent
(2017: 6.2 per cent) on a constant currency basis,
reflecting a combination of yield compression
to 5.9 per cent (31 December 2017: 6.0 per
cent) and rental value growth of 0.7 per cent
(2017: 1.2 per cent).
More details of our property portfolio can be
found in Note 27 to the Financial Statements
and in the 2018 Property Analysis Report
available at www.segro.com/investors.
VALUATIONS: WHAT TO EXPECT IN 2019
Capital growth forecasts are notoriously
difficult given the multitude of drivers
(particularly interest rates and credit spreads)
most of which are outside our direct control.
Political and macro-economic uncertainty
(particularly with regards to the UK’s future
relationship with the European Union) means
that we enter 2019 with low visibility regarding
the outlook for values.
Nevertheless, the prospects for our portfolio of
big box and urban warehouses remain good,
supported by structural drivers of demand
and disciplined supply. This means that we
are optimistic about the potential for further
rental value growth, particularly in our urban
warehouse portfolio. Prime yields continue to
appear attractive compared to government
(risk-free) bond yields, and this premium
should be supportive for current valuation
levels. We believe that our high quality
portfolio and our focus on asset management
will enable us to outperform the wider market.
The consideration for the asset disposals
was £372 million, reflecting a blended
topped-up initial yield of 5.3 per cent.
The disposals generated a gain on sale of
13 per cent compared to book values at
31 December 2017.
Additionally, we disposed of £70 million
of land, primarily comprising a site in
West London sold to a residential developer.
These disposals, in partnership with the
acquisitions, further improve the management
intensity and risk profile of our portfolio.
DISPOSALS: WHAT TO EXPECT IN 2019
While investor demand for industrial
properties remains strong, we expect to
continue to recycle assets where we believe
we can generate better returns from
deploying our capital in other opportunities.
ACQUISITIONS COMPLETED IN 2018
Purchase
price
(£m, SEGRO
share)1
Net initial
yield (%)
Topped-up
net initial
yield (%)
11.3
70.1
139.7
0.0
6.0
–
0.0
6.0
–
Asset Type
Big box logistics
Urban warehousing
Land3
Acquisitions
completed in
2018
1 Excluding acquisition costs.
2 Yield excludes land transactions.
3 Land acquisitions are discussed in Future
Development Pipeline.
DISPOSALS COMPLETED IN 2018
Asset Type
Disposal
proceeds
(£m, SEGRO
share)
Net initial
yield (%)
Topped-up
net initial
yield (%)
Big box logistics
Urban warehousing
Land
Disposals completed
in 2018
321.6
50.8
69.8
5.4
4.4
–
5.4
4.5
–
VALUATION GAINS FROM ASSET
MANAGEMENT, DEVELOPMENT, AND
MARKET-DRIVEN YIELD IMPROVEMENT
Warehouse property values across Europe
increased throughout the year, particularly in
the first half of the year. After a very active
2017, investment volumes across Europe were
slightly lower in 2018 but still well ahead of
historic average levels, and the strength of
investor demand appears to be continuing
into 2019.
The Group’s property portfolio was valued
at £9.4 billion at 31 December 2018
(£11.0 billion of assets under management).
The portfolio valuation, including completed
assets, land and buildings under construction,
increased by 10.7 per cent on a like-for-like
basis (adjusting for capital expenditure and
asset recycling during the year) compared to
13.6 per cent in 2017.
This primarily comprises a 10.1 per cent
increase in the assets held throughout the year
(2017: 13.2 per cent), driven by between 10
and 20 basis points of yield compression and a
3.4 per cent increase in our valuer’s estimate of
the market rental value of our portfolio (ERV).
In total, our portfolio generated a total property
return of 15.4 per cent (2017: 18.9 per cent).
Capital growth
.
%
8
5
1
+
%
9
9
+
.
%
5
4
+
.
%
8
6
+
.
%
4
9
+
.
%
2
4
+
.
.
%
7
0
1
+
Unrealised
gains
£1,000m
£750m
£500m
221.1
5.32
5.32
UNREALISED GAINS AND LOSSES
ON PORTFOLIO (£m)
AND LIKE-FOR-LIKE CHANGE (%)1
442.2
5.31
5.31
£250m
1 Yield excludes land transactions.
l
a
t
o
T
n
o
d
n
o
L
r
e
t
a
e
r
G
y
e
l
l
a
V
s
e
m
a
h
T
s
c
i
t
s
i
g
o
L
l
a
n
o
i
t
a
N
e
p
o
r
u
E
n
r
e
h
t
r
o
N
e
p
o
r
u
E
n
r
e
h
t
u
o
S
e
p
o
r
u
E
l
a
r
t
n
e
C
1 Percentage change relates to the portfolio including
completed properties, development and land.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
24
OUR STR ATEGY
OPERATIONAL EXCELLENCE:
ACTIVE ASSET MANAGEMENT
PORTFOLIO
PASSING RENT
£350m
2017: £324m
RENT CONTR ACTED
DURING THE YEAR
£66.4m
2017: £53.5m
Another year of strong
operating performance.”
ANDY GULLIFORD
CHIEF OPER ATING OFFICER
CUSTOMER RETENTION
89%
2017: 81%
VACANCY R ATE
5.2%
2017: 4.0%
WHAT WE SAID WE WOULD DO
We expected occupier demand to remain strong,
keeping customer retention high, driving positive
rent roll growth and keeping vacancy rates low.
WHAT WE ACHIEVED IN 2018
Our rent roll growth was a record £53.5 million,
a 29 per cent improvement on a high prior year
comparator and reflecting a high level of customer
retention. The vacancy rate remained low, although
there was a slight increase due to speculative
development completions throughout the year.
WHAT TO EXPECT IN 2019
We are still seeing strong occupier demand in all
of our markets and expect vacancy rates to remain
low. The limited supply in most of our markets,
particularly urban warehousing, means that we
expect retention to remain high.
Our portfolio comprises two main asset types:
urban warehouses and big box warehouses.
The demand-supply dynamics are positive,
and vary by both type and geography.
URBAN WAREHOUSES
Urban warehouses account for 67 per cent of our
portfolio value. They tend to be smaller warehouses,
varying in size from units less than 100 sq m to
buildings over 10,000 sq m, and are located mainly
in and on the edges of major cities, including London,
Paris, Düsseldorf, Berlin and Warsaw, where land
supply is restricted and there is strong demand for
warehouse space, particularly catering for the needs
of last mile delivery and, around London, from data
centre users.
There is little comparative market data available for
urban warehouses but our experience continues to
be good. Our portfolio is concentrated in London
and South-East England (84 per cent) and major cities
in Continental Europe (16 per cent). These locations
share similar characteristics in terms of limited (and
shrinking) supply of industrial land and growing
populations, while occupiers are attracted to modern
warehouses with plenty of yard space to allow easy
and safe vehicle circulation. We believe that this
enduring occupier demand and limited supply bodes
well for future rental growth.
BIG BOX WAREHOUSES
Big box warehouses account for 31 per cent of our
portfolio value. They tend to be used for storage,
processing and distribution of goods on a regional,
national or international basis and are, therefore,
much larger than urban warehouses, usually
well over 10,000 sq m and, increasingly, over
100,000 sq m. They are focused on the major
logistics hubs and corridors in the UK (South-East and
Midlands regions), France (the logistics ‘spine’ linking
Lille, Paris, Lyon and Marseille), Germany (Düsseldorf,
Berlin, Frankfurt and Hamburg) and Poland (Warsaw,
Łód´z and Pozna´n, and the industrial region of Silesia).
Our portfolio is concentrated in the Midlands and
South-East regions of the UK (36 per cent) and
major Continental European transport hubs and
corridors (64 per cent). Occupier demand continues
to be healthy across all of our markets, but there has
been an increased supply response in UK big box
during 2018.
According to JLL, prime logistics vacancy rates
increased in the UK during 2018, primarily due to an
increase in speculative development. However, take-
up levels were at record levels therefore supply still
equates to barely more than a year’s worth of take-up.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 25
This additional supply may mean that the pace
of rental growth in the UK big box market
slows in 2019, although we are optimistic
about the underlying strength of occupier
demand in the long term. UK big box
warehouses account for 11 per cent of our
total portfolio of completed assets and all our
developments are pre-let so our exposure to
this market is limited.
We continue to believe that the prospects
for significant rental growth in big box
warehouses in Continental Europe are limited,
but occupier demand remains strong. We do
not see evidence of oversupply in any of the
markets in which we operate.
GROWING RENTAL INCOME FROM
LETTING EXISTING SPACE AND NEW
DEVELOPMENTS
At 31 December 2018, our portfolio
generated passing rent of £350 million,
rising to £386 million once rent free
periods expire (“headline rent”). During the
year, we contracted £66.4 million of new
headline rent, 24 per cent higher than in
2017 (£53.5 million) and a new record level
for SEGRO, with particularly significant
contributions from rent reviews and renewals
in the UK and new pre-let agreements.
Our customer base remains well diversified,
reflecting the multitude of uses of warehouse
space. Our top 20 customers account for
31 per cent of total headline rent, and
our largest customer, Deutsche Post DHL,
accounts for 4.7 per cent.
Approximately half of our customers
are involved in businesses affected by
e-commerce, including third party logistics
and parcel delivery businesses, and retailers.
These businesses accounted for more than
60 per cent of our take-up during the year.
We monitor a number of asset management
performance indicators to assess
our performance:
££ Rental growth from lease reviews and
renewals. These generated an uplift of
8.8 per cent (2017: 9.5 per cent) for the
portfolio as a whole compared to previous
headline rent. During the year, new rents
agreed at review and renewal were
12.8 per cent higher in the UK (2017:
12.9 per cent) as reversion accumulated
over the past five years was reflected in
new rents agreed, adding £5.7 million of
headline rent. In Continental Europe, rents
agreed on renewal were 2.2 per cent lower
than previous headline rents (2017: 0.9
per cent lower), equating to a less than
£0.4 million reduction in the rent roll,
reflecting indexation provisions which have
increased rents paid over recent years to
above market rental levels.
££ High levels of customer satisfaction.
Although the quality and location of our
portfolio is important to our customers, we
believe that the service we provide is crucial
to maintaining high customer retention and
low vacancy. We carry out a rolling survey
of our customer base throughout the year
to identify and rectify issues promptly.
In 2018, almost one third of our customer
base responded and 80 per cent of the
305 participants in the surveys rated their
experience as a SEGRO customer as “good”
or “excellent” (2017: 87 per cent).
££ Vacancy remains low at 5.2 per cent.
The vacancy at 31 December 2018 was
5.2 per cent (31 December 2017: 4.0 per
cent), the increase mainly due to recently
completed speculative developments.
The vacancy rate on our standing stock
remained low at 3.4 per cent (2017: 3.4 per
cent). The vacancy rate is still comfortably
within the target range of between 4 and
6 per cent. The average vacancy rate
during the period was stable at 5.0 per cent
(2017: 5.0 per cent).
££ High retention rate of 89 per cent.
During the period, space equating
to £12.2 million (2017: £8.7 million)
of rent was returned to us, including
£1.1 million of rent lost due to insolvency
(2017: £1.3 million). We took back space
equating to £0.7 million of rent for
redevelopment. Approximately £61 million
of headline rent was at risk from a break
or lease expiry during the period of which
we retained 87 per cent in existing space,
with a further 2 per cent retained but in
new premises.
££ Lease terms continue to offer attractive
income security. The level of incentives
agreed for new leases (excluding those on
developments completed in the period)
represented 5.6 per cent of the headline
rent (2017: 6.8 per cent). The portfolio’s
weighted average lease length was stable
at 7.5 years to first break and 8.9 years to
expiry (31 December 2017: 7.4 years to first
break, 8.9 years to expiry). Lease terms are
longer in the UK (8.9 years to break) than in
Continental Europe (5.4 years to break).
££ £9 million of net new rent from
existing assets. The combination of
these strong metrics has enabled us
to generate £12.9 million of headline
rent from new leases on existing assets
(2017: £13.9 million) and £8.3 million from
rent reviews, lease renewals and indexation
(2017: £4.9 million). This was offset by
rent from space returned of £12.2 million
(2017: £8.7 million).
££ £42 million of rent contracted from
pre-let agreements (2017: £29 million).
In addition to increased rents from existing
assets, we contracted £41.5 million of
headline rent from pre-let agreements
and lettings of speculative developments
prior to completion (2017: £28.6 million),
of which £12 million was for three units
at our flagship SEGRO Logistics Park East
Midlands Gateway, due to complete in
Spring 2019. Other notable pre-lettings
include a big box unit in Verona for
Zalando and a number of units at our
Strykow development in Poland, let to
Corning, Valeo and LPP.
££ Rent roll growth increased to
£53.5 million. An important element
of achieving our goal of being a leading
income-focused REIT is to grow our rent
roll, primarily through increasing rent
from our existing assets and then from
generating new rent through development.
Rent roll growth, which reflects net new
headline rent from existing space (adjusted
for take-backs of space for development),
take-up of developments and pre-lets
agreed during the period, increased to
£53.5 million in 2018, from £41.5 million
in 2017.
ASSET MANAGEMENT: WHAT TO EXPECT
IN 2019
Occupier demand remains strong so we
expect to retain a low vacancy rate and
that rent roll growth will remain positive.
£34 million of headline rent is at risk of break
or expiry in 2019 and we expect customer
retention levels to remain high.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 26
OUR STR ATEGY
OPERATIONAL EXCELLENCE:
DEVELOPMENT ACTIVITY
DEVELOPMENT
COMPLETIONS
673,400 sq m
2017: 654,900 sq m
CURRENT PIPELINE
POTENTIAL RENT
£46m
2017: £43.3m
CURRENT PIPELINE
YIELD ON COST
7.1%
2017: 7.6%
POTENTIAL RENT FROM
FUTURE PIPELINE
£115m
2017: £125m
During 2018, we invested £548 million
(2017: £414 million) in new developments, of
which £47 million was for infrastructure, and
a further £140 million to replenish our land bank to
enable future development.
DEVELOPMENT PROJECTS COMPLETED
2018 was another record year for SEGRO and
we completed 673,400 sq m of new space.
These projects were 61 per cent pre-let prior to the
start of construction and were 83 per cent let as at
31 December 2018, generating £33.5 million of
headline rent, with a potential further £6.7 million
to come when the remainder of the space is let.
This translates into a yield on total development cost
(including land, construction and finance costs) of
8.2 per cent when fully let.
We completed 433,500 sq m of big box warehouse
space, which are almost fully let to occupiers including
Amazon, Lidl and Yoox.
We completed 227,600 sq m of urban warehouses
which are 67 per cent let. These include the
completion of our first multi-level warehouse in Paris
Gennevilliers, delivering 62,000 sq m of space that has
been fully let to retailers Ikea and Leroy Merlin. In the
UK, we completed the first of the East Plus sites in East
London, including a new parcel delivery centre for
DPD at SEGRO Park Newham. On the Slough Trading
Estate, we completed two warehouses for data centre
operators and a new Premier Inn hotel, enhancing the
amenity offering on the estate.
CURRENT DEVELOPMENT PIPELINE
At 31 December 2018, we had development projects
approved, contracted or under construction totalling
827,700 sq m, representing £211 million of future
capital expenditure to complete and £46 million
of annualised gross rental income when fully let.
These projects are 73 per cent pre-let and should
yield 7.1 per cent on total development cost when
fully occupied.
££ In the UK, we have 273,800 sq m of space
approved or under construction, including three
pre-let units at our flagship East Midlands Gateway
logistics park, totalling just under 200,000 sq m
of space.
££ In Continental Europe, we have 554,000 sq m of
space approved or under construction. This includes
a 126,600 sq m building pre-let by Zalando, a major
online fashion retailer.
We continue to focus our speculative developments
primarily on urban warehouse projects, particularly in
the UK and Germany, where modern space is in short
supply and occupier demand is strong. In the UK,
our speculative projects are focused in East London,
2018 delivered another
record-breaking level of
development completions.”
ANDY GULLIFORD
CHIEF OPER ATING OFFICER
WHAT WE SAID WE WOULD DO
We expected to continue developing at an
increased pace during 2018 and anticipated
investing over £350 million during the year,
with a further £50 million associated with
infrastructure expenditure.
WHAT WE ACHIEVED IN 2018
Occupier demand has continued to be strong
throughout 2018, reflected in 673,400 sq m of
development completions, 83 per cent of which has
been let. During the year, we invested £548 million
(including £47 million on infrastructure).
WHAT TO EXPECT IN 2019
We have 827,700 sq m of development projects
under way, capable of generating £46 million of
new headline rent, of which 73 per cent has been
secured. We expect to invest over £600 million in
development capex and land, including £30 million
of infrastructure expenditure.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 27
Enfield in North London and on the Slough
Trading Estate. In Continental Europe, we
continue to build scale in Germany, where
projects are underway in Munich, Düsseldorf
and Oberhausen.
Within our Continental European
development programme, approximately
£11 million of potential gross rental income
is associated with big box warehouses
developed outside our SELP joint venture.
Under the terms of the joint venture, SELP
has the option, but not the obligation, to
acquire these assets shortly after completion.
Assuming SELP exercises its option, we would
retain a 50 per cent share of the rent after
disposal. In 2018, SEGRO sold £252 million of
completed assets to SELP, representing a net
disposal of £126 million.
Further details of our completed projects and
current development pipeline are available
in the 2018 Property Analysis Report, which
is available to download at www.segro.com/
investors.
FUTURE DEVELOPMENT PIPELINE
NEAR-TERM DEVELOPMENT PIPELINE
Within the future development pipeline
are a number of pre-let projects which are
close to being approved, awaiting either final
conditions to be met or planning approval to
be granted. We expect to commence these
projects within the next six to 12 months.
These projects total just over 441,500 sq m of
space, equating to approximately £218 million
of additional capital expenditure and
£23 million of additional rent.
LAND BANK
Our land bank identified for future
development totalled 637 hectares at
31 December 2018, equating to £472 million,
or around 5 per cent of our total portfolio.
We invested £140 million in acquiring
new land during the year, including land
sourced from the East Plus agreements
and land associated with developments
already underway or expected to start in the
short term.
We estimate that our land bank, including
the near-term projects above, can support
2.5 million sq m of development over the
next five years. The prospective capital
expenditure associated with the future pipeline
is £1.1 billion. It could generate £115 million
of gross rental income, representing a yield
on total development cost (including land
and notional finance costs) of 7.2 per cent.
These figures are indicative based on our
current expectations and are dependent
on our ability to secure pre-let agreements,
planning permissions, construction contracts
and on our outlook for occupier conditions in
local markets.
At 31 December 2018, we had exchanged
contracts to acquire approximately
£200 million of land ideally suited to big
box warehouse development in the UK and
in Germany. Completion is conditional on
gaining appropriate planning permission.
A further £70 million is under offer.
Land with a total value of £26 million has
been identified as surplus to our short-term
requirements, a reduction from £95 million
at 31 December 2017, following the sale of
half of the former Nestlé site in Hayes to a
residential developer. Another £42 million
is associated with a property we are
building which will be sold to the occupier
on completion.
LAND HELD UNDER OPTION AGREEMENTS
Land sites held under option agreements are
not included in the figures above but together
represent significant further development
opportunities, primarily in the UK, including
sites for urban warehousing in East London
and for big box warehouses in the Midlands
and South East regions.
The options are held on the balance sheet
at a value of £21 million (including joint
ventures at share). Those we expect to
exercise over the next two to three years are
for land capable of supporting just under
0.9 million sq m of space and generating
approximately £50 million of headline rent for
a blended yield of approximately 7 per cent.
DEVELOPMENT: WHAT TO EXPECT IN 2019
Occupier demand remains strong so we
expect to continue the pace of development,
investing in excess of £600 million during the
year in development capex, infrastructure and
new land.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 28
OUR STR ATEGY
OPERATIONAL EXCELLENCE:
REGIONAL REVIEW
GREATER LONDON
INTENSIVE ASSET MANAGEMENT TO DRIVE
PERFORMANCE FROM OUR PORTFOLIO
Our London portfolio continues to outperform thanks to our
focus on prime locations and intensive asset management.
The occupiers of our London warehouses come from a
diverse range of businesses, but all of them have one thing
in common: the necessity to be close to their customers and
their labour force.
Development completions have been lower in 2018 but we
have been able to continue to drive growth in the portfolio
due to our customer focus and strategic
approach to asset management.
ALAN HOLLAND
BUSINESS UNIT DIRECTOR –
GRE ATER LONDON
THAMES VALLEY
A DYNAMIC ENVIRONMENT WHERE BUSINESSES
CAN THRIVE
We are constantly modernising Slough Trading Estate
to ensure that it is the location of choice for businesses
in the Thames Valley.
The Estate is home to businesses both large and small,
from a wide range of sectors. It also continues to attract
the interest of data centres, due to its close proximity to
London, the access to a robust power supply and the
fibre-optic connectivity.
GARETH OSBORN
BUSINESS UNIT DIRECTOR –
THAMES VALLEY
OPERATING SUMMARY OF THE YEAR
££ Continued low vacancy rate and increased rental income through lease
reviews and renewals, generating a 14.1 per cent uplift (equating to over
£4.6 million of headline rent) compared to previous rents.
££ Completed 34,700 sq m of developments in prime industrial areas.
OPPORTUNITIES FOR THE YEAR AHEAD
££ 45,300 sq m of new urban warehouses under construction in East and
North London as well as our largest London pre-let in a decade, a 17,000
sq m unit for airline catering company Do & Co, which is located close to
Heathrow Airport.
££ Further potential uplift from renewals at Heathrow Cargo Centre with another
two contracts, currently on peppercorn rents, up for renegotiation in 2019.
RISKS FOR THE YEAR AHEAD
££ Land is in limited supply and we are increasingly competing
with alternative uses. This may limit our ability to extend the
development pipeline.
££ Brexit continues to cause uncertainty in the UK and we remain alert to
potential risks. See page 56 for more detail on Brexit risk.
OPERATING SUMMARY OF THE YEAR
££ Thanks to active asset management and our continued focus on customer
service, vacancy on Slough Trading Estate is at a record low and the
customer retention rate is at the highest level ever.
££ We completed work on a hotel in the heart of the Estate and added
another two data centres to our portfolio.
OPPORTUNITIES FOR THE YEAR AHEAD
££ We have another three data centres under construction, all due for
completion in 2019, adding another £4 million of rental income.
££ We are looking at ways to use land more intensively on the estate and
are also working hard to find other potential development sites in the
Thames Valley.
RISKS FOR THE YEAR AHEAD
££ The limited amount of available space on the Estate means that it can be
hard to find space for expanding businesses and we must be innovative to
accommodate our customers’ expansion plans. Our full ownership of the
Estate allows us to be creative in our solutions to achieve this.
££ Brexit continues to cause uncertainty in the UK and we remain alert to
potential risks. See page 56 for more detail on Brexit risk.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 29
NATIONAL LOGISTICS (UK BIG BOX WAREHOUSES)
FACILITATING EFFICIENT RETAILER
AND MANUFACTURER SUPPLY CHAINS,
AND PARCEL DELIVERY
Development at SEGRO Logistics Park East Midlands
Gateway (SLP-EMG) is progressing well. The first units
are due to complete in the first half of 2019 and we have
secured an operator for the Strategic Rail Freight Terminal
serving the Park and surrounding areas.
We acquired the Roxhill management platform which brings
a well respected and talented team to SEGRO, boosting our
capability and expertise in the
development of big box warehousing
in the UK.
ANDREW PILSWORTH
BUSINESS UNIT DIRECTOR –
NATIONAL LOGISTICS
OPERATING SUMMARY OF THE YEAR
££ We secured three pre-lets of 200,000 sq m at SLP-EMG which, when
completed, will add an additional £12 million to SEGROs rent roll.
££ We invested a further £47 million in infrastructure works at SLP-EMG.
OPPORTUNITIES FOR THE YEAR AHEAD
££ We have an empty warehouse at Magna Park, and letting this is a priority
for 2019.
££ We will be working hard to secure further pre-lets at SLP-EMG, so that
we can begin construction on the remaining seven plots.
RISKS FOR THE YEAR AHEAD
££ Speculative development of big box warehouses in the UK has risen in
2018, responding to continuing strong occupier demand. This may cause
the pace of rental growth to slow this year compared to recent years.
££ Brexit continues to cause uncertainty in the UK and we remain alert to
potential risks. See page 56 for more detail on Brexit risk.
NORTHERN EUROPE (GERMANY, NETHERLANDS AND AUSTRIA)
OPERATING SUMMARY OF THE YEAR
££ 2018 was a record year for development and we completed
165,200 sq m of urban warehouse and big box space in Cologne,
Frankfurt, Berlin, Stuttgart, Vienna and Amsterdam. The majority of this
was speculative development, which has contributed to an increase in
our vacancy rate. Over half of this new space was leased by the end of
the year.
££ We signed our first pre-let at our new logistics park in Oberhausen to
Geodis, and have started construction at the site.
OPPORTUNITIES FOR THE YEAR AHEAD
££ We have 176,900 sq m of new developments currently under
construction. This includes urban warehouses in Berlin and Düsseldorf, as
well as big box warehouses near Berlin, Munich and Frankfurt airports.
££ We will be working hard to secure lettings at our recently completed
urban warehouses in Germany.
RISKS FOR THE YEAR AHEAD
££ Slowing European growth could impact occupier demand for our
warehouses. However, Germany is behind the UK in terms of
e-commerce penetration so the growth of this should continue to support
demand, even in the event of weaker economic growth.
INVESTING AND DEVELOPING OUR PORTFOLIO IN KEY
MARKETS
We have been active developers of both urban and big box
warehousing, taking advantage of the demand created by
economic growth but also by the increasing importance of
e-commerce.
During the year we took the decision to dispose of some
remaining non-core assets. As a result we no longer have
a presence in Belgium, and can focus our attention on
continuing to expand our presence in key German markets
and building a scale position in
the Netherlands.
JIM HARTLEY
BUSINESS UNIT DIRECTOR –
NORTHERN EUROPE
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 30
OUR STR ATEGY
OPERATIONAL EXCELLENCE:
REGIONAL REVIEW
CONTINUED
SOUTHERN EUROPE (FR ANCE, ITALY AND SPAIN)
BUILDING SCALE IN SOUTHERN EUROPE
E-commerce continues to drive demand for our warehouses
in Southern Europe as retailers seek modern warehousing
space close to their end customers.
In France we have established a strong position in the Paris
urban warehouse market and are starting to see signs of
rental growth.
After an active year of development, we have achieved
critical mass in Italy and are working on a number of
projects in Spain.
MARCO SIMONET TI
BUSINESS UNIT DIRECTOR –
SOUTHERN EUROPE
CENTRAL EUROPE (POLAND AND CZECH REPUBLIC)
MAKING PROGRESS IN A COMPETITIVE MARKET
Market conditions in Poland and the Czech Republic
remain strong. There is an increased demand for urban
warehousing, allowing businesses to be closer to their end
clients and therefore able to respond to the need for shorter
delivery times.
Our high quality portfolio is focused on these two
key markets and is well occupied with a diverse range
of customers.
MAGDALENA SZULC
BUSINESS UNIT DIRECTOR –
CENTR AL EUROPE
OPERATING SUMMARY OF THE YEAR
££ Completed 334,100 sq m of development in Italy and France, including
our first multi-level warehouse in the Gennevilliers region of Paris.
££ Our vacancy rate remains at a record low reflecting healthy occupier
demand for our well-located big box and urban warehouses.
OPPORTUNITIES FOR THE YEAR AHEAD
££ We have 354,400 sq m of new developments under construction.
This includes a 126,600 sq m fulfilment centre for Zalando near Verona
and three speculative warehouses in Spain, which will help us to build
scale in this market.
££ We continue to experience healthy pre-let demand for big box
warehouses from retailers.
RISKS FOR THE YEAR AHEAD
££ As Paris prepares for the 2024 Olympics and construction of the Grand
Paris infrastructure project continues, building costs are increasing and
contractors are less readily available for our developments. However, the
Grand Paris project in particular will bring new public transport links to
many of our estates, enhancing their popularity and potential returns.
££ Our development in Spain is speculative, meaning that there is
heightened development risk compared to most of our other markets.
OPERATING SUMMARY OF THE YEAR
££ Our vacancy rate remained low in 2018 reflecting active management of
our portfolio.
££ Completed 123,200 sq m of development mainly on a pre-let basis.
This included the completion of a new warehouse for Corning in Stryków,
SEGRO’s very first customer from 2006.
££ We also acquired a 18,600 sq m urban warehouse estate in Warsaw
which was fully let on acquisition and positions us well to cater for the
increased popularity for units that facilitate last mile delivery.
OPPORTUNITIES FOR THE YEAR AHEAD
££ 22,700 sq m of pre-let big box warehouse space under development in
Poland, including a 12,150 sq m unit in Łódž, pre-let to a company that
manufactures industrial components.
££ Occupier demand remains healthy in both Poland and the Czech
Republic and we are currently negotiating additional pre-let agreements
to be delivered in 2019.
RISKS FOR THE YEAR AHEAD
££ Competition for customers in Poland remains strong, particularly from
trader-developers, which may impact the potential for rental growth.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 31
FINANCE REVIEW
EFFICIENT CAPITAL STRUCTURE
STRONG OPERATING RESULT
ADJUSTED PROFIT
BEFORE TAX
£241.5m
2017: £194.2m
IFRS PROFIT
BEFORE TAX
£1,099.1m
2017: £976.3m
NEW FINANCING
DURING THE YEAR
£0.4bn
2017: £2.7bn
LOOK-THROUGH LOAN
TO VALUE R ATIO
29%
2017: 30%
We have taken action to
further strengthen our
capital structure.”
SOUMEN DAS
CHIEF FINANCIAL OFFICER
WHAT WE SAID WE WOULD DO
We intend to keep our LTV below our mid-cycle
target of 40 per cent.
WHAT WE ACHIEVED IN 2018
Through a combination of asset disposals and
the increase in value of our portfolio, the LTV at
31 December 2018 is 29 per cent. Our cost of debt
remains low at 1.9 per cent.
WHAT TO EXPECT IN 2019
We intend to maintain our LTV at a level close
to 30 per cent, comfortably below our mid-cycle
target of 40 per cent. We believe this ensures
significant headroom to our tightest gearing
covenant should property values decline, as well
as providing the flexibility to take advantage of
investment opportunities which may arise. We have
cash and available facilities of £1.2 billion (including
our share of joint ventures) on which we can draw
to fund our investment plans.
We have continued to improve SEGRO’s
capital structure during the year,
arranging £423 million of new debt
financing for SEGRO and SELP and building on the
significant refinancing activity undertaken in 2017.
FINANCING
In August 2018, SEGRO undertook its second euro-
denominated US Private Placement transaction.
The Group issued €300 million of notes across two
tranches with an average maturity of 13.3 years and
an average coupon of 2.19 per cent. The proceeds
were used in part to buy back the remaining
£102 million of SEGRO bonds maturing in 2019.
At 31 December 2018, SEGRO’s average debt
maturity was 10.2 years (31 December 2017: 10.8
years) and its average cost of debt was 1.9 per cent
(31 December 2017: 2.1 per cent).
The gross borrowings of the SEGRO Group
totalled £2,243.5 million at 31 December, all but
£3.2 million of which were unsecured, and cash and
cash equivalent balances were £66.5 million.
SEGRO’s share of gross borrowings in its SELP and
other joint ventures was £560.2 million (all of which
were advanced with no recourse to SEGRO) and
cash and cash equivalent balances of £23.8 million.
Funds available to SEGRO (excluding cash
and undrawn facilities held in joint ventures) at
31 December 2018 totalled £1,177.8 million,
comprising £66.5 million of cash and short-term
investments and £1,111.3 million of undrawn bank
facilities of which only £14 million was uncommitted.
Cash and cash equivalent balances, together with
the Group’s interest rate and foreign exchange
derivatives portfolio, are spread amongst a strong
group of banks, all of which have a credit rating of
A- or better.
In September, the lenders to SELP’s revolving credit
facility consented to extend maturity by a further
year. During November, the lenders increased
facility commitments by €100 million. SELP’s final
maturity date for its revolving credit facility is 2022
and total commitments are €300 million.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 32
FINANCE REVIEW
EFFICIENT CAPITAL STRUCTURE
STRONG OPERATING RESULT
CONTINUED
MONITORING AND MITIGATING
FINANCIAL RISK
As explained in the Risks section on page 52
of this Annual Report, the Group monitors a
number of financial metrics to assess the level
of financial risk being taken and to mitigate
that risk.
TREASURY POLICIES AND GOVERNANCE
The Group Treasury function operates within
a formal policy covering all aspects of treasury
activity, including funding, counterparty
exposure and management of interest rate,
currency and liquidity risks. Group Treasury
reports on compliance with these policies on
a quarterly basis and policies are reviewed
regularly by the Board.
GEARING AND FINANCIAL COVENANTS
The key leverage metric for SEGRO is its
proportionally consolidated loan to value
ratio (LTV) which incorporates assets and
net debt on SEGRO’s balance sheet and
SEGRO’s share of assets and net debt on the
balance sheets of its joint ventures. The LTV
at 31 December 2018 on this basis was
29 per cent (31 December 2017: 30 per cent).
SEGRO’s borrowings contain gearing
covenants based on Group net debt and
net asset value, excluding debt in joint
ventures. The gearing ratio of the Group
at 31 December 2018, as defined within
the principal debt funding arrangements of
the Group, was 33 per cent (31 December
2017: 35 per cent). This is significantly lower
than the Group’s tightest financial gearing
covenant within these debt facilities of
160 per cent.
Property valuations would need to fall by
around 56 per cent from their 31 December
2018 values to reach the gearing covenant
threshold of 160 per cent. A 56 per cent fall in
property values would equate to an LTV ratio
of approximately 65 per cent.
The Group’s other key financial covenant
within its principal debt funding arrangements
is interest cover, requiring that net interest
before capitalisation be covered at least
1.25 times by net property rental income.
At 31 December 2018, the Group comfortably
met this ratio at 4.5 times. On a proportionally
consolidated basis, including joint ventures,
this ratio was 4.9 times.
FINANCIAL POSITION AND FUNDING
Net borrowings (£m)
Available cash and undrawn facilities (£m)
Balance sheet gearing (%)
Loan to value ratio (%)
Weighted average cost of debt¹ (%)
Interest cover² (times)
Average duration of debt (years)
1 Based on gross debt, excluding commitment fees and amortised costs.
2 Net rental income/Adjusted net finance costs (before capitalisation).
31 December 2018
31 December 2017
SEGRO
Group
2,177.0
1,177.8
33
28
2.1
4.5
11.4
SEGRO
Group
and JV’s
at share
2,713.4
1,248.9
N/A
29
1.9
4.9
10.2
SEGRO
Group
1,954.2
1,192.2
35
29
2.3
3.4
11.7
SEGRO
Group
and JV’s
at share
2,397.7
1,303.6
N/A
30
2.1
3.9
10.8
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 33
We mitigate the risk of over-gearing the
Company and breaching debt covenants
by using a combination of debt and equity
to fund our investment activity, by carefully
monitoring the impact of investment decisions
on our LTV and by stress-testing our balance
sheet to potential changes in property values.
As a result of the fixed rate cover in place, if
short-term interest rates had been 1 per cent
higher throughout the year to 31 December
2018, the adjusted net finance cost of the
Group would have increased by approximately
£10.7 million representing around 5 per cent
of Adjusted profit after tax.
Our intention for the foreseeable future
is to maintain our LTV at a level closer to
30 per cent, lower than our mid-cycle target
of 40 per cent.
This approach provides the flexibility to take
advantage of investment opportunities arising
and ensures significant headroom compared
to our tightest gearing covenants should
property values decline.
At 31 December 2018, there were no debt
maturities falling due within 12 months and
the weighted average maturity of the gross
borrowings of the Group (including joint
ventures at share) was 10.2 years. With a
majority of the Group’s bank debt facilities
not due to mature until 2023, and no debt
maturities until December 2020, this long
average debt maturity translates into a
favourable, well spread debt funding maturity
profile which reduces future refinancing risk.
INTEREST RATE RISK
The Group’s interest rate risk policy is
designed to ensure that we limit our exposure
to volatility in interest rates. The policy states
that between 50 and 100 per cent of net
borrowings (including the Group’s share of
borrowings in joint ventures) should be at
fixed or capped rates, including the impact of
derivative financial instruments.
At 31 December 2018, including the impact
of derivative instruments, 67 per cent
(2017: 79 per cent) of the net borrowings of
the Group (including the Group’s share of
borrowings within joint ventures) were at fixed
or capped rates.
The Group elects not to hedge account its
interest rate derivatives portfolio. Therefore,
movements in its fair value are taken to the
income statement but, in accordance with
EPRA Best Practices Recommendations
Guidelines, these gains and losses are
excluded from Adjusted profit after tax.
FOREIGN CURRENCY TRANSLATION RISK
The Group has negligible transactional foreign
currency exposure, but does have a potentially
significant currency translation exposure
arising on the conversion of its substantial
foreign currency denominated assets (mainly
euro) and euro denominated earnings into
sterling in the Group consolidated accounts.
The Group seeks to limit its exposure
to volatility in foreign exchange rates by
hedging between 29 and 100 per cent of
its foreign currency gross assets through
either borrowings or derivative instruments.
At 31 December 2018, the Group had gross
foreign currency assets which were 67 per
cent hedged by gross foreign currency
denominated liabilities (including the impact of
derivative financial instruments), compared to
69 per cent at 31 December 2017.
Including the impact of forward foreign
exchange and currency swap contracts used
to hedge foreign currency denominated net
assets, if the value of the other currencies in
which the Group operates at 31 December
2018 weakened by 10 per cent against sterling
(to €1.22, in the case of euros), net assets
would have decreased by approximately
£84 million and there would have been
a reduction in gearing of approximately
1.6 per cent and in the LTV of 1.3 per cent.
The average exchange rate used to translate
euro denominated earnings generated during
2018 into sterling within the consolidated
income statement of the Group was
€1.13:£1. Based on the hedging position at
31 December 2018, and assuming that this
position had applied throughout 2018, if the
euro had been 10 per cent weaker than the
average exchange rate (€1.24:£1), Adjusted
profit after tax for the year would have been
approximately £8.9 million (3.8 per cent)
lower than reported. If it had been 10 per cent
stronger, Adjusted profit after tax for the year
would have been approximately £10.9 million
(4.6 per cent) higher than reported.
GOING CONCERN
As noted in the Financial Position and Funding
section, the Group has a strong liquidity
position, a favourable debt maturity profile
and substantial headroom against financial
covenants. Accordingly, it can reasonably
expect to continue to have good access to
capital markets and other sources of funding.
Having made enquiries and having considered
the principal risks facing the Group, including
liquidity and solvency risks, and material
uncertainties, the Directors have a reasonable
expectation that the Company and the
Group have adequate resources to continue
in operational existence for the foreseeable
future (a period of at least 12 months from the
date of approval of the Financial Statements).
Accordingly, they continue to adopt the going
concern basis in preparing the Annual Report.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 34
FINANCE REVIEW
EFFICIENT CAPITAL STRUCTURE
STRONG OPERATING RESULT
CONTINUED
INCOME STATEMENT REVIEW
PRESENTATION OF FINANCIAL
INFORMATION
The Group Financial Statements are
prepared under IFRS where the Group’s
interests in joint ventures are shown as a
single line item on the income statement
and balance sheet and subsidiaries are
consolidated at 100 per cent.
The Adjusted profit measure reflects the
underlying financial performance of the
Group’s property rental business, which
is our core operating activity. It is based
on the Best Practices Recommendations
Guidelines of the European Public Real
Estate Association (EPRA) which are
widely used alternate metrics to their
IFRS equivalents within the European
real estate sector (further details can be
found at www.epra.com). In calculating
Adjusted profit, the Directors may also
exclude additional items considered to be
non-recurring, unusual, or significant by
virtue of size and nature. In the period to
31 December 2018, £51.8 million of pension
buy-out costs in respect of the SEGRO
pension scheme have been incurred which
have been excluded as an adjustment to
EPRA profit when calculating Adjusted
profit. Further details are given in Note 18.
No such adjustments have been made in the
prior period.
A detailed reconciliation between Adjusted
profit after tax and IFRS profit after tax
is provided in Note 2 to the Financial
Statements. This is not on a proportionally-
consolidated basis.
Reconciliations between SEGRO Adjusted
metrics and EPRA metrics are provided in
the Supplementary Notes to the Financial
Statements, which also include EPRA
metrics as well as SEGRO’s Adjusted income
statement and balance sheet presented on a
proportionally consolidated basis.
SEGRO monitors these alternative metrics,
as well as the EPRA metrics for vacancy rate,
net asset value and total cost ratio, as they
provide a transparent and consistent basis
to enable comparison between European
property companies.
1
2
3
4
5
6
ADJUSTED PROFIT (NOTE 2)
GROSS RENTAL INCOME
2018
£m
2017
£m
297.7
272.9
PROPERTY OPERATING EXPENSES
(50.1)
(52.2)
NET RENTAL INCOME
JOINT VENTURE FEE INCOME
ADMINISTRATION EXPENSES
247.6
220.7
44.9
24.3
(44.1)
(39.7)
SHARE OF JOINT VENTURES’ ADJUSTED PROFIT1
39.0
47.6
ADJUSTED OPERATING PROFIT BEFORE
INTEREST AND TAX
287.4
252.9
NET FINANCE COSTS
(45.9)
(58.7)
ADJUSTED PROFIT BEFORE TAX
241.5
194.2
TAX ON ADJUSTED PROFIT
(4.4)
(1.2)
NON-CONTROLLING INTERESTS SHARE
OF ADJUSTED PROFIT
(0.6)
(0.2)
ADJUSTED PROFIT AFTER TAX
236.5
192.8
1 Comprises net property rental income less administration expenses, net interest expenses
and taxation.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
35
NET RENTAL INCOME
ADMINISTR ATIVE AND
OPER ATING COSTS
1
1 3
ADJUSTED PROFIT
5
£26.9m higher
Cost ratio: 22.9%
£47.3m higher
Net rental income increased by £26.9 million
to £247.6 million, reflecting the positive net
impact of development completions and
investment activity during the period, offset
by the impact of disposals.
On a like-for-like basis1, before other items
(primarily corporate centre and other costs
not specifically allocated to a geographic
business unit), net rental income increased
by £7.6 million, or 3.1 per cent, compared
to 2017. This is due to strong rental
performance in our UK portfolio (4.1 per
cent increase) and a 1.0 per cent increase in
our Continental Europe portfolio.
INCOME FROM JOINT VENTURES 2 3
£12.0m higher
Joint venture fee income increased by
£20.6 million to £44.9 million. This increase
is due to a performance fee from SELP of
£26.2 million in the year. The prior year
included fees from APP of £8.5 million,
a former joint venture.
The Group is focused on managing its cost
base and uses a Total Cost Ratio (TCR) as a
key measure of cost management. The TCR
for 2018 has decreased to 22.9 per cent
from 24.6 per cent for 2017, above our 20
per cent target. The calculation is set out in
Table 7 of the Supplementary Notes to the
Financial Statements.
Total costs have remained broadly flat
(£84.5 million in 2018 compared to
£84.6 million in 2017) whereas gross rental
income (the denominator) has increased
from £344.3 million to £368.9 million
through the growth of the business through
acquisitions and development completions
in the current and prior years, in particular in
Greater London and Southern Europe.
Excluding share based payments, the cost
ratio would be 19.9 per cent, a decrease from
21.7 per cent in 2017.
NET FINANCE COSTS
4
£12.8m lower
Adjusted profit before tax increased
by 24.4 per cent to £241.5 million
(2017: £194.2 million) during 2018 as a result
of the above movements (see Note 2).
TAXATION
6
Effective rate: 1.8%
The tax charge on Adjusted profit of
£4.4 million (2017: £1.2 million) reflects an
effective tax rate of 1.8 per cent (2017: 0.6
per cent), consistent with a Group target tax
rate of less than 3 per cent.
The Group’s target tax rate reflects the fact
that over three-quarters of its assets are
located in the UK and France and qualify for
REIT and SIIC status respectively in those
countries. This status means that income
from rental profits and gains on disposals of
assets in the UK and France are exempt from
corporation tax, provided SEGRO meets
a number of conditions including, but not
limited to, distributing 90 per cent of UK
taxable profits.
SEGRO’s share of joint ventures’ Adjusted
profit after tax decreased by £8.6 million
from £47.6 million in 2017 to £39.0 million
in 2018. The decrease is due to the inclusion
of the net cost of the performance fee paid
by SELP to SEGRO of £11.9 million (at share,
being £13.1 million less tax of £1.2 million).
Net finance costs (including adjustments)
decreased by £12.8 million in 2018 to
£45.9 million primarily as a result of the debt
refinancing undertaken over the current and
prior periods thereby reducing the average
cost of debt. Capitalised interest costs have
increased in line with development spend.
The share of joint ventures Adjusted profit
after tax are primarily from the SELP joint
venture in 2018. The 2017 results also
included two months of APP (£1.7 million
loss at share) which was acquired 100 per
cent in the prior year.
ADJUSTED EARNINGS PER SHARE
23.4p, +17.6%
Adjusted earnings per share are 23.4 pence
compared to 19.9 pence in 2017.
The total impact of the SELP performance
fee on adjusted earnings per share is
1.2 pence (£12.3 million) being joint venture
fee income after tax (£24.2 million) less
expense after tax in share of joint venture
after tax (£11.9 million).
1 The like-for-like rental growth metric is based on properties held throughout both 2018 and 2017 on a proportionally consolidated basis. This provides details of underlying rental income growth
excluding the distortive impact of acquisitions, disposals and development completions. Where an asset has been sold into a joint venture (transfers into SELP, for example) the 50 per cent share
owned throughout the period is included in like-for-like calculation, with the balance shown as disposals.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
36
FINANCE REVIEW
EFFICIENT CAPITAL STRUCTURE
STRONG OPERATING RESULT
CONTINUED
IFRS PROFIT
BALANCE SHEET
IFRS profit before tax in 2018 was
£1,099.1 million (2017: £976.3 million),
equating to basic post-tax IFRS earnings per
share of 105.4 pence compared with 98.5
pence for 2017, principally reflecting higher
realised and unrealised gains in both the
wholly-owned and joint venture portfolios.
A reconciliation between Adjusted
profit before tax and IFRS profit
before tax is provided in Note 2 to the
Financial Statements.
Realised and unrealised gains on
wholly-owned investment and trading
properties of £852.6 million in 2018
(2017: £889.0 million) have been
recognised in the Income Statement as
the value of our portfolio increased during
the year. These included an unrealised
valuation surplus on invested properties of
£791.4 million (2017: £872.4 million) and
a profit of £56.5 million on asset disposals
(2017: £16.6 million). There was no provision
against trading properties in the year.
SEGRO’s share of realised and unrealised
gains on properties held in joint ventures was
£101.1 million (2017: £77.7 million) almost
entirely in respect of the SELP portfolio and is
further analysed in Note 7.
The cost of closing out debt in the year
was £6.4 million following the buy back
of the SEGRO bonds maturing in 2019.
IFRS earnings were also impacted by a
net fair value loss on interest rate swaps
and other derivatives of £22.0 million
(2017: £21.5 million) and a tax charge of
£33.0 million (2017: £20.0 million) of which
£28.6 million (2017: £18.8 million) arises in
respect of adjustments, primarily in relation
to property.
At 31 December 2018, IFRS net assets
attributable to ordinary shareholders
were £6,564.0 million (31 December
2017: £5,585.4 million), reflecting 644 pence
per share (31 December 2017: 554 pence) on
a diluted basis.
EPRA NAV per share at 31 December 2018
was 650 pence (31 December 2017: 556
pence), the 17 per cent increase primarily
reflects property gains in the period. The chart
below highlights the other principal factors
behind the increase. A reconciliation between
IFRS and EPRA NAV is available in Note 12 to
the Financial Statements.
CASH FLOW AND NET DEBT RECONCILIATION
Cash flow generated from operations was
£200.3 million in 2018, an increase of
£224.6 million from 2017. The prior period
included a net cash outflow of £156.5 million
in respect of the early close out of debt
and derivatives. The underlying increase is
driven by increased Adjusted profit in the
year including the receipt of a £52.4 million
performance fee discussed further in Note 7.
The Group made net investments of
£276.5 million of investment and development
properties (including options and loans to joint
ventures) during the year on a cash flow basis
(2017: £333.3 million investment). This includes
cash from disposals of £480.4 million
(2017: £317.2 million). The Group spent
£637.1 million (2017: £457.9 million) to
purchase and develop investment properties,
EPRA NET ASSET VALUE
and it invested £99.2 million in joint ventures
(2017: £28.4 million divestment).
Other significant cash flows include dividends
paid of £120.4 million (2017: £118.1 million)
where cash flows are lower than the total
dividend due to the level of scrip uptake.
Overall, net debt has increased in the year
from £1,954.2 million to £2,177.0 million.
CAPITAL EXPENDITURE
Table 8 in the Supplementary Notes sets out
analysis of the capital expenditure during
the year. This includes acquisition and
development spend, on an accruals basis,
in respect of the Group’s wholly-owned
investment and trading property portfolios,
as well as the equivalent amounts for joint
ventures at share.
Total spend for the year was £957.0 million, a
decrease of £797.2 million compared to 2017,
which included £1,112.6 million in respect of
the acquisition of the APP property portfolio.
More detail on acquisitions can be found in
the Disciplined Capital Allocation section of
Our Strategy.
Development capital expenditure increased
by £134.1 million to £548.2 million, reflecting
our intention to increase development
spend to meet occupier demand.
Development spend incorporates interest
capitalised of £10.0 million (2017: £7.4 million)
including joint ventures at share.
p
6
5
5
p
4
9
p
3
2
p
)
7
1
(
p
)
5
(
p
)
1
(
p
0
5
6
EPRA net assets
attributable to
ordinary
shareholders at
31 December
2017
Realised and
unrealised
property gain
Adjusted profit
after tax
Dividend net
of scrip
shares issued
(2017 final
& 2018 interim)
Pension
buy-out
costs
Other
EPRA net assets
attributable to
ordinary
shareholders at
31 December
2018
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 37
Spend on existing completed properties
totalled £30.3 million (2017: £24.3 million), of
which £17.1 million (2017: £15.0 million) was
for major refurbishment, infrastructure and
fit-out costs prior to re-letting. The balance
mainly comprises more minor refurbishment
and fit-out costs, which equates to less than
6 per cent of Adjusted profit before tax and
2 per cent of total spend.
DIVIDEND INCREASE REFLECTS A STRONG
YEAR AND CONFIDENCE FOR THE FUTURE
Under the UK REIT rules, we are required
to pay out 90 per cent of UK-sourced, tax-
exempt rental profits as a ‘Property Income
Distribution’ (PID). Since we also receive
income from our properties in Continental
Europe, our total dividend should normally
exceed this minimum level and we target
a payout ratio of 85 to 95 per cent of
Adjusted profit after tax. We aim to deliver a
progressive and sustainable dividend which
grows in line with our profitability in order to
achieve our goal of being a leading income-
focused REIT.
The Board has concluded that it is appropriate
to recommend an increase in the final
dividend per share of 1.9 pence to 13.25
pence (2017: 11.35 pence) which will be paid
as a PID. The Board’s recommendation is
subject to approval by shareholders at the
Annual General Meeting, in which event the
final dividend will be paid on 2 May 2019 to
shareholders on the register at the close of
business on 22 March 2019.
CASH FLOW BRIDGE (£m)
In considering the final dividend, the Board
took into account:
££ the policy of targeting a payout ratio of
between 85 and 95 per cent of Adjusted
profit after tax;
££ the desire to ensure that the dividend is
sustainable and progressive throughout the
cycle; and
££ the results for 2018 and the outlook
for earnings.
The total dividend for the year will, therefore,
be 18.8 pence, a rise of 13.3 per cent on 2017
(16.6 pence) and represents distribution of
85 per cent of Adjusted profit after tax and
Adjusted EPS once the SELP performance fee,
which will not recur in 2019, is excluded (80
per cent including the fee).
As at 31 December 2018, the Company had
distributable reserves that provide cover for
the total of the interim dividend paid and the
final dividend proposed in respect of the year
ended 31 December 2018 of over 4 times
(2017: 4 times). When required the Company
can receive dividends from its subsidiaries to
further increase the distributable reserves.
The Board has decided to retain a scrip
dividend option for the 2018 final dividend,
allowing shareholders to choose whether to
receive the dividend in cash or new shares.
In 2018, 38 per cent of the 2017 final
dividend and 22 per cent of the 2018 interim
dividend was paid in new shares, equating
to £49 million of cash retained on the
balance sheet.
)
.
2
4
5
9
1
,
(
.
1
5
3
2
)
.
1
5
5
(
)
7
5
.
(
.
6
8
2
)
6
2
.
(
)
.
4
0
2
1
(
)
.
1
7
3
6
(
.
4
0
8
4
)
.
6
0
2
(
)
.
2
9
9
(
)
4
6
.
(
)
8
3
.
(
)
.
0
6
1
(
)
.
0
7
7
1
2
,
(
Opening
net debt
Cash flows
from
operating
activities
Finance
costs
(net)
Debt and
IRS close
out costs
Dividends
received
(net)
Tax
paid
Dividends
paid
Aquisition
and
development
of investment
property
Investment
property
sales
(including
joint
ventures)
Aquisition
of interest
in property
and other
investments
Net
investment
in joint
ventures
Net
settlement
of foreign
exchange
derivatives
Other
items
Exchange
rate
movements
Closing
net debt
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 38
KEY PERFORMANCE INDICATORS
MEASURED AGAINST OUR TARGETS
Our aim is to deliver attractive returns to our shareholders
and stakeholders through the execution of our strategy.
We track our progress against nine
Key Performance Indicators on which
we report each year. They are based
on proportionally consolidated metrics,
incorporating our share of joint ventures.
Some of these metrics are also used
to determine how management and
employees are remunerated.
FURTHER DETAILS ON OUR REMUNER ATION
POLICIES AND THE METRICS USED TO
DETERMINE REMUNER ATION ARE SET OUT
IN THE REMUNER ATION COMMIT TEE REPORT
ON PAGES 84-99
WE APPLY OUR STR ATEGY TO
MAXIMISE PERFORMANCE:
OUR
GOAL
TOTAL PROPERTY RETURN
(% TPR)1
EPR A NAV PER SHARE
(PENCE)2 3
15.4%
650p
2018
2017
2016
2015
2014
15.4%
2018
18.9%
2017
9.3%
2016
19.0%
2015
19.7%
2014
650p
556p
478p
443p
367p
WHAT IT IS: TPR is the ungeared combined income and
capital return from our portfolio of standing investments held
throughout the year. It is an important measure of the success
of our strategy in terms of asset selection and management.
MSCI Real Estate prepares the calculation, as well as providing
benchmark TPR data for similar properties in their wider
universe. We aim to outperform the benchmark over the
long term. Details on how TPR impacts short- and long-term
incentives are provided on pages 89 to 98.
OUR PERFORMANCE: The TPR of the Group in 2018 was
15.4 per cent (2017: 18.9 per cent). Our UK portfolio generated
a TPR of 16.7 per cent, performing ahead of the benchmark
calculated by MSCI Real Estate of 16.4 per cent. The TPR of our
Continental Europe portfolio was 11.8 per cent. Benchmark data
for Continental Europe will be received later in the year.
WHAT IT IS: EPRA NAV (Net Asset Value) is the value of
our assets less the book value of our liabilities, calculated in
accordance with EPRA guidelines, that is attributable to our
shareholders. We aim for sustainable long-term asset value
growth whilst carefully managing our liabilities to maintain
balance sheet strength.
OUR PERFORMANCE: EPRA NAV increased by 94 pence
per share over the year to 31 December 2018, most of which
was due to a 10.7 per cent like for like increase in the value of
the Group’s property portfolio. Diluted NAV per share increased
by 90 pence to 644 pence. The reconciliation between Diluted
NAV per share and EPRA NAV per share can be found in Note
12(ii) on page 140.
DISCIPLINED
CAPITAL
ALLOCATION
OPERATIONAL
EXCELLENCE
EFFICIENT CAPITAL &
CORPORATE STRUCTURE
EPR A VACANCY R ATE
(%)
5.2%
CUSTOMER SATISFACTION
(%)
80%
RE AD MORE ABOUT HOW WE ARE DELIVERING
ON OUR STR ATEGY:
OUR STR ATEGY
PAGES 21-30
PRINCIPAL RISKS
PAGES 52-58
RISK MANAGEMENT:
We recognise that the management of
risk has a role to play in the achievement
of our strategy and nine KPIs. Risks can
hinder or help us meet our desired level
of performance.
THE REL ATIONSHIP BET WEEN OUR PRINCIPAL
RISKS AND OUR KPI’s IS IDENTIFIED IN THE
PRINCIPAL RISKS ON PAGES 52-58
2018
2017
2016
2015
2014
5.2%
2018
4.0%
2017
5.7%
2016
4.8%
2015
6.3%
2014
80%
87%
79%
77%
86%
WHAT IT IS: The vacancy rate measures our ability to minimise
the quantity of non-income producing built assets within our
portfolio. An improving vacancy rate generally implies additional
rental income and lower vacant property costs. Some level of
vacancy will always exist within our portfolio in order to support
our asset management activities and allow our customers the
opportunity to move premises. We target a longer-term vacancy
rate of 4 to 6 per cent.
OUR PERFORMANCE: The portfolio vacancy rate increased
to 5.2 per cent (31 December 2017: 4.0 per cent) mostly due to
speculative developments completed within the period.
WHAT IT IS: The percentage of our customers who rate their
experience as occupiers of our buildings as ‘good’ or ‘excellent’
as opposed to ‘poor’ or ‘average’. Our customers are at the heart
of our business and we strive to ensure that we are providing the
best level of service possible to maximise customer retention.
OUR PERFORMANCE: Satisfaction as an occupier of our
buildings was rated as ‘good’ or ‘excellent’ by 80 per cent
of the 305 customers which participated in the 2018 survey
(2017: 87 per cent). The continued high satisfaction rate
reflects our focus on communication, being responsive and
understanding the needs of our customers and intend to target
similarly high levels in the future. 93 per cent of our customers
said that they would recommend SEGRO to others.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 DISCIPLINED
CAPITAL ALLOCATION
OPER ATIONAL
EXCELLENCE
EFFICIENT CAPITAL AND
CORPOR ATE STRUCTURE
ITEMS ARE DIRECTLY
CAPTURED IN SEGRO’S
INCENTIVE SCHEMES
39
23.4p
19.9p
18.8p
17.6p
16.4p
LOAN TO VALUE R ATIO (LTV)
(% INCLUDING JOINT VENTURES AT SHARE) 4
TOTAL SHAREHOLDER RETURN
(% TSR)
29%
3.1%
ADJUSTED EPS
(PENCE) 3
23.4p
2018
2017
2016
2015
2014
29%
2018
30%
2017
33%
2016
38%
2015
40%
2014
3.1%
2018
38.7%
2017
10.8%
2016
20.1%
2015
15.7%
2014
WHAT IT IS: The proportion of our property assets (including
investment, owner-occupier and trading properties at carrying
value and our share of properties in joint ventures) that are
funded by borrowings. Our ‘mid-cycle’ LTV ratio target remains
at 40 per cent but, at this stage in the cycle, and based on our
investment plans, we aim to maintain it at closer to 30 per cent.
We believe that REITs with lower leverage offer a lower risk and
less volatile investment proposition for shareholders.
OUR PERFORMANCE: The Group’s LTV ratio improved to
29 per cent from 30 per cent year on year, principally due to
the total portfolio valuation increase. The timing of investment
decisions and disposals, as well as movement in the value of our
assets may cause the LTV to fluctuate.
WHAT IT IS: TSR measures the change in our share price over
the year assuming that dividends paid are reinvested. This KPI
reflects our commitment to delivering enhanced returns for our
shareholders through the execution of our strategy over the
medium term. TSR is a key metric used in setting the long term
incentive plan remuneration for both the Executive Directors
and senior management.
OUR PERFORMANCE: The TSR of the Group was
3.1 per cent, compared with -13.7 per cent for the FTSE 350
Real Estate index. This performance reflects a combination of
the 16.9 pence dividend (11.35 pence 2017 final dividend and
5.55 pence 2018 interim dividend) paid during the year and
an increase in the share price from 587 pence at 31 December
2017 to 589 pence at 31 December 2018.
TOTAL COST R ATIO
(%)
22.9%
RENT ROLL GROW TH
(£)
£53.5m
2018
2017
2016
2015
2014
22.9%
2018
24.6%
2017
23.0%
2016
22.2%
2015
23.3%
2014
£53.5m
£41.5m
£29.7m
£23.6m
£15.0m
WHAT IT IS: The ratio of our total administration and property
operating costs expressed as a percentage of gross rental
income. This is an indicator of how cost-effectively we manage
both our property assets and our administrative costs in order to
improve profitability. Over the medium term we are targeting a
total cost ratio of 20 per cent.
OUR PERFORMANCE: The total cost ratio reduced to
22.9 per cent (2017: 24.6 per cent) due mainly to higher gross
rental income and stable operating and administrative costs.
Excluding share based payments, the total cost ratio would
have been 19.9 per cent, a reduction of 1.8 per cent from 2017
(21.7 per cent).
WHAT IT IS: The headline annualised gross rental income
contracted during the year less income lost from takebacks.
There are two elements: to grow income from our standing
assets by reducing vacancy and increasing rents from lease
renewals and rent reviews; and to generate new rent by
developing buildings either on a pre-let or speculative basis.
Rent from new acquisitions is not included.
OUR PERFORMANCE: In total, we generated £53.5 million of
net new annualised rent during the year (2017: £41.5 million).
The increase was driven substantially by higher rents on review
and renewal in the UK and by the increased volume of rent
from development completions and pre-let agreements secured
during the year.
WHAT IT IS: Our headline Adjusted earnings per share (EPS)
reflects earnings from our operating business: rental income
less operating, administrative and financing costs and tax. It is
the primary determinant of the level of the annual dividend.
IFRS EPS includes the impact of realised and unrealised
changes in the valuation of our assets which can often mask the
underlying operating performance. The reconciliation between
Basic EPS and Adjusted EPS can be found in Note 12(i) on
page 139.
OUR PERFORMANCE: Adjusted EPS increased by
17.6 per cent during the year, reflecting higher rental income
from our standing assets, new income from acquisitions and
developments, an increase in joint venture fee income and
lower financing costs, partly offset by higher administrative
and operating costs. It also includes 1.2 pence per share from
a non-recurring performance fee from our SELP joint venture.
1 The TPR has been calculated independently by MSCI Real
Estate (formerly known as IPD) in order to provide
a consistent comparison with an appropriate MSCI
benchmark. It is calculated as the change in capital value,
less any capital expenditure incurred, plus net income,
expressed as a percentage of capital employed over the
period concerned for standing investments held throughout
the year, excluding land.
2 EPRA NAV is an alternate metric that is calculated in
accordance with the Best Practices Recommendations
of the European Public Real Estate Association (EPRA).
SEGRO discloses EPRA alternative metrics on pages 175
to 180 (NAV, EPS, vacancy rate, cost ratio, initial yield)
to provide a transparent and consistent basis to enable
comparison between European property companies.
See www.epra.com for further details.
3 As a result of the Rights Issue in March 2017, a bonus
adjustment factor of 1.046 has been applied to per share
metrics prior to 2017, including the share price, Earnings per
share, EPRA NAV per share and Dividend per share.
4 In 2014, we treated deferred consideration from our partner
in the SELP joint venture as cash within the LTV ratio as it
was callable at three months notice. The balance was paid to
us in October 2015 meaning that the LTV ratios from 2015
onwards are unadjusted.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 40
RESPONSIBLE SEGRO
OVERVIEW
Our Responsible SEGRO framework is
focused on four key areas: our people,
our communities, our environment
and our stakeholders. The framework enables
us to take a holistic approach to sustainability,
which reflects our Purpose ‘to create the space
that enables extraordinary things to happen’.
In 2018, we developed our new environmental
strategy, which has been designed to focus
on areas that we believe are material to our
business and, therefore, that we are most
able to influence. We expect this to drive
continuous improvement in our sustainable
practices and consequently to remain a market
leader in this area.
OUR PEOPLE
We employ just over 300 people across nine
countries to manage, create and maintain
our £11 billion of assets and to provide vital
central support for the Company. Our people
are therefore critical to our success and we are
committed to making working at SEGRO an
enjoyable and rewarding experience.
OUR COMMUNITY
SEGRO continues to make substantial
investments into the communities in which
we operate working with local businesses,
residents, charities, councils and municipalities.
The space we own is often close to residential
areas and we focus much of our attention
on providing employment opportunities to
people in these areas.
Sustainability is embedded
within SEGRO’s corporate
strategy. Our commitment
to achieving our goal
in the most sustainable
way possible influences
everything we do.”
DAVID SLEATH
CHIEF EXECUTIVE
RESPONSIBLE SEGRO
OUR ENVIRONMENT
SEGRO’s Purpose is to ‘create the
space that enables extraordinary things
to happen’ and we are committed to
achieving this in the most sustainable
way possible.
As an owner-manager and developer of
buildings, we understand our impact on
society is wider than purely physical real
estate. Our Responsible SEGRO model
helps guide our business decisions as well
as providing a framework for how we
report on sustainability.
The model helps reflect our committed
approach to our people, communities,
environment and stakeholders. We take
time to fully understand the implications
of our decisions and always aim to exceed
expectations of those with whom we work.
In 2018, we launched our new environmental
strategy which aligns our sustainability targets
more closely to what we want to achieve
as a business. The updated targets are
challenging but achievable and will ensure
that sustainability remains at the heart of
how we approach asset management and
development well into the future.
OUR STAKEHOLDERS
We prioritise building and maintaining strong
relationships with our customers, suppliers and
investors, always keeping in mind the impact
of our strategic decisions on these important
stakeholder groups.
We recognise the importance of mutual
respect and trust within our stakeholder
relationships in order to be able to guarantee
shared long-term success.
WHAT TO EXPECT IN 2019
We have the following objectives for 2019:
££ Our People: We will analyse the results of
our 2018 All Employee Survey and continue
to improve our working practices to ensure
that we sustain our top quartile employee
engagement results.
££ Our Community: We will continue to
provide support to our local communities
through the SEGRO Community Fund.
££ Our Environment: We will fully embed
our new environmental strategy across
the business and continue to make
improvements in all areas of sustainability.
££ Our Stakeholders: we will continue to
drive forward our Customer Programme
and seek to maintain our high customer
satisfaction results.
CODE OF ETHICS
At SEGRO, we conduct our business to the
highest possible ethical standards.
Our Code of Ethics outlines the standards
that govern our decisions and behaviour
within SEGRO. It is aligned with our
Purpose and Values, as well as applicable
laws and regulations.
The Code incorporates policies on bribery,
corruption and fraud, gifts and hospitality,
insider trading, tax evasion, confidentiality,
conflicts of interest, relationships with
stakeholders, political and charitable
donations, raising serious concerns,
modern slavery and human trafficking.
Compliance with the Code is a condition
of each employee’s terms of employment
and helps ensure that our employees
always act in the Company’s best interests.
All employees receive information and
on-line training on SEGRO’s Code of
Ethics when joining the Company and
are required to certify annually that they
continue to understand and adhere to it.
Any breaches of the Code are fully
investigated by the General Counsel or
Group Human Resources Director.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 41
CULTURE
JOBS AND SKILLS
TALENT AND DIVERSITY
COMMUNITY INVESTMENT
HEALTH AND SAFETY
GIVING
CUSTOMERS
SUPPLIERS
INVESTORS
ENERGY
RESOURCES
MATERIALS
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
42
RESPONSIBLE SEGRO
OUR PEOPLE
We want SEGRO to be
a place where everyone
can be free to be
themselves by creating
a working environment
which is inclusive, free
from bias and has equal
opportunities for all.”
LIZ REILLY
GROUP HUMAN RESOURCES DIRECTOR
OUR PURPOSE:
WE CREATE THE SPACE THAT
ENABLES EXTRAORDINARY
THINGS TO HAPPEN
OUR VALUES:
SAY IT LIKE IT IS
STAND SIDE BY SIDE
KEEP ONE EYE ON THE HORIZON
IF THE DOOR IS CLOSED…
DOES IT MAKE THE BOAT GO FASTER?
GENDER DIVERSITY
1
1
EMPLOYEES SERVING
1,155 CUSTOMERS
315
2017: 300
2
2
STAFF TURNOVER IN 2018
BOARD*
1. Female (3)
2. Male (8)
Total
LEADERSHIP TEAM
27%
73%
1. Female (5)
2. Male (10)
100%
Total
33%
67%
100%
1
2
WORKFORCE
1. Female (149)
2. Male (166)
2
1
WORKFORCE COMPOSITION
47%
53%
1. Full-time (293)
2. Part-time (22)
9%
2017: 9%
HOURS OF TR AINING
DELIVERED IN 2018
3,708
2017: 3,353
EMPLOYEE ENGAGEMENT
SCORE
92%
2016: 90%
Total
100%
Total
We are committed to making SEGRO
a great place to work and we invest
significant time and resources
engaging with our employees across all of
our geographies.
CULTURE
SEGRO’s culture is unique because we believe
that it is not what we say we want our culture
to ‘be’ but what we ‘do’ to bring our culture
to life, day in and day out. Our uniqueness is
reflected in our Values, which were co-created
with our employees, making them an integral
part of working at SEGRO.
As an example of bringing our Values to life,
we invited all employees to ‘stand side by
side’ at our End of Year Review in the UK in
December 2018 to reflect on our successes
from the year and think about the challenges
and opportunities ahead of us. At the Review,
we welcomed over 50 new employees,
including those who joined us as part of the
acquisition of the Roxhill Management platform
in November 2018.
Our approach to internal communication and
engagement ensures that our employees are
kept up to date about information relating to
93%
7%
100%
* Board figures include Mary Barnard who
will be appointed an independent Non-
Executive Director from 1 March 2019.
them individually, as well as what is happening
around the business and how this might
affect the Company’s performance. We hold
quarterly webcasts to provide business
updates from the Executive Directors, as well
as employee briefings across our Business
Units. Last year we launched a new interactive
intranet called ‘The Box’ which is helping
employees interact and share knowledge
through personal blogs and dedicated articles.
Our employees’ strong engagement with our
business strategy and culture was reflected in
our 2018 All Employee Survey which reported
that 98 per cent of employees believe
that SEGRO’s strategy is likely to succeed.
Having achieved a 91 per cent response rate
for the survey, our Group wide engagement
score of 92 per cent has ensured that we
remain at the very top end of our benchmark.
TALENT AND DIVERSITY
We believe that people are at their happiest
and most motivated when they can bring their
whole selves to work. We want SEGRO to be
a place where everyone can feel free to be
themselves by creating a working environment
which is inclusive, free from bias and has equal
opportunities for all.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 43
We have robust policies in place with regard
to equal opportunities which assist us in
achieving our objectives. We are committed
to ensuring that we offer equal opportunities
to people with disabilities and if an employee
becomes disabled while in our employment,
we will offer appropriate support, retraining
and facilities to enable them to continue in
their role. Our Diversity and Inclusion Policy is
published on our website www.SEGRO.com/
csr/policies.
Every employee receives diversity training
as part of our induction process and in
our 2018 employee survey, 93 per cent of
employees said that SEGRO respected their
individual difference (of race, disability, sexual
orientation, gender, etc.). Our 2018 employee
survey had additional questions to encourage
employees to give us their thoughts on how to
make SEGRO a truly inclusive employer.
SEGRO believes in treating all employees
equally, including in respect of pay.
During 2018 we commissioned an
independent audit by remuneration
consultants who confirmed that any significant
differences in levels of pay between men and
women in our UK organisation were being
driven by the make-up of our workforce,
where we currently employ more men in
senior roles than women, and not by paying
men and women differently for doing the
same or similar roles.
SEGRO’s median pay gap is 49.5 per cent,
lower than 2017’s median pay gap of 54
per cent. This calculation represents the
average pay of all men compared to the
average pay of all women we employ in
the UK. We have disclosed this number as
we believe it is important to be transparent,
despite not being obliged to do so because we
employ significantly fewer than 250 people
in the UK, which can create distortion in the
analysis. The relatively high figure reflects this
distortion and the current make-up of our
workforce as described above.
SEGRO is dedicated to increasing diversity
in the business through a combination of
actions aimed at raising conscious awareness
of diversity issues amongst our employees.
Our successes this year, for example, the
reduction in our gender pay gap, have
largely been achieved through recruitment
and training interventions and our talent
review process.
In 2018, our Chief Executive and Group
Human Resources Director hosted a webinar
for all employees across the business to share
the diversity and inclusion actions that were
discussed with the Board. The webinar was well
attended with employees contributing thought
provoking questions and ideas for the future.
We have publicly committed to increasing
diversity both within the sector and in our own
business through our support of three sector-
wide initiatives: Pathways to Property, Real
Estate Balance and the 30% Club:
££ we are Gold Level sponsors of Pathways
to Property and offer work experience to
individuals who would not otherwise have
access to property as a career;
££ our Chief Executive has signed up to the
Real Estate Balance ‘CEO Commitments for
Diversity’ (http://www.realestatebalance.org/
ceo-commitments-for-diversity.html); and
££ he has also pledged our support to the 30%
Club which aims to increase the number
of women on boards and leadership teams
to a minimum of 30 per cent by 2020
(https://www.30percentclub.org/).
Our approach to developing talent continues
to be pragmatic – we want everyone to be
able to maximise their potential during their
time with SEGRO – supported by meaningful
and stretching work experiences and through
formal training and coaching.
Our employee turnover, at a Group wide level,
remained at the same level during 2018 but
continues to be an area that we monitor closely
given how valuable knowledge and expertise is
within small, geographically spread teams.
SAFETY ON OUR ASSETS
In 2017 and 2018, SEGRO undertook a comprehensive
review of all estates across the Group’s portfolio to
assess the potential pedestrian and traffic movement
risk. The estates that were considered high risk,
were independently assessed by traffic management
experts and any recommendations have, or are being,
actioned appropriately. The work that has already
been completed has helped both our property
teams to manage the sites more effectively and our
customers in the way they manage their yards and
vehicle movements.
The review has reinforced the importance of sharing
information with our customers so that we fully
understand the work activities being undertaken on
our sites. Through this collaboration, we have been
able to provide support to assist in reducing risks, so
far as is reasonably practicable, that could arise in a
shared workplace.
HEALTH AND SAFETY
Health and safety remains central to the
execution of SEGRO’s business strategy.
We take our responsibilities in this area very
seriously and are committed to the continued
improvement of our strong health and safety
record. We seek to embed health and safety
within our culture, as well as influencing
our supply chain. This is achieved through
managing risks by prevention, tighter controls,
training and raising awareness.
In 2018, we were awarded a second RoSPA
Gold Medal for achieving six consecutive
Gold Awards. The award recognised our
Group commitment and practical application
of health and safety procedures across all of
our business operations.
SEGRO continues to improve health and
safety standards on our construction sites
by working closely with our contractors and
health and safety consultants to increase
understanding and implementation of
SEGRO’s requirements.
Our Accident Frequency Rate for employees
in 2018 remained at zero. The total number of
health and safety incidents in 2018 remained
on par with 2017 rates. All serious incidents
are thoroughly investigated, with improvement
plans being implemented where required.
Our Group Health and Safety policy and more
details on our initiatives in this area are on our
website http://www.segro.com/csr.
Due to the size and geographical coverage of our
estates, this review will continue through 2019.
We will monitor the measurements that have
been implemented to ensure that adequate traffic
management and safety of pedestrians remains a
priority. All new developments will also consider the
importance for spatial awareness and segregation
of pedestrian and traffic movements to ensure safe
circulation on each new site.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 44
RESPONSIBLE SEGRO
OUR COMMUNITY
S EGRO is committed to supporting
the communities in which we operate
through a range of measures including
financial donations, volunteering, training and
employment programmes.
By working with local partners we are able to
provide a range of benefits to residents and
local businesses ensuring that our impact goes
beyond the development and ownership of
modern warehouse and industrial space.
We believe that active and regular
engagement helps us to understand better
the needs of each community we work with
and enables us to deliver better long-term
economic and social benefits.
JOBS AND SKILLS
In partnership with our contractors and
customers, SEGRO aims to invest in areas in
which we operate through the provision of
education, training and employment.
We create training and job opportunities
during the construction stage of our
developments and are increasingly working
with our customers to encourage local
recruitment to create a wide range of
sustainable employment outcomes.
SEGRO LOGISTICS PARK AULNAY
The site at SEGRO Logistics Park Aulnay was
formerly a large plant for Peugeot-Citroën
employing more than 6,000 people. When it
closed, much of the site’s production was
moved to other geographies.
Having acquired 18 hectares of the brownfield
land in 2015, SEGRO worked with local
authorities to develop logistics opportunities to
help bring employment back to the area.
Since the Peugeot-Citroën closure, the
number of employees per hectare has
tripled compared to when the plant was at
full capacity.
SEGRO PARK RAINHAM
SEGRO worked with Havering Council,
Havering College and Havering Job Centre Plus
to create Havering Works, a dedicated skills,
training and employment service. The service
is available to all 300 businesses in the London
Riverside Business Improvement District to
help people in the local community access a
wider range of job opportunities. In its first year
of operation, Havering Works has helped 40
unemployed people back into work.
SEGRO PARK NEWHAM AND LONDON
BOROUGH OF NEWHAM
Through our East Plus partnership with the
Greater London Authority, SEGRO is working
to attract new investment and create jobs in
East London. At our SEGRO Park Newham
site we are constructing a Travelodge hotel
and a distribution facility for DHL, which
will generate and safeguard up to 250 jobs.
SEGRO continues to work closely with the
London Borough of Newham to help local
people benefit from our regeneration plans
through a dedicated training and employment
job brokerage service, whilst enabling our
contractors and future customers to secure a
talented local workforce.
COMMUNITY INVESTMENT: WORKING
IN PARTNERSHIP
Our commitment to regeneration shapes our
business decisions. We aim to enhance the
communities in which we operate through
the provision of in-kind and financial support
to local charities and social enterprises.
These grass-roots community groups have
the knowledge and expertise to help local
vulnerable people develop the confidence and
skills they need to progress into employment,
education or training.
SEGRO COMMUNITY AWARD
A new SEGRO Community Award was
created in 2017 to fund innovative projects
that benefit the community in Slough.
The £2,000 award this year was given to
The Real Experience, a social enterprise in
Slough dedicated to supporting long term
unemployed people back into work or helping
them to establish a business of their own, by
training members of the Slough community to
gain barista and catering qualifications.
SEGRO COMMUNITY FUND
Since 2015, SEGRO has contributed over
£340,000 to grass-roots community
groups and charities through the SEGRO
Community Fund. The fund provides training
and volunteering opportunities to the local
community, helping people into employment
or education.
Following the success of the fund in London,
SEGRO increased its contribution to include
its portfolio in the Thames Valley to help local
charities in the Slough, Reading and Bracknell
areas. The total donated in the Thames Valley
region in 2018 was £52,000.
We are committed to
enhancing and improving
the local areas in which
we operate.”
NEIL IMPIAZZI
PARTNERSHIP DEVELOPMENT DIRECTOR
TOTAL CONTRIBUTION TO CHARITY
IN 2018
£791,941
2017: £1,117,760
TOTAL EMPLOYEE DAYS DONATED
TO CHARITY IN 2018
357
2017: 283
NUMBER OF PEOPLE BENEFITING FROM
THE SEGRO COMMUNITY FUND
1,105
2017: 1,797
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 45
In 2018 SEGRO contributed £115,000
to 24 local charities. To date, the SEGRO
Community Fund has celebrated a number of
achievements as detailed in the graphic below.
GIVING
SEGRO takes a proactive approach towards
giving and encourages all employees to
participate in charitable events, providing
their time and skills. In 2018, SEGRO donated
£277,000 in the form of direct donations, and
the financial equivalent of £135,660 through
employee volunteering and £379,281 through
assistance in kind.
In June 2018, 223 SEGRO colleagues (78
per cent of employees) from seven different
countries participated in our third ‘Day of
Giving’ to help a number of local charities.
Colleagues built, mended, painted, advised,
befriended, cooked, weeded and planted
during the course of the day.
Other charitable achievements during 2018
include the following:
£ In the UK SEGRO continued to support
the Outward Bound Trust through a
partnership donation. The donation allows
up to 24 school children from deprived
areas of London to attend an outdoor
activity event where they can experience
mountain climbing, hiking, rafting and
canoeing, whilst enhancing skills, such as
confidence and teamwork.
£ Also in the UK, SEGRO continued to play
an active role in supporting LandAid, the
property industry charity. We donated
£40,000 to Habitat for Humanity GB
Homes which is being used to refurbish a
derelict residential property in East London
to provide a home for young people leaving
care. Our employees also raised money for
LandAid by participating in the Steptober
challenge and the annual sleepout.
£ In Northern Europe, SEGRO has
continued to work with Die Arche, a
charitable organisation supporting socially
disadvantaged children in Düsseldorf.
In 2018, we supported Die Arche summer
event which gave children and their parents
a fun-filled afternoon. The SEGRO team
also invited 30 children from Die Arche
to AirHop, a trampoline park in SEGRO
CityPark, where the children enjoyed two
hours of jumping followed by a tour of the
park and refreshments.
£ In Central Europe, SEGRO was awarded a
trophy and certificate for our long-term co-
operation with The Iskierka Foundation, one
of the charities that we work with in Poland
which supports children diagnosed with
cancer. We have worked with The Iskierka
Foundation for five years, helping them to
publish a recipe book in 2018 for parents
containing healthy meal recipes to support
their children’s immune systems.
£ In Southern Europe, a team of 12 SEGRO
employees entered the annual Mud Day
challenge in Paris, raising €6,500 to support
more than 10 different charities including
those supporting Parkinson’s Disease
and Autism.
COMMUNITY REGENER ATION
JOBS AND SKILLS
COMMUNITY INVESTMENT
GIVING
Slough Aspire is a skills and training facility on the Slough
Trading Estate dedicated to enabling the Slough community to
develop employment skills relevant to local businesses. Since its
launch in October 2013, the centre has:
A contribution of £115,000 to the SEGRO Community
Fund in 2018 has been used to provide education, training
and employment opportunities to enhance employability of
vulnerable, young, and homeless people. Outcomes from the
London Community Fund so far are as follows:
SEGRO proactively encourages all employees to participate
in charitable causes through time and skills. In 2018, SEGRO
donated the equivalent of:
Enabled 14,312 people to engage with business
professionals to improve their awareness of potential
career paths
Facilitated 4,320 skills and employment interventions for
residents to access training, qualifications and jobs
Supported the career progression of 2,217 business
professionals via networking and training opportunities
Supported the creation of 40 new businesses
1,105 people directly benefited
£277,000 in the form of direct donations
£135,660 through employee volunteering
£379, 281 from assistance in kind
24 organisations funded
797 people attended training
108 gained sustainable employment
93 people undertook work experience
8 people came off work related benefits
426 accessed support and advice services
71 accessed further education or training courses
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 46
RESPONSIBLE SEGRO
OUR ENVIRONMENT
S EGRO is committed to owning a high
quality portfolio of modern warehouses
which deliver sustainable performance
for our customers, year after year.
Our SEGRO 2020 strategy has ensured that
we have made great progress on building
design, refurbishments, energy and water
efficiency, as well as increasing the amount of
environmentally certified buildings.
In order to ensure that our portfolio continues
to meet the demands of our customers for
the long term, in 2018, we reviewed and
enhanced our sustainability strategy to take
us beyond 2020.
The new Responsible SEGRO strategy will
focus on the three main areas of Energy,
Resources and Materials. This strategy
ensures we consider the long- and short-term
implications of our portfolio.
As we move our sustainability strategy
forward, it is important to celebrate some of
the successes that have been delivered under
our SEGRO 2020 programme.
££ When SEGRO 2020 was launched in
2012, SEGRO had 142,000 sq m certified
to BREEAM, or equivalent. As we move
forward, we currently have over 1.8 million
sq m of buildings certified, making up over
a quarter of our portfolio.
££ We have reduced our scope 1 and 2 carbon
footprints from a combined 21,200 tonnes
of carbon dioxide a year to under 6,400
tonnes a year.
££ In 2012 we had the capacity to generate
3.4 MWh of electricity through our solar
photovoltaic (PV) array, compared to
18.1 MWh which was generated in 2018.
We expect to maintain this excellent progress
under our new strategy which will take us to
2025 and beyond.
SEGRO 2020 PERFORMANCE (VS 2012 BASELINE)
Reduce energy intensity for SEGRO responsible space by 40 per cent
Reduce water intensity for SEGRO responsible space by 20 per cent
Reuse or recycle 80 per cent of construction/demolition waste
Reuse or recycle 60 per cent of excavation waste
79%
57%
95%
100%
Install water efficient technology in all new buildings and qualifying major refurbishments
78%
100 per cent of qualifying buildings to be at least 40 per cent more efficient
than our 2009 baseline
100 per cent of qualifying new developments by SEGRO over 10,000 sq m
to be BREEAM certified ‘Very Good’ or equivalent
100 per cent of new buildings to be EPC ‘B’ rated or better
100 per cent of qualifying refurbishments to be EPC ‘C’ rated or better
Increase renewable energy generating capacity across the Group
Target met
On target to meet SEGRO 2020 objectives
* This figure states a decrease to reflect the significant sales of photovoltaic (PV) since 2017.
100%
100%
100%
95%
(3)%*
We remain committed to communicating our performance transparently and we adhere to
the principles of the Global Reporting Initiative (GRI) Standards.
We continue to perform strongly across the Environmental, Social and Governance indices:
££ In Carbon Disclosure Project (CDP) we maintained our A- score for the third consecutive year.
££ In Global Real Estate Sustainability Benchmark (GRESB) we achieved a ‘three -star’ rating.
££ We were awarded European Public Real Estate Association (EPRA) Gold for our reporting.
££ We continue to be a participant of FTSE4Good.
Whether it is enhanced
biodiversity in Milan,
flood resilience in the
East Midlands or carbon
neutral buildings in
Tilburg, environmental
innovation is at the heart
of our business.”
BEN BR AKES
GROUP SUSTAINABILIT Y MANAGER
FLOORSPACE ENVIRONMENTALLY
CERTIFIED IN 2018
453,000 sq m
2017: 466,477 sq m
REDUCTION IN ENERGY INTENSITY
IN 2018 (FROM BASELINE)
79%
2017: 64%
ON-SITE RENEWABLE
ENERGY CAPACITY
13.5 MW
2017: 13.9 MW
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 47
CLIMATE CHANGE
ENERGY
RESOURCES
MATERIALS
OWN ENERGY USE
ENERGY EFFICIENT
BUILDINGS
CONSTRUCTION
WASTE
EXCAVATION
WASTE
EMBODIED CARBON
SUSTAINABLE
CERTIFICATION
LEADING PROGR AMME
Clearly defining the key driver for
Technical Sustainability for SEGRO.
ABOVE THE LINE
Areas of significant risk, interest or
opportunity. Individual programmes
defined by clear, specific targets
designed to offer a clear vision
of what is important to SEGRO.
WATER USE
WELL BEING
SUPPLY CHAIN CONTINUIT Y
BIODIVERSIT Y
TR ANSPORT & CONNECTIVIT Y
CONTAMINATED LAND
BELOW THE LINE
Sustainability aspects considered important
to the business but not covered by KPIs
as not identified as material issues. These
topics are covered under business as
usual but may become material under
future materiality assessments.
ENERGY USE
Our carbon management strategy is crucial to
achieving our targets. SEGRO is responsible for
procuring over one MWh of energy a minute so
it is important that we choose the right tariff for
our customers.
In 2018, we moved our German tariffs onto certified
green energy and we will continue to move other
tariffs over when possible.
We have also continued to invest in renewable and
on-site generation within our estates and now have
electricity generating solar panels producing enough
energy to power around 3,000 homes.
NEW RESPONSIBLE SEGRO STR ATEGY
Our new strategy was developed in 2018
following the results of our first materiality
assessment. The assessment helped us identify
areas that are ‘material’ to the business, which
have enabled us to ensure that our strategy
now focuses on areas that are within our
ability to influence.
We believe that our new sustainability
initiatives add value to the business and
are appropriate for both today and for the
business in five to ten years’ time.
NEW RESPONSIBLE SEGRO TARGETS
Energy: We will reduce SEGRO’s carbon
footprint by 40 per cent by 2025 in line with
the Paris Agreement on Climate Change.
We will do this through:
££ Installation of proven energy efficient
technologies across the existing estate and
new build portfolio.
££ Procurement and generation of zero
carbon, renewable energy across
our portfolio.
Resources: We will reduce the amount
of waste our business creates. We will do
this through:
££ Sending zero waste to landfill for all new
developments by 2025.
££ Promoting the re-use of materials at the
buildings end of life.
Materials: We will deliver low impact
buildings based on a 20 per cent reduction
of embodied carbon by 2025. We will do
this through:
££ Conducting a full life cycle assessment of all
our new builds.
££ Challenging material choice and reducing
embodied carbon by 20 per cent by 2025.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 48
RESPONSIBLE SEGRO
OUR ENVIRONMENT
CONTINUED
THE MILAN EAST DC2 DEVELOPMENT, CASIR ATE, MILAN
The Milan East DC2 development in Casirate, Milan
is a 34,000 sq m fully fitted industrial warehouse
which was completed in November 2018. The
development is an excellent example of how every
element of our sustainability strategy has been
incorporated into a single project.
The development was built using Building
Information Modelling (BIM), meaning that a live 3D
plan was in place, enabling the project to be fluid at
all times. The detail in the BIM model enabled us to
run a full life cycle assessment during the project to
identify carbon saving opportunities in operation and
to provide better knowledge of the carbon impacts of
the materials and our supply chain. High level results
of the analysis can be seen in the charts below.
Materials and components with Environmental
Product Declarations were chosen across the build
to reduce the embodied carbon of the development.
Additionally, all timber used was sourced from
certified sustainable sources.
building’s life cycle. As a result, energy and water
consumption performance were vital in shaping the
build programme. High levels of air-tightness and
good thermal insulation were partnered with low
energy lighting installed in the warehouse. Water
efficient equipment was installed throughout all
areas of the project reducing the average water
consumption to 12 litres per person each day. Leak
detection and controls were also installed to help
prevent water losses.
A complete Building Management System has been
installed to control energy, heating and water for our
customer. In addition, metering and sub-metering
has been applied to all major energy and water
consuming areas, allowing our customer to identify
savings whilst the building is in operation.
Finally, we installed a 702 kW rooftop solar
photovoltaic (PV) array which generates over
618,000 kWh of free electricity per year, meeting 26
per cent of the building’s operational energy demand.
Energy use in operation accounts for the vast
majority (85 per cent) of carbon emissions over the
This package of quality building fabric, on-site
generation, high efficiency lighting and excellent local
controls has resulted in the development achieving
an ‘A’ rated Energy Performance Certificate.
Sustainability features are not just limited to the
building itself. As the building was constructed on a
previously developed brownfield site, consideration
was given to how the project could enhance the area
as a whole. In nearby wooded areas, wild plants have
been protected as part of the landscaping strategy
and, in partnership with a local mozzarella farm, the
unused land surrounding the building is used for
grazing buffalo.
Lastly, we assessed how the operation of the building
could impact the local area. In order to encourage
sustainable choices in transportation to the site, we
developed bus bays, parking bays incorporating
charging facilities for electric vehicles and cycle
storage facilities.
By deploying this array of measures, SEGRO has
ensured that not only have we limited our impact
on the environment in development, we have
also enabled our customer to continue to do so in
operation of this building.
60-YEAR LIFE CYCLE ASSESSMENT
MATERIAL USE BY MASS BY STRUCTURE
4 1
2
3
1
2
3
5
4
SECTOR
1. Construction Materials
2. Material replacement
and refurbishment
3. Energy Use
4. Deconstruction
Total
12%
1%
85%
2%
1. Foundations and substructure
2. Vertical structures and facade
3. Horizontal structures:
beams, floors and roofs
4. Other structures and materials
100%
5. External areas and site elements
Total
3%
10%
50%
1%
36%
100%
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 49
INNOVATION PARTNERSHIPS
Working closely with our stakeholders provides
opportunities for innovation.
In 2018, two refurbishment projects on the Slough
Trading Estate trialled a new recycled paint produced
in Slough. The new paint, which uses 25 per cent
content that has been recycled from unused paint,
not only reduces our embodied carbon by coming
from local sources, but also helps reduce the 500
million litres of paint disposed annually.
To close the life cycle loop the empty cans were
returned to the supplier to be recycled.
We hope to make the use of this paint standard
when it becomes commercially available in 2019.
MANDATORY GREENHOUSE GAS (GHG) REPORTING
GLOBAL GHG EMISSIONS DATA IN TONNES CO 2E
Emissions from:
Scope 1 emissions – combustion of fuels
Scope 2 emissions – purchased energy (location based)*
Scope 2 emissions – purchased energy (market based)**
Gross CO2e footprint (using location based)
Chosen intensity Measurement***
Emissions from like-for-like estate normalised to tonnes
CO2e/sq m of responsible space
Responsible floor area sq m L4L
Intensity Tonnes CO2
2017
1,978 ∆
3,965 ∆
3,234 ∆
2018
1,591 ∆
1,944 ∆
1,467 ∆
5,943 ∆
3,535 ∆
2,126 ∆
1,341 ∆
194,107
0.011
194,107
0.007
*
Electricity emissions are calculated using location based method. Emissions calculations are taken from GRI guidance used here
for illustration purposes only.
** Where data exists, electricity emissions are calculated and reported using the location based method, using supplier specific
emissions factors for comparison purposes.
*** SEGRO’s chosen intensity measure is a like for like comparison for sites in the portfolio with SEGRO responsible CO2 in both 2017
and 2018. This comparison uses EPRA guidance on best practice for real estate companies.
∆
Selected information within the scope of limited assurance.
The table above provides information on
SEGRO’s greenhouse gas emissions for 2018,
in which we are pleased to report a reduction
in like-for-like Scope 1 and Scope 2 emissions
from 2017.
The reduction is concentrated in Scope 2
emissions, which is largely due to
improvements in our reporting methodology.
In particular, we have been able to accurately
state more Scope 3 emissions due to sub
level metering installed in 2017. This means
that we can use actual metered data rather
than estimated data and, in 2018, the dataset
contains less than 10 per cent estimations.
Further improvements have also been made
by the procurement of zero rated green tariffs
in Europe, where possible. Scope 1 and 2
were also impacted by the weather in 2018.
The colder winter contributed to a rise in gas
use across Europe. For SEGRO controlled
assets, gas use is minimal so had a limited
impact, however we did see an impact in gas
consumption in our tenanted estate.
We continue to roll out sub level metering
across our estate and invest in energy
efficiency upgrades whenever possible.
These actions should make reporting more
accurate in 2019 and continue to see a
reduction in Scope 1 and 2 emissions.
BIODIVERSITY
Most of our estates have significant landscaping
areas which provide opportunities to enhance
local biodiversity.
We have introduced bees into many of our
developments and we now have over 150 hives
across our portfolio. With each hive holding as
many as 50,000 bees during the peak harvesting
season, and these bees visiting over two million
plants within a two mile radius, the SEGRO
hives will assist pollination of plants and crops
across Europe.
REPORTING METHODOLOGY
This section has been prepared in accordance
with our regulatory obligation to report
greenhouse gas emissions pursuant to Section
7 of The Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations
2013. As well as fulfilling these mandatory
Greenhouse Gas reporting requirements,
SEGRO is committed to EPRA Best Practice
Recommendations for sustainability reporting.
We report our data using an operational
control approach to define our organisational
boundary, as per the Greenhouse Gas
Protocol. The market based methodology
has been applied to calculate the Scope 2
emissions, however supplier-specific emission
factors have been collected for UK only.
For the non-UK portfolio, the IEA emission
factors have been applied. We disclose
data for both our like-for-like and absolute
portfolios in this report and a detailed
description of our methodology and a full
disclosure of emissions factors used can
be found at www.SEGRO.com/csr/reports.
SEGRO’s chosen GHG intensity metric is
calculated using the Scope 1 and Scope 2
emissions within a like-for-like sub-set of
SEGRO’s overall portfolio. The like-for-like
portfolio is defined as sites which have both
been in the portfolio for 2017 and 2018, and
have remained either fully occupied or fully
vacant for both years.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 50
RESPONSIBLE SEGRO
OUR STAKEHOLDERS
W e work hard throughout the year
to understand the needs and
requirements of our customers,
suppliers and investors to ensure that the
decisions we take are in both their interests
and the interests of SEGRO’s future success.
Only through regular communication and
the pursuit of continuous improvement in our
engagement and service can we ensure that
we have supportive stakeholders and partners
for the long term.
CUSTOMERS
Our relationships with our customers are
imperative to our business success. We aim
to be more than just a landlord, working with
them to understand the dynamics of their
business to facilitate their growth aspirations.
We believe that this collaborative approach
is mutually beneficial and consistent with our
aim of exceeding our customers’ expectations.
Throughout 2018, we have increased our
focus, investment and resource into our
Customer Programme, as we aim to get
closer to our customers. The programme
encompasses a range of initiatives for both
existing and potential customers with whom
we hope to work with in the future.
We continued to host a number of sector
specific customer workshops to improve
both their and our understanding of sector-
wide business issues and trends likely to
impact property decisions in the future.
These workshops were very well received and
those attending provided positive feedback
about SEGRO’s initiatives.
In October 2018, we held our second bi-
annual Customer Futures Forum in Paris
where we invited a cross-section of customers
from different sectors of our portfolio to
discuss opportunities and challenges affecting
their businesses. A wide variety of topics were
discussed, including automation, robotics
and autonomous vehicles, with the attendees
agreeing it was an enjoyable and beneficial
event. The insight from the Forum will help us
to continue to choose the appropriate markets
to best serve our customers in the long-term.
We have had continued success in the results
of our Customer Satisfaction Survey in 2018,
with some of the highlights being:
££ A total of 305 surveys were completed
(including 15 of our Key Accounts),
equating to around a quarter of our
customer base.
££ Overall Occupier Satisfaction at Group
level remains high with 80 per cent of
respondents rating SEGRO as ‘good’
or ’excellent’.
££ Customer willingness to recommend
SEGRO was 93 per cent.
££ 86 per cent of our Key Accounts rate
communication, the ease of working with
SEGRO and satisfaction with the property
management team highly, demonstrating
the positive relationships they have with
their key contacts.
We place great emphasis
on building strong
relationships with all
groups who have
a vested interest in
SEGRO’s success.”
ANDY GULLIFORD
CHIEF OPER ATING OFFICER
NUMBER OF CUSTOMERS
1,155
2017: 1,080
OCCUPIER SATISFACTION
IN OUR 2018 SURVEY
80%
2017: 87%
SUPPLIER SPEND PER ANNUM
over £600m
2017: Over £600m
INSTITUTIONAL SHAREHOLDERS MET
BY SENIOR MANAGEMENT IN 2018
204
2017: 181
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 51
SUPPLIERS
SEGRO spends over £600 million per annum
working with over 3,500 suppliers across the
Group ranging from small local businesses to large
multinational companies.
We are committed to ensuring that our supply
chain is safe, secure and effective. In support of this
commitment we operate a strict supplier assurance
process that all suppliers must adhere to.
The supplier assurance process requires all new
and existing suppliers to be thoroughly assessed as
competent, safe and appropriately insured. They must
also agree to SEGRO’s Code of Ethics. Only once
this assessment process is complete can suppliers be
considered compliant and able to work with SEGRO.
As at the end of 2018, 98 per cent of SEGRO’s entire
supply chain were deemed fully compliant with
SEGRO’s essential requirements under its supplier
assurance process. This was up from 86 per cent
in 2017.
We continue to be a signatory to the UK Prompt
Payment Code and, following the UK legislation,
report on the payment practices for our largest UK
subsidiaries biannually. In 2018, over 95 per cent of
UK invoices were paid within 30 days of receipt, with
an average payment time of 17 days.
INVESTORS
At SEGRO, we prioritise delivering long-term
and sustainable returns for both our equity and
debt investors.
We take time to ensure that we communicate regularly
and effectively with our investor base (from large
institutions to private shareholders, and from banks
to bondholders) in order to ensure that our strategy
and performance is understood, enabling continued
confidence in our business.
SEGRO has a dedicated Investor Relations team
that manages an extensive programme consisting
of an Annual General Meeting, meetings with
institutional equity and debt investors, attendance
at investor conferences, presentations to investment
banks and a number of site visits. During 2018, the
Executive Directors and the Investor Relations team
met with 204 institutions to update them regarding
our performance.
We have enhanced the Investor Relations section of
our corporate website to add consensus data gathered
from the broking houses which issue independent
research on SEGRO to improve the transparency for
all our shareholders. We have also added a dedicated
section for our bond investors to improve our service
to these important stakeholders.
The Investor Relations team work closely with
the Business Units and our Marketing and
Communications team to ensure that existing and
potential investors are kept informed about our
business. The team’s success is evident in it being
awarded the Investor Relations Magazine Award for
Best in Sector for Real Estate in 2018.
FURTHER INFORMATION REGARDING OUR INVESTORS CAN
BE FOUND ON PAGE 76 OF THE GOVERNANCE SECTION
IN THIS REPORT.
INDUSTRY BODIES
SEGRO employees continue
to represent the Company on
key industry bodies, locally,
nationally and internationally,
to support improvements of
sector standards and ensure
the sector is fully understood.
IKEA
SEGRO welcomed IKEA as
a new customer in 2018,
working in partnership to find
appropriate space to support
its changing business model.
As part of its drive to adapt
to changing customer
expectations and IKEA
choose to take 50,000 sq m
of space at our new Paris Air²
building located in the Port
of Gennevilliers, 5 km north
west of Paris city centre.
The development, completed
in late 2018, is our first multi-
storey warehouse in Paris and
will allow IKEA to service its
smaller store format and on-
line activities.
The proximity of Paris Air²
Logistique to central Paris
means that IKEA will be able
to further develop its multi-
channel strategy, and ensure
efficient and rapid access “last
mile delivery” to both its store
network and to the customers
which order online.
By taking time to understand our business model, SEGRO-Vailog was
able to offer an innovative solution which fully reflects our changing
location strategy. In a city where land is scarce and e-commerce
demand is rapidly growing, IKEA is now well placed to continue to
improve the quality of our services and optimise our delivery for our
Parisian customers.”
EMMANUEL GRILLO
IKE A FR ANCE DEVELOPMENT DIRECTOR
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 52
PRINCIPAL RISKS
EFFECTIVE RISK MANAGEMENT
Our strategy for growth
is underpinned by active
risk management.”
SOUMEN DAS
CHIEF FINANCIAL OFFICER
OUR STR ATEGY FOR GROW TH IS
UNDERPINNED BY ACTIVE RISK
MANAGEMENT
2018 continued to present a backdrop of
political, economic and competitive challenges
in key markets, including the UK, Germany,
France, Poland and Italy.
DISCIPLINED CAPITAL ALLOCATION
Guided by the Group’s capital investment
strategy, we have pursued opportunities in the
light of current market conditions (described
in more detail on pages 22 to 23) and our
appetite for risk – in particular our appetite for
land and other non-income producing assets.
Relevant Key Risk Indicators are considered
each month by the Investment Committee to
inform its decisions.
We continue to manage our risk exposure by:
££ utilising options on land whenever feasible;
££ maintaining a limited exposure to
speculative development; and
££ planning for the combined impact of
significant decisions – land acquisitions,
infrastructure commitments and
development commitments – that
will be required by our pipeline of
development opportunities.
FINANCING
The Group’s financing strategy is designed
both to support investment in our growth,
and to provide a high level of resilience in
anticipation of the risks we face. The Group’s
ongoing management of its financing,
including extending debt facilities and
maturities, is described on pages 31 to 37.
HEALTH AND SAFETY
Health and safety remains a major focus for
risk management. Our activity during 2018
and looking ahead to 2019 is described on
page 43.
BREXIT
Inevitably the risk of a Disruptive Brexit has
loomed large and remained an actively-
managed risk, supported by a dedicated risk
register. The Executive Committee considered
our approach and response plans regularly
throughout 2018, and will continue to do so in
2019 and for as long as necessary.
We actively monitor occupier and other
markets for adverse signals relating to Brexit,
and we have maintained dialogue with a range
of customers and suppliers to understand
potential impacts on them, and therefore
indirectly on us. We have also maintained
dialogue with key suppliers to understand
and mitigate risks to our operational and
construction supply chains. To date, we have
not observed significant adverse factors in
these areas.
We also convened a group to assess and
address the corporate risks relating to Brexit.
A small number of risks on the Brexit risk
register merited in-depth focus, but these
were limited in number and scope and none
proved to be beyond our appetite even in a
disorderly Brexit scenario. As a result, whilst
we have identified the work required to adapt
under various scenarios, the specific response
will depend on the nature and timing of
withdrawal, and we will initiate the work
once this is clear.
TECHNOLOGY
Whilst disruptive technology is not considered
a principal risk to the Group, we do actively
consider risks in this domain. During 2018
we invested significant effort in assessing
the potential impacts of a wide range of
technologies; we formulated a digital and
technology strategy; we invested in our
organisation in this area; and we engaged
with a number of property and technology
organisations. For 2019, we have refreshed our
technology ‘horizon scanning’ process which
will feed our consideration of emerging risks.
OUR RISK APPETITE
The Group recognises that its ability to
manage risk effectively throughout the
organisation continues to be central to its
success. Our approach to risk management
aims to bring controllable risks within
our appetite, and to enable our decision-
making to balance uncertainty against the
objective of creating and protecting value for
our shareholders.
While our appetite for risk will vary over
time and during the course of the property
cycle, in general the Group maintains a
fairly low appetite for risk, appropriate to our
strategic objectives of delivering a sustainable
progressive dividend stream, supported by
long-term growth in net asset value per share.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 53
PROPERTY RISK
We recognise that, in seeking outperformance
from our portfolio, the Group must accept a
balanced level of property risk – with diversity
in geographic locations and asset types and
an appropriate mixture of stabilised income
producing and opportunity assets – in order
to enhance opportunities for superior returns.
Our target portfolio should deliver attractive,
low risk income returns with strong rental
and capital growth when market conditions
are positive and show relative resilience in a
downturn. We aim to enhance these returns
through development, but we seek both to
ensure that the ‘drag’ associated with holding
development land does not outweigh the
potential benefits, and to mitigate the risks
– including letting and construction risks –
inherent in development.
In line with our income focus, we have a low
appetite for risks to income from customer
default or insolvency, and accordingly seek a
diverse occupier base with strong covenants
and avoid over-exposure to individual
occupiers in specialist properties.
FINANCIAL RISK
The Group maintains a low to moderate
appetite for financial risk in general, with a
very low appetite for risks to solvency and
gearing covenant breaches.
As an income-focused REIT we have a
low appetite for risks to maintaining stable
progression in earnings and dividends over
the long term. We are, however, prepared to
tolerate fluctuations in dividend cover as a
consequence of capital recycling activity.
We also seek long-term growth in net asset
value per share. Our appetite for risks to net
asset value from the factors within our control
is low, albeit acknowledging that our appetite
for moderate leverage across the cycle
amplifies the impact of market driven asset
valuation movements on net asset value.
CORPOR ATE RISK
We have a very low appetite for risks to
our good reputation and risks to being
well-regarded by our investors, regulators,
employees, customers, business partners,
suppliers, lenders and by the wider
communities and environments in which
we operate.
Our responsibilities to these stakeholders
include compliance with all relevant laws;
accurate and timely reporting of financial and
other regulatory information; safeguarding
the health and safety of employees, suppliers,
customers and other users of our assets;
safeguarding the environment; compliance
with codes of conduct and ethics; ensuring
business continuity; and making a positive
contribution to the communities in which
we operate.
OUR INTEGR ATED AND ROBUST
APPROACH TO RISK MANAGEMENT
The Board has overall responsibility for
ensuring that risk is effectively managed
across the Group. The Audit Committee
monitors the effectiveness of the Group’s risk
management process on behalf of the Board.
Further information on compliance with
the risk management provisions of the UK
Corporate Governance Code can be found in
the Governance section on page 60.
The risk management process is designed to
identify, evaluate and mitigate the significant
risks that the Group faces. The process aims
to understand and mitigate, rather than
eliminate, the risk of failure to achieve business
objectives, and therefore can only provide
reasonable and not absolute assurance.
The Board recognises that it has limited
control over many of the external risks it
faces, such as the macro-economic, political
and regulatory environment, but it reviews
the potential impact of such risks on the
business and actively considers them in its
decision making.
The Board also monitors internal risks and
ensures that appropriate controls are in place
to manage them.
The Board has performed a robust assessment
of the principal risks facing the Group.
The Board has formally reviewed the principal
risks twice during the year. The Board has also
completed its annual review and approval of
the Group’s risk appetite, and the Group’s risk
management policy. The Audit Committee
receives a report twice a year on how the
Group Risk Register has been compiled.
The Group adopts the ‘three lines of
defence’ model of risk management.
Operational management, the individual risk
manager and risk owner provide the first
line of defence. The Executive Committee,
other monitoring committees, and the risk
management function overseen by the Group
Risk Committee provide the second line of
defence. Finally, Internal Audit provide the
third line of defence.
Risks are considered within each area of the
business to ensure that risk management is
fully embedded within the Group’s culture
and decision-making processes.
Accountabilities for the Group’s risk
management are outlined in the diagram on
page 54.
We have put risk appetite at the heart of our
risk management processes. Risk appetite is
integral both to our consideration of strategy
and to our medium-term planning process.
Risk appetite also defines specific tolerances
and targets for key metrics and the criteria for
assessing the potential impact of risks and our
mitigation of them.
The most significant risks and mitigating
controls are detailed in the Group Risk
Register. Risks are assessed in both
unmitigated (assuming that no controls are in
place) and residual (with mitigating controls
operating normally) states. This assessment
directly relates potential impact to risk
appetite so that it is clear whether each risk
is comfortably within appetite, tolerable,
intolerable or below appetite. We also formally
assess the velocity of the most significant risks
to determine how quickly they might cause an
intolerable impact on us.
A Key Risk Indicator (KRI) dashboard is
produced on a monthly basis to show actual
and forecast performance against risk appetite
metrics. KRIs are considered in the Group’s
Medium Term Plan.
Mitigations for each risk are documented
and monitored in the Group Risk Register.
The Register is used as a key input to
determine priorities for the Group’s internal
audit assurance programme. Furthermore,
management’s annual assessment of control
effectiveness is driven by the Group’s
Risk Register.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 54
PRINCIPAL RISKS
OUR FRAMEWORK FOR
RISK GOVERNANCE
BOARD
AUDIT COMMITTEE
££ Overall responsibility for ensuring that risk
is effectively managed across the Group.
££ Determines the Group’s risk appetite.
££ Conducts robust assessment of
Group’s risks.
££ Monitors effectiveness of the Group’s
risk management process and internal
control systems.
STAGE 1
STAGE 2
STAGE 3
EXECUTIVE RISK OWNERS
EXECUTIVE COMMITTEE
INTERNAL AUDIT
££ Own risks in domain.
££ Assign accountability for mitigating
individual risks to senior risk managers.
££ Ensure that risks are identified, assessed
and adequately controlled.
££ Oversees execution of risk management
across the business.
££ Agrees internal audit programme
considering Group Risk Register.
££ Formally considers risks, including
emerging risks, four times per year.
££ Directly oversees strategic risks.
££ Conducts internal audit programme and
reports to Audit Committee.
££ Review risks with the risk management
££ Delegates accountability for risk
function at least twice per year.
management and monitors performance
of risk controls.
££ Assigns Executive Risk Owners to
each risk.
RISK MANAGERS
MONITORING COMMITTEES
££ Responsible for ensuring the risk is
££ Regularly identify and monitor the
within appetite.
££ Drive design and implementation
of controls.
££ Review and assess existing risks with
risk management function at least twice
per year.
significant risks and corresponding controls
within their domains.
££ Risk management function
attends regularly.
GROUP RISK COMMITTEE
££ Coordinates the risk management process
on behalf of the Executive Committee.
££ Develops risk policy.
££ Oversees the work of the Risk
Management function, which in turn:
– Manages and reports on the risk register.
– Assesses and documents risks
and controls.
– Provides quality assurance and challenge
to risk owners and managers.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 55
VIABILITY STATEMENT
ASSESSMENT OF THE GROUP’S PROSPECTS
The Directors have considered the Group’s
prospects, including reference to the
Group’s principal risks, to form the basis
of our assessment of longer term viability.
The process for conducting this assessment is
summarised in the Audit Committee’s report
on page 81.
The Directors confirm that they have a
reasonable expectation that the Group will
be able to continue in operation and has
adequate resources to meet its liabilities as
they fall due over the next five years.
The five year assessment period is the same
time horizon as covered by the Group’s
annual rolling five year strategic financial plan.
This is considered to be the optimum balance
between our need to plan for the long term,
recognising that property investment is a long-
term business, and the progressively unreliable
nature of forecasting in later years, particularly
given the historically cyclical nature of the
property industry. The Directors confirm that
they have no reason to expect a step-change
in the Group’s viability immediately following
the five year period assessed.
ASSESSMENT OF THE GROUP’S VIABILITY
In addition to the robust ongoing assessment
and management of the risks facing the
Group, as already set out in this section, the
Group has stress tested its five year strategic
financial plan. This stress test has considered
the risks that could either individually, or in
aggregate, threaten the viability of the Group.
The process for conducting the Group’s
assessment is the responsibility of the Chief
Financial Officer and is overseen by the
Audit Committee.
be breached, causing a threat to the Group’s
viability. We then assessed the likelihood of
that limit being reached as a result of the
individual event or combination of events
occurring, using a combination of historic data
(for example the acute property valuation
decline in 2007–2009) and forward-looking
probability analysis where available.
In our modelling none of the financial
covenants were breached with gearing
remaining comfortably below 160 per cent
and interest cover well above 1.25 times.
Reverse stress testing was undertaken over the
period under review and, in isolation, it would
take at least a 50 per cent fall in property values
to breach gearing covenants; or a decrease
in rental income of over 65 per cent or an
increase in interest rates to over 14 per cent to
breach interest cover covenants (assuming 60
per cent fixed rate debt is maintained).
In addition, we have undertaken a severe
downside risk scenario of an economic shock
(consistent with the financial crisis of 2007-
2009 crisis) at a point when the Group is most
exposed with its development programme.
Whilst this scenario reduced the headroom on
the financial covenants the Group is able to
continue in operation.
The scenarios set out are hypothetical and
severe for the purpose of creating outcomes
which have the ability to threaten the
viability of the Group. We also note that,
in the event of a severe threat to liquidity,
various options are available to the Group
to maintain viability. These options include
reduction of any non-committed capital
expenditure and acquisitions, selling assets, or
reducing cash dividends (including the use of
scrip dividends).
PRINCIPAL RISKS
The principal risks have the potential to
affect SEGRO’s business materially. Risks are
classified as ‘principal’ based on their potential
to intolerably exceed our appetite (considering
both inherent and residual impact) and cause
material harm to the Group.
Some risks that may be unknown at present,
as well as other risks that are currently
regarded as immaterial and therefore not
detailed here, could turn out to be material in
the future.
The current principal risks facing the Group
are summarised in the diagram below and
described across the following pages.
The descriptions indicate the potential areas
of impact on the Group’s strategy; the
time-horizon and probability of the risk; the
principal activities that are in place to mitigate
and manage such risks; the committees that
provide second line of defence oversight;
changes in the level of risk during the course
of 2018; whether the risk is within our appetite
(after the application of our mitigations);
and links to further relevant information in
this report.
Management has actively considered
emerging risks during the year. To this end,
the Executive Committee undertakes a risk
‘horizon scan’ twice a year, and the risk
management function undertakes an annual
survey of peers and other listed companies to
identify potential risks for consideration.
Whilst no principal risks have been added
or removed in 2018, three of our risks have
increased, and one has reduced since 2017.
In particular the stress test has considered the
potential impacts of:
RESIDUAL RISK
££ a systemic crisis, such as a major dislocation
or failure of capital markets or a failure of
the insurance market;
h
g
H
i
££ an acute deterioration in occupier or
property investment market conditions;
££ significant movements in interest rates and
foreign exchange rates;
££ an inability to refinance maturing debt; and
I
I
Y
T
L
B
A
B
O
R
P
££ a sustained interruption to the Group’s
w
o
L
business continuity.
3
Disruptive Brexit
1
Market cycle
2
Portfolio strategy
4
Health & safety
8
Political &
regulatory
6
5
Financing strategy
Development plan execution
7
Investment plan execution
9
Operational delivery & compliance
In stress testing we assessed the limits at
which key financial ratios and covenants would
Below appetite
Within appetite
IMPACT
Intolerable
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 56
PRINCIPAL RISKS
PRINCIPAL RISKS
1. MARKET CYCLE
2. PORTFOLIO STRATEGY
3. DISRUPTIVE BREXIT
The property market is cyclical and there
is a continuous risk that the Group could
either misinterpret the market or fail to react
appropriately to changing market conditions,
which could result in capital being invested or
disposals taking place at the wrong price or
time in the cycle.
This is a continuous risk with a
moderate likelihood.
MITIGATIONS
The Board, Executive Committee and
Investment Committee monitor the property
market cycle on a continual basis and adapt
the Group’s investment/divestment strategy in
anticipation of changing market conditions.
Multiple, diverse investment and occupier
market intelligence is regularly received
and considered – both from internal ‘on
the ground’ sources and from independent
external sources.
Upside and downside scenarios are
incorporated into Investment Committee
papers to assess the impact of differing
market conditions.
The Group’s Total Property and/or Shareholder
Returns could underperform in absolute or
relative terms as a result of an inappropriate
portfolio strategy. This could result from:
££ Holding the wrong balance of prime or
secondary assets;
££ Holding the wrong amounts or types of
land, leading to diluted returns and/or
constraints on development opportunities;
££ Holding the wrong level of higher risk
‘opportunity’ assets or too many old or
obsolete assets which dilute returns; and
££ Holding assets in the wrong geographical
markets; missing opportunities in new
markets or lacking critical mass in
existing markets.
This is a continuous risk with a
moderate likelihood.
MITIGATIONS
The Group’s portfolio strategy is subject
to regular review by the Board to consider
the desired shape of the portfolio in order
to meet the Group’s overall objectives and
to determine our response to changing
opportunities and market conditions.
The Group’s Disciplined Capital Allocation is
informed by comprehensive asset plans and
independent external assessments of market
conditions and forecasts.
Regular portfolio analysis ensures the portfolio
is correctly positioned in terms of location
and asset type, and retains the right balance
of core and opportunity assets. The annual
asset planning exercise provides a bottom-up
assessment of the performance and potential
for all assets to identify underperforming
assets that are considered for sale.
The uncertainty associated with Brexit may
adversely impact investment, capital, financial
(including FX), occupier and labour markets
in the UK as the nature and timing of exit and
future relationships are negotiated.
In most scenarios there may be extended
periods of uncertainty, leading to market
impacts that are less acute but persistent.
In the event of a ‘no deal’ disorderly Brexit
these impacts could be acute.
In the long term, exit from the EU could
impact levels of investor and occupier
demand as a result of reduced trade and/or
the relocation of corporations and financial
institutions away from the UK.
Nevertheless, the likelihood of severe adverse
impact on the Group is judged to be low.
MITIGATIONS
We have engaged in dialogue with key
customers, and with key suppliers to
understand labour and material supply risks.
To date, we have not observed significant
adverse factors. Structural drivers of demand
appear to have continued to outweigh any
Brexit-related uncertainties.
The Group has, however, continued to adopt
a disciplined approach to land acquisition and
speculative development.
The Group’s strategy provides resilience
through the market cycle. As well as the
underlying quality and diversity of the
portfolio, mitigations include substantial
covenant headroom, access to diverse sources
of funding, FX and interest rate hedging, and
short, responsive development lead-times.
IMPACT ON STR ATEGY
IMPACT ON STR ATEGY
IMPACT ON STR ATEGY
CHANGE IN 2018
CHANGE IN 2018
CHANGE IN 2018
THE INCRE ASED R ATING IS A REFLECTION
OF PERSISTING UNCERTAINT Y AS DE ADLINES
BECOME IMMINENT.
RESIDUAL RISK WITHIN APPETITE?
RESIDUAL RISK WITHIN APPETITE?
RESIDUAL RISK WITHIN APPETITE?
OVERSEEN BY: EXECUTIVE COMMIT TEE
OVERSEEN BY: EXECUTIVE COMMIT TEE
OVERSEEN BY: EXECUTIVE COMMIT TEE
FURTHER INFORMATION: THE MARKET OUTLOOK
IS DETAILED IN THE CHIEF EXECUTIVE’S
STATEMENT ON PAGES 06-08.
FURTHER INFORMATION: THE MARKET OUTLOOK
IS DETAILED IN THE CHIEF EXECUTIVE’S
STATEMENT ON PAGES 06-08.
FURTHER INFORMATION: THE GROUP ’S RESPONSE
TO THIS RISK IS DESCRIBED ON PAGE 52.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 57
DISCIPLINED
CAPITAL ALLOCATION
OPER ATIONAL
EXCELLENCE
EFFICIENT CAPITAL AND
CORPOR ATE STRUCTURE
INCRE ASED RISK
SIMIL AR RISK
DECRE ASED RISK
4. HEALTH AND SAFETY
5. FINANCING STRATEGY
6. DEVELOPMENT PLAN EXECUTION
Health and safety management processes
could fail, leading to a loss of life, litigation,
fines and serious reputational damage to
the Group.
The Group could suffer an acute liquidity
or solvency crisis, financial loss or financial
distress as a result of a failure in the design or
execution of its financing strategy.
The Group has an extensive current
programme and future pipeline of
developments. The Group could suffer
significant financial losses from:
This is a continuous risk with a low likelihood
of causing significant harm to the Group.
Nevertheless, we note that this risk is
somewhat increased by the scale of the
Group’s development activity.
MITIGATIONS
The Group manages an active health and
safety management system, with a particular
focus on managing the quality and compliance
to good health and safety practice of
construction and maintenance contractors.
A published Health and Safety policy is
backed up by independent site inspections of
both existing assets as well as development
projects against SEGRO’s Health & Safety
Construction Standard.
We continue to improve health and safety
standards on our construction sites, and
work more closely with our contractors and
health and safety consultants to increase
understanding and implementation of
SEGRO’s requirements.
We have undertaken a comprehensive review
of all industrial estates across the Group’s
portfolio to assess the potential pedestrian
and traffic movement risk. Those estates that
were considered high risk were independently
assessed by traffic management experts and
recommendations actioned appropriately.
Such an event may be caused by: a failure
to obtain debt funding (e.g. due to market
disruption or rating downgrade); having
an inappropriate debt structure (including
leverage level, debt maturity, interest rate
or currency exposure); poor forecasting;
default on loan agreements as a result of a
breach of financial or other covenants; or
counterparty default.
This is both a short and a long-term risk with a
very low likelihood.
MITIGATIONS
The Group’s financing strategy is aligned with
our long-term business strategy, the Medium
Term Plan and our risk appetite. The Treasury
policy defines key policy parameters and
controls to support execution of the strategy.
The Group regularly reviews its changing
financing requirements in the light of
opportunities and market conditions.
Financing activity in 2018 (see pages 31-37)
has strengthened the balance sheet, increased
average debt maturity, lowered the average
cost of debt, and demonstrated our ability to
access a range of debt capital markets.
££ Cost over-runs on larger, more
complex projects.
££ Increased competition and/or construction
costs (from labour market changes
or weakened supply competition)
leading to reduced or uneconomic
development yields.
££ Above-appetite exposure to non-income
producing land, infrastructure and
speculatively developed buildings arising from
a sharp deterioration in occupier demand.
This is a medium-term risk with a
moderate likelihood.
MITIGATIONS
Our appetite for exposure to non-
income producing assets (including land,
infrastructure and speculative developments) is
monitored closely.
We retain a high level of ‘optionality’ in our
future development programme including at
the point of land acquisition, commitment to
infrastructure and commitment to building.
The development programme remains
weighted towards pre-let opportunities.
Liquidity remains strong and there is
substantial headroom against all of our
financial covenants.
The risk of cost-overruns is mitigated by our
experienced development teams and the use
of trusted advisors and contractors.
Our short development lead-times enable a
quick response to changing market conditions.
IMPACT ON STR ATEGY
IMPACT ON STR ATEGY
IMPACT ON STR ATEGY
CHANGE IN 2018
THE INCRE ASED R ATING REFLECTS THE GROUP ’S
LEVEL OF DEVELOPMENT ACTIVIT Y AND GRE ATER
FOCUS ON OPER ATIONAL SAFET Y.
CHANGE IN 2018
THE REDUCED R ATING REFLECTS THE FINANCING
ACTIVIT Y UNDERTAKEN IN 2018 AND THE GRE ATER
RESULTING LIQUIDIT Y AND HE ADROOM.
CHANGE IN 2018
RESIDUAL RISK WITHIN APPETITE?
RESIDUAL RISK WITHIN APPETITE?
RESIDUAL RISK WITHIN APPETITE?
OVERSEEN BY: OPER ATIONS COMMIT TEE;
EXECUTIVE COMMIT TEE
FURTHER INFORMATION: HE ALTH AND SAFET Y IN
OUR SUPPLY CHAIN IS DISCUSSED ON PAGE 43.
OVERSEEN BY: EXECUTIVE COMMIT TEE
OVERSEEN BY: EXECUTIVE COMMIT TEE,
OPER ATIONS COMMIT TEE
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 58
PRINCIPAL RISKS
PRINCIPAL RISKS
CONTINUED
DISCIPLINED
CAPITAL ALLOCATION
OPER ATIONAL
EXCELLENCE
EFFICIENT CAPITAL AND
CORPOR ATE STRUCTURE
INCRE ASED RISK
SIMIL AR RISK
DECRE ASED RISK
7. INVESTMENT PLAN EXECUTION
8. POLITICAL AND REGULATORY
9. OPERATIONAL DELIVERY
The Group could fail to anticipate significant
political, legal, tax or regulatory changes,
leading to a significant un-forecasted financial
or reputational impact.
In general, regulatory matters present
medium- to long-term risks with a low
likelihood of causing significant harm to
the Group.
Political risks could impact business confidence
and conditions in the short and longer terms.
MITIGATIONS
Emerging risks in this category are reviewed
regularly by the Executive Committee.
Corporate heads of function consult with
external advisers, attend industry and specialist
briefings, and sit on key industry bodies such
as EPRA and BPF.
A number of potential risks were identified,
assessed and managed during the course of
the year. None were individually considered
to be material enough to be classified as
principal risks.
Decisions to buy, hold, sell or develop assets
could be flawed due to uncertainty in analysis,
quality of assumptions, poor due diligence
or unexpected changes in the economic or
operating environment.
Our investment decisions could be
insufficiently responsive to implement our
strategy effectively.
This is a continuous risk with a moderate
likelihood as changing investment and
occupier market conditions require
constant adaptation.
MITIGATIONS
Asset plans are prepared annually for all
estates to determine where to invest capital
in existing assets and to identify assets
for disposal.
Locally-based property investment
and operational teams provide market
intelligence and networking to source
attractive opportunities.
Policies are in place to govern evaluation, due
diligence, approval, execution and subsequent
review of investment activity.
The Investment Committee meets frequently
to review investment and disposal proposals
and to consider appropriate capital allocation.
Investment hurdle rates are regularly
reappraised taking into account estimates of
our weighted average cost of capital.
Major capital investment and disposal
decisions are subject to Board approval.
AND COMPLIANCE
The Group’s ability to protect its reputation,
revenues and shareholder value could be
damaged by operational failures such as:
environmental damage; failing to attract,
retain and motivate key staff; a breach of anti-
bribery and corruption or other legislation;
major customer default; supply chain failure;
the structural failure of one of our assets;
a major high-profile incident involving one
of our assets; a cyber-security breach; or
failure to respond to the consequences of
climate change.
Compliance failures, such as breaches of
joint venture shareholders’ agreements,
loan agreements or tax legislation could
also damage reputation, revenue and
shareholder value.
This is a continuous risk with a low likelihood
of causing significant harm to the Group.
MITIGATIONS
The Group maintains a strong focus on
Operational Excellence. The Executive,
Operations, and Business Information Systems
Committees regularly monitor the range of
risks to property management, construction,
compliance, business continuity, organisational
effectiveness, customer management and
cyber security.
The Group’s tax compliance is managed by
an experienced internal tax team. REIT and
SIIC tax regime compliance is demonstrated
at least bi-annually. Compliance with joint
venture shareholder agreements is managed
by experienced property operations, finance
and legal staff. The SELP JV additionally has
comprehensive governance and compliance
arrangements in place, including dedicated
management, operating manuals, and
specialist third-party compliance support.
IMPACT ON STR ATEGY
IMPACT ON STR ATEGY
IMPACT ON STR ATEGY
CHANGE IN 2018
CHANGE IN 2018
THE INCRE ASED R ATING REFLECTS LEVELS OF
POLITICAL UNCERTAINT Y IN MARKETS INCLUDING
THE UK, ITALY, FR ANCE AND GERMANY.
CHANGE IN 2018
RESIDUAL RISK WITHIN APPETITE?
RESIDUAL RISK WITHIN APPETITE?
RESIDUAL RISK WITHIN APPETITE?
OVERSEEN BY: EXECUTIVE COMMIT TEE;
INVESTMENT COMMIT TEE
FURTHER INFORMATION: THE MARKET OUTLOOK
IS DETAILED IN THE CHIEF EXECUTIVE’S
STATEMENT ON PAGES 06-08.
OVERSEEN BY: EXECUTIVE COMMIT TEE
OVERSEEN BY: OPER ATIONS COMMIT TEE;
BUSINESS INFORMATION SYSTEMS COMMIT TEE;
EXECUTIVE COMMIT TEE
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
59
GOVERNANCE
CHAIR’S INTRODUCTION
BOARD OF DIRECTORS
GOVERNANCE FR AMEWORK
LEADERSHIP TEAM
GOVERNANCE REPORT
NOMINATION COMMIT TEE REPORT
AUDIT COMMIT TEE REPORT
DIRECTORS’ REMUNER ATION REPORT
DIRECTORS’ REMUNER ATION POLICY
DIRECTORS’ REPORT
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
60
62
66
68
70
77
79
84
100
106
108
60
GOVERNANCE
CHAIR’S INTRODUCTION
High standards of
governance are
fundamental to the
long-term success of
the Company.”
GER ALD CORBET T
CHAIR
2018 continued to build on the success of
recent years and was another positive year
for the Company. Full credit must be given to
David and the experienced management team
for delivering another set of strong results and
ensuring that the Company is well positioned
for the challenges and economic uncertainty
that 2019 may bring.
Our active development pipeline has
facilitated the further growth of our portfolio
and enabled us to create over 650,000 sq m
of new space – another record year for
the Company. The successful execution of
the development programme has created
significant value. Coupled with this, intelligent
asset acquisitions, disposals and swaps,
and partnerships, together with active
asset management, have also significantly
strengthened our balance sheet leaving
us very well placed as we approach our
centenary year.
GOVERNANCE
The Board believes that the effective delivery
of strategy can only happen against a
background of good corporate governance,
and throughout the year we complied with the
UK Corporate Governance Code 2016 (the
Code). We have also embraced the spirit of the
UK Corporate Governance Code 2018 (the
New Code) which we are obliged to comply
with from 2019. As you will see throughout
this Report, we already observe many of
the principles of the New Code. We are
supportive of its themes and sentiment, and
are mindful, in an environment of increased
social responsibility, that we cannot exist in
isolation. We have a duty not only to our
stakeholders, but to the wider communities
in which we operate, to help promote and
create prosperity and employment. For more
information on how we do this, see the
Responsible SEGRO section on pages 44
and 45.
The Company’s culture sets the tone for good
governance. The ability for Board members
to speak freely and have their thoughts heard
in a challenging yet supportive and open
environment is essential for the Board to work
effectively to ensure the Company’s delivery
of strategy and successful achievement of its
long-term business objectives. The Board likes
to live up to the Company’s Value to ‘say it like
it is’ in meetings.
We remain mindful of the benefits of a diverse
Board and we continue to be a member and
supporter of the 30% Club.
CHANGE AND PLANNING FOR THE FUTURE
2018 continued to be a time of change
for the Board with the retirement of both
Margaret Ford and Mark Robertshaw and the
appointment of Carol Fairweather and Sue
Clayton. We have also recently announced
the appointment of Mary Barnard who will
become a Non-Executive Director on 1 March
2019. I would like to take this opportunity
to thank Margaret and Mark once again for
their valued contribution to the Board, and to
welcome Carol, Sue and Mary.
Martin Moore became the Senior
Independent Director following Margaret’s
retirement and has carried out this role in a
conscientious and supportive manner. I have
appreciated his support and I would like to
extend my thanks to him for taking on this
important role.
Doug Webb will be stepping down as Audit
Committee Chair following our AGM, to be
replaced by Carol. I wish Carol well in her
new role and thank Doug for his leadership
of the Audit Committee during his tenure.
Despite these changes, there was a reassuring
level of stability with the remainder of the
Board – there were old eyes, despite the fresh
look. I feel that the Board is well settled and
stable, with a clear view on how it can support
the Company to deliver its strategy.
I am delighted that I will be continuing in
office and am excited to Chair the Company
as it continues to deliver on strategy into its
100th year.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 61
As detailed in my last two reports, longer-term
succession planning for the Non-Executive
Directors has been a particular area of focus
for the Nomination Committee and the
work we have done on that front is reported
on in the Nomination Committee Report
on page 77. We take succession planning
seriously not only at Board and Committee
level, but also throughout our Leadership
team to ensure there are people ready and
waiting to step up to the Board as and when
needed. Because of this, we take a particular
interest in the work that the Company does
on talent management and diversity, and the
Board takes the time to really get to know its
senior employees.
ENHANCING THE BOARD’S KNOWLEDGE
OF THE BUSINESS AND ITS KEY
STAKEHOLDERS
The Company’s ability to work successfully
with others, whether partners, customers,
shareholders or other stakeholders, has been
a key component of the effective delivery
of the business strategy. During 2018, we
acquired the management platform of Roxhill,
following our initial partnership with them
in 2016, and welcome the Roxhill team to
SEGRO. This has not only brought a number
of fantastic employees to the Group, bringing
fresh thinking and new ideas – a real marriage
of our culture with an entrepreneurial and
exciting group of people – but has also given
the business access to a quality portfolio of
big box warehouse development sites in
the Midlands.
During the year, we have also celebrated the
five-year anniversary of SELP which continues
to perform extremely well and which is
discussed further on page 20. We have
enjoyed a good working relationship with our
joint venture partner, PSP Investments.
We continue to appreciate and value the
support and engagement we have from
our shareholders, both large and small.
We appreciated the dialogue we have had
with many of our larger shareholders as part
of our consultation on a new Remuneration
Policy, which is detailed further on pages 86
and 88.
OUR PEOPLE
Each year the Board visits at least one region
in the UK and one in Continental Europe and
during 2018, it was East London and Warsaw.
By leaving the boardroom, we ensure that
the Board will get to meet as many of our
employees as possible. We do of course get a
chance to meet some senior employees during
our meetings. We recognise that we have an
extraordinary team of people at SEGRO who
are the cornerstone of the success that the
Company has enjoyed in recent years. This is
something that we are very proud about as
we recognise that our success would not be
possible without our great teams across the
business. On behalf of the Board, I thank
all of our employees for their enthusiasm,
commitment and hard work.
THE YEAR AHEAD
We have a clear and effective strategy, a
strong balance sheet and an experienced team
which should enable us to be well placed and
ready for the ever changing economic and
political environment. We are also cognisant
of the impact of technology and 'Proptech'
innovations, and their ability to help drive
long-term sustainable returns.
As well as providing support and guidance
to the business on its delivery of strategy;
succession planning, talent management,
diversity and development will continue
to be a focus both at Board level and
Committee level.
High standards of governance drive long-
term sustainable investment and success, and
this Report seeks to show you how we have
sought to put this into practice. The Board, as
steward of the Company, is responsible to our
shareholders, customers, employees and other
stakeholders for the success of the Company,
and it is a responsibility we are proud of and
take very seriously.
GER ALD CORBET T
CHAIR
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 62
GOVERNANCE
GOVERNANCE REPORT
BOARD OF DIRECTORS
GER ALD CORBETT
CHAIR
DAVID SLEATH
CHIEF EXECUTIVE
SOUMEN DAS
CHIEF FINANCIAL OFFICER
• CHAIR OF THE NOMINATION COMMIT TEE
Current Appointments
Gerald joined the Board on 1 March 2016, and was
appointed Chair on 22 April 2016. He is currently
Chair of the Marylebone Cricket Club.
Previous Appointments
Gerald’s previous public company chairmanships
include Betfair, Britvic plc, Moneysupermarket.com,
Numis Corporation plc, SSL International plc and the
Woolworths Group plc. He has also served as a Non-
Executive Director of MEPC, Greencore Group and
Burmah Castrol.
Experience
Gerald has been a director of 13 public companies,
seven of which he has chaired. His executive career
included periods as Finance Director of Redland and
Grand Metropolitan and he was Chief Executive of
Railtrack. His experience as a director and a Chair
across various sectors is helpful for bringing strategic
insight to the boardroom and the business.
Relevant Skills
Executive FTSE Listed, Banking, Finance, International.
Current Appointments
David was appointed Chief Executive on 28 April
2011, having served as Finance Director since
1 January 2006.
Previous Appointments
David has held a number of senior finance roles,
including Finance Director of Wagon plc and partner
at Arthur Andersen, where he worked for 17 years.
He was a board member of the European Public Real
Estate Association from 2011 until 2017, and President
of the British Property Federation 2016-2017. He was
Non-Executive Director of Bunzl plc from 2007 to
2017, where he served as Senior Independent Director
and Audit Committee Chair.
Experience
David has considerable knowledge of the Company
and the real estate sector and has experience of
financial and general management, the automotive
engineering and manufacturing sectors of the
professional services industry. This experience
has helped lead to the successful design and
implementation of the Company’s strategy during
his tenure as Chief Executive. David is a Fellow of
the Institute of Chartered Accountants in England
and Wales.
Relevant Skills
Executive FTSE Listed, Real Estate,
Finance, International.
Current Appointments
Soumen was appointed as Chief Financial Officer on
16 January 2017.
Previous Appointments
Soumen was previously Managing Director and Chief
Financial Officer at Capital & Counties Properties plc
(Capco) which he joined from Liberty International plc,
having coordinated the demerger of the companies
in 2010. Prior to this, he spent two years as a partner
in Mountgrange Investment Management LLP (now
Clearbell Capital) and nine years at UBS, where he
was an Executive Director within the investment bank,
specialising in real estate.
Experience
Soumen leads the Company’s finance function and
has been Chief Financial Officer at Board level of
listed companies for nine years. His background as
an experienced corporate financier and track record
of negotiating complex corporate transactions prove
valuable to the Board and business.
Relevant Skills
Executive FTSE Listed, Real Estate, Banking,
Finance, International.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 63
ANDY GULLIFORD
CHIEF OPER ATING OFFICER
PHIL REDDING
CHIEF INVESTMENT OFFICER
MARY BARNARD
INDEPENDENT NON-EXECUTIVE DIRECTOR
Current Appointments
Andy was appointed Chief Operating Officer in
November 2011, having joined the Company in
2004. He was appointed as an Executive Director on
1 May 2013.
Current Appointments
Phil was appointed Chief Investment Officer in
November 2011, having joined the Company in
1995. He was appointed as an Executive Director on
1 May 2013.
Previous Appointments
Andy was previously Managing Director for
Continental Europe. Prior to this, he was the Director
of Corporate Acquisitions and Business Development
Director. Before joining SEGRO, Andy spent 19 years
at Jones Lang LaSalle, latterly as European Director for
the company’s industrial and logistics business.
Experience
Andy has worked in a variety of real estate roles and
brings extensive knowledge of the Company and
the real estate sector in both the UK and Continental
Europe. He has been influential in the successful
delivery of a record number of development
completions for the Company as well as for its strong
operational performance. Andy is a member of the
Royal Institution of Chartered Surveyors (MRICS).
Previous Appointments
Phil started his career in 1990, holding a number of
positions in the Industrial Agency and Development
team of King Sturge. Since joining SEGRO, he has
undertaken a variety of roles including Head of
Leasing and Marketing, Head of New Business and,
prior to becoming Chief Investment Officer, Business
Unit Director for London Markets.
Experience
Phil has over 25 years’ experience in the real estate
sector and extensive knowledge of the Company and
its portfolio. Phil was instrumental in the successful
reshaping of the Company’s portfolio and continues to
have a key role in the implementation of the Group’s
strategy. Phil is a member of the Royal Institution of
Chartered Surveyors (MRICS).
Relevant Skills
Executive FTSE Listed, Real Estate, International.
Relevant Skills
Executive FTSE Listed, Real Estate, International.
• MEMBER OF THE NOMINATION COMMIT TEE
• MEMBER OF THE REMUNER ATION COMMIT TEE
Current Appointments
Mary will be appointed as Non-Executive Director
with effect from 1 March 2019. She is currently the
Region President of Chocolate Category, Europe,
for Mondele-z International Inc., the multinational
confectionery, food and beverage corporation,
having responsibility for the commercial leadership
of operations in the European chocolate market.
She is also President of CAOBISCO, which represents
the European chocolate, confectionery and biscuit
industries, focusing on creating value across the
supply chain.
Previous Appointments
Mary was previously Senior Vice President and
General Manager for the Pepsi-Lipton Partnership,
based in New York, with responsibility for all core
business operations, including sales, marketing
and R&D. She was also a Non-Executive Director
of Poundland Group plc 2015-2016, Chair of the
Cadbury Foundation from 2014 until 2016 and an
EXCO member of the Food & Drink Federation
and the Institute of Grocery Distribution from 2014
until 2016.
Experience
Mary has extensive commercial and General
Management experience, and a deep understanding
of customer needs and trends, through her various
international roles in sales and marketing. She also
has a strong knowledge of the operation of the retail
market and supply chain.
Relevant Skills
International.
CONTINUED
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 64
GOVERNANCE
GOVERNANCE REPORT
BOARD OF DIRECTORS
CONTINUED
SUE CLAYTON
INDEPENDENT NON-EXECUTIVE DIRECTOR
CAROL FAIRWEATHER
INDEPENDENT NON-EXECUTIVE DIRECTOR
CHRISTOPHER FISHER
INDEPENDENT NON-EXECUTIVE DIRECTOR
• MEMBER OF THE AUDIT COMMIT TEE
• MEMBER OF THE AUDIT COMMIT TEE
• CHAIR OF THE REMUNER ATION COMMIT TEE
• MEMBER OF THE NOMINATION COMMIT TEE
• MEMBER OF THE NOMINATION COMMIT TEE
• MEMBER OF THE AUDIT COMMIT TEE
Current Appointments
Sue was appointed as Non-Executive Director on
1 June 2018. She is currently a part-time Executive
Director at CBRE and Chair of their UK Women’s
Network, Non-Executive Director at Helical plc, a
member of the Committee of Management at the
Hermes Property Unit Trust and Chair of the Barwood
2017 Property Fund. She is a founder member of Real
Estate Balance and is a Trustee of the Reading Real
Estate Foundation.
Previous Appointments
Sue joined Richard Ellis as a graduate and worked
in valuation and fund management before moving
into Investment Agency. She was an equity partner
at Richard Ellis prior to its acquisition by Insignia and
was head of National Investment before the merger
with the CB Group in 2003, following which she
became Managing Director, Capital Markets at CBRE
until 2007. She has sat on the CBRE UK Management
and Executive Boards and was on the CBRE Group
Inc Board from 2007 to 2009 as the Employee
Director Observer.
Experience
Sue brings a wealth of property market knowledge
to the Board, with over 30 years of experience in
UK investment markets. Sue is a Fellow of the Royal
Institution of Chartered Surveyors.
Relevant Skills
Real Estate.
Current Appointments
Carol was appointed as Non-Executive Director on
1 January 2018. She is currently a Non-Executive
Director of Smurfit Kappa Group plc and a trustee
of Somerset House Trust.
Previous Appointments
Carol was Chief Financial Officer of Burberry
Group plc from 2013 to 2017, having worked in
senior financial roles within the company since
2006. Prior to that, Carol was Director of Finance
at News International Ltd and UK Regional Controller
at Shandwick plc. She began her career at Ernst
& Young.
Experience
Carol has finance experience and brings commercial
knowledge to the Board. Her experience in her former
role as Chief Financial Officer of the retailer Burberry
Group is valuable to the Company as it seeks to help
customers adapt to the e-commerce revolution.
Relevant Skills
Executive FTSE Listed, Finance, International.
• MEMBER OF THE NOMINATION COMMIT TEE
Current Appointments
Christopher joined the Board on 1 October 2012.
He is currently a Non-Executive Director of National
Savings & Investments and chairs the Marshall
Scholarship Programme. He is also a Senior Advisor
at Penfida Limited.
Previous Appointments
Christopher spent most of his career at Lazard,
latterly as a Managing Director. He subsequently
worked at KPMG as Vice Chair, Corporate Finance,
and at Penfida Limited, the corporate finance
adviser to pension fund trustees, as a Senior Partner.
On corporate Boards, he has held appointments as
Chair of Bank of Ireland UK and Southern Cross
Healthcare and as a Non-Executive Director of Kelda,
the FTSE 100 water group. He has also chaired the
governing body of the University of Reading and has
served as a Trustee of the Imperial War Museum.
Experience
Christopher has a financial background, having spent
his career in corporate finance and has some 15 years’
of listed Board experience. His knowledge of large
scale, international business, coupled with his financial
expertise, brings a range of insights to the Board.
Relevant Skills
Banking, Finance.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 65
ELIZABETH BLEASE
GENER AL COUNSEL AND GROUP
COMPANY SECRETARY
Elizabeth joined SEGRO as General Counsel and
Group Company Secretary in May 2008. She qualified
as a solicitor in 1992 with Addleshaw Goddard and
was previously Group Company Secretary at Brammer
plc and Marshalls plc.
MARTIN MOORE
SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR
DOUG WEBB
INDEPENDENT NON-EXECUTIVE DIRECTOR
• MEMBER OF THE AUDIT COMMIT TEE
• CHAIR OF THE AUDIT COMMIT TEE
• MEMBER OF THE NOMINATION COMMIT TEE
• MEMBER OF THE NOMINATION COMMIT TEE
• MEMBER OF THE REMUNER ATION COMMIT TEE
• MEMBER OF THE REMUNER ATION COMMIT TEE
Current Appointments
Martin was appointed as Non-Executive Director
on 1 July 2014. He is currently Chair of Secure
Income REIT plc, Senior Independent Director of F&C
Commercial Property Trust Ltd and Senior Adviser at
Kohlberg Kravis Roberts & Co. LLP.
Current Appointments
Doug was appointed as a Non-Executive Director
on 1 May 2010. He is currently Non-Executive
Director of BMT Group Ltd and a member of
the Investment Advisory Committee of Fitzwilliam
College, Cambridge.
Previous Appointments
Martin was Chief Executive at M&G Real Estate from
1996 and Chair from 2012 until his retirement in
2013. He has been an Adviser and Commissioner of
The Crown Estate, a Board member and President of
the British Property Federation, and a Board member
and Chair of the Investment Property Forum. He was
also a Commissioner of Historic England and a Non-
Executive Director of the M&G Asia Property Fund,
retiring from both in 2017.
Experience
Martin has over 40 years’ of real estate experience
and knowledge of the property sector. He brings both
industry knowledge and breadth of practice, having
spent his career at Prudential plc. Martin is a member
of the Royal Institution of Chartered Surveyors
(MRICS).
Relevant Skills
Real Estate.
Previous Appointments
Between 2013 and 2018 Doug was Chief Financial
Officer of Meggitt plc, and prior to that he was Chief
Financial Officer of London Stock Exchange Group
plc. He has also been Chief Financial Officer of
QinetiQ Group plc, and Finance Director Continental
Europe and Chief Financial Officer North America
at Logica plc. Prior to these appointments he spent
12 years at Price Waterhouse.
Experience
Doug comes from a corporate financial management
background and has over 12 years’ Board level
experience as a Chief Financial Officer of listed
companies. That strong listed company and finance
background, coupled with his current financial
experience allows him to bring substantial insight to
the Board, particularly with regards to the Group’s
financial management. He is a Fellow of the Institute
of Chartered Accountants in England and Wales.
Relevant Skills
Executive FTSE Listed, Finance, International.
Baroness Ford and Mark Robertshaw were Directors
during 2018, resigning on 19 April 2018 and 31 July
2018 respectively.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 66
GOVERNANCE
GOVERNANCE REPORT
GOVERNANCE FRAMEWORK
GOVERNANCE FR AMEWORK
THE BOARD
RESPONSIBLE FOR
CREATING AND
DELIVERING SUSTAINABLE
SHAREHOLDER VALUE
NOMINATION COMMITTEE
AUDIT COMMITTEE
REMUNERATION COMMITTEE
BOARD COMMITTEES
Ensures that the Board,
its Committees and the
Leadership team has the
appropriate skills, knowledge,
diversity and experience
to operate effectively and
to oversee delivery of
the strategy.
Monitors the integrity of the
Group’s Financial Statements,
reviews the relationship with
the auditor and the role and
effectiveness of the internal
audit function.
Oversees the risk
management process and
internal control environment.
Determines the reward
strategy for the Executive
Directors to align their
interests with those of
shareholders and employees.
EXECUTIVE COMMITTEE
MANAGEMENT COMMITTEES
ASSISTS THE CHIEF EXECUTIVE
WITH THE DEVELOPMENT AND
IMPLEMENTATION OF GROUP
STRATEGY, THE MANAGEMENT
OF THE BUSINESS AND THE
DISCHARGE OF RESPONSIBILITIES
DELEGATED BY THE BOARD.
OPERATIONS COMMITTEE
RISK COMMITTEE
INVESTMENT COMMITTEE
Assists the Chief Operating
Officer to manage
the operations of the
Group and to discharge
the responsibilities
delegated to him by the
Executive Committee.
Establishes, monitors and
reports to the Executive
Committee and ultimately the
Board and Audit Committee
on the Group’s approach to
risk management.
Manages the allocation of
capital across the Group
and oversees all major
investment and divestment
decisions on behalf of the
Executive Committee.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
GOVERNANCE FR AMEWORK
67
GOVERNANCE REPORT
RESPONSIBILITIES OF THE BOARD
ROLE
CHAIR
RESPONSIBILITIES
• Leads the Board and is responsible for its overall effectiveness in directing
GER ALD CORBET T
the Company.
• Sets the agenda, style and tone of Board discussions to promote constructive
debate and effective decision making.
• Ensures that the corporate governance of the Group is maintained in line with
current best practice.
• Takes the necessary steps to ensure that all Directors receive the accurate,
clear and timely information which they require to enable them to make sound
decisions, to monitor the business effectively and to fulfil their duty to promote
the success of the Company.
• Ensures effective communication with shareholders and stakeholders and
makes sure that the members of the Board develop an understanding of the
views of major investors.
• Manages the business of the Group.
• Ensures that the interests of the Group’s stakeholders are taken into account
with regard to the long-term impact the Group’s decisions may have on
various stakeholder groups.
• Recommends the Group’s strategy to the Board and is responsible for the
implementation of that strategy and for the Group’s overall performance.
CHIEF EXECUTIVE
DAVID SLEATH
EXECUTIVE DIRECTORS
• Manage the business operations within each Director’s area of responsibility in
SOUMEN DAS
ANDY GULLIFORD
PHIL REDDING
SENIOR INDEPENDENT
NON-EXECUTIVE DIRECTOR
MARTIN MOORE
accordance with the Group’s strategy.
• Acts as a sounding board to the Chair and serves as an intermediary for other
Directors when necessary.
• Available to shareholders should the occasion arise where there is a need
to convey concerns to the Board other than through the Chair or the
Chief Executive.
• Leads the annual appraisal of the Chair by the Non-Executive Directors.
INDEPENDENT
NON-EXECUTIVE DIRECTORS
• Bring independent judgement and scrutiny to the decisions taken by
the Board.
MARY BARNARD
SUE CLAY TON
CAROL FAIRWEATHER
CHRISTOPHER FISHER
DOUG WEBB
• Monitor the success of management in delivering the agreed strategy within
the risk appetite and control framework set by the Board.
GROUP COMPANY SECRETARY
• Responsible for advising the Board on all governance matters.
ELIZABETH BLEASE
• Ensures timely and appropriate information flows within the Board, the Board
Committees and between the Directors and senior management.
• Ensures compliance with all relevant statutory and regulatory requirements.
• Gives guidance and advice within the Company on matters of business ethics
and good governance.
• Is available to give detailed practical support and guidance to Directors both
individually and collectively.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 68
GOVERNANCE
GOVERNANCE REPORT
EXPERIENCED LEADERSHIP
SEGRO’s Leadership team comprises the
members of the Executive Committee and
their senior direct reports, each of whom has
responsibility for the Group’s operations or
investment activities in a particular geography,
or for one or more of the Group’s main
functional areas.
The Leadership team serves as a useful
discussion forum and sounding board with
which the Executive Directors can share
knowledge and ideas and gain a better
understanding of the local market outlook.
The Leadership team normally meets three
times a year and reviews areas such as:
Whilst the day to day management of the
Group’s activities and the governance and
oversight thereof are carried out under
the structures described on page 66, the
Leadership team also meets periodically to
share market knowledge and to discuss areas
of cross-functional and cross-border interest.
£ market conditions and competitor activity;
£ future trends affecting our customers’
businesses and which may impact SEGRO;
£ interests of the Group’s stakeholders;
£ specific strategy related topics which have
been or are due to be presented to the
Board (including topics covered at the
Board Strategy Day – see page 74);
£ the Group’s asset plans and Medium
Term Plan;
£ development and implementation of the
Group’s culture and Values including our
approach to diversity and inclusion in its
broadest sense; and
£ the results of the Group’s biennial employee
engagement survey.
The Leadership team is also consulted
and kept informed about Company-wide
activities and performance through dedicated
conference calls.
ELIZABETH BLEASE
GENER AL COUNSEL & GROUP COMPANY SECRETARY
LAURENCE GIARD
HE AD OF CORPOR ATE ACQUISITIONS
JIM HARTLEY
BUSINESS UNIT DIRECTOR, NORTHERN EUROPE
JOINED THE BUSINESS
21 APRIL 2008
JOINED THE BUSINESS
30 MAY 2008
JOINED THE BUSINESS
3 SEPTEMBER 2001
ALAN HOLLAND
BUSINESS UNIT DIRECTOR, GRE ATER LONDON
NICK HUGHES
DIRECTOR OF MARKETING & COMMUNICATIONS
GARETH OSBORN
BUSINESS UNIT DIRECTOR, THAMES VALLEY
JOINED THE BUSINESS
13 NOVEMBER 2000
JOINED THE BUSINESS
1 OCTOBER 2013
JOINED THE BUSINESS
3 MAY 1988
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 69
OCTAVIA PETERS
OPER ATIONS FINANCE DIRECTOR
ANDREW PILSWORTH
BUSINESS UNIT DIRECTOR, NATIONAL LOGISTICS
JAMES POWER
DIRECTOR OF DIGITAL & TECHNOLOGY
JOINED THE BUSINESS
16 OCTOBER 2006
JOINED THE BUSINESS
5 OCTOBER 2009
JOINED THE BUSINESS
6 AUGUST 2010
DAVID PROCTOR
HE AD OF INVESTMENT, CONTINENTAL EUROPE
SIMON PURSEY
HE AD OF UK INVESTMENT
JOINED THE BUSINESS
1 OCTOBER 2004
JOINED THE BUSINESS
2 JUNE 2008
LIZ REILLY
GROUP HR DIRECTOR
JOINED THE BUSINESS
5 JULY 2010
MARCO SIMONETTI
BUSINESS UNIT DIRECTOR, SOUTHERN EUROPE
HARRY STOKES
COMMERCIAL FINANCE DIRECTOR
MAGDALENA SZULC
BUSINESS UNIT DIRECTOR, CENTR AL EUROPE
JOINED THE BUSINESS
1 OCTOBER 2007
JOINED THE BUSINESS
14 OCTOBER 2013
JOINED THE BUSINESS
2 SEPTEMBER 2002
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 70
GOVERNANCE
GOVERNANCE REPORT
ROLE AND RESPONSIBILITIES
OF THE BOARD
The Board is collectively responsible for
promoting the long-term sustainable success
of the Group. Its aim is to create and generate
value for shareholders whilst being mindful
of the interests of other key stakeholders.
Details of how the Company delivers
sustainable shareholder value are set out in
the Strategic Report from page 6.
Promoting the success of the Company
informs all of the decisions that the Board
takes, from the strategic direction of the
Company, through to its relationship with the
Group’s employees; the impact of the business
on the community; the environment; and the
interests of other key stakeholders, including
its customers and suppliers. See pages 75 and
76 for further information.
INDEPENDENCE OF THE
NON-EXECUTIVE DIRECTORS
Details of the Directors, including the skills
and experience that they bring to the Board,
are set out on pages 62 to 65. The Board
comprises a Non-Executive Chair, four
Executive Directors, and six independent Non-
Executive Directors, all of whom are equally
responsible for the effective stewardship and
leadership of the Group. Each of the Non-
Executive Directors is considered independent
in character and judgement. The Chair was
considered independent on appointment and
the Board still considers him to be so.
For further details on how the Board has
reached its conclusions on Non-Executive
Director independence, see page 78 of the
Nomination Committee Report.
DIVISIONS OF RESPONSIBILITY
EVALUATION
The Board has a policy of undertaking
externally facilitated evaluations every three
years and internal reviews in the intervening
two years. The results of the external
evaluation are summarised in the Case Study
on the next page.
AVAILABILITY OF THE CHAIR,
THE CHIEF EXECUTIVE AND THE
GROUP COMPANY SECRETARY
The Chair, the Chief Executive and the Group
Company Secretary are always available for
the Directors to discuss any issues concerning
Board meetings or other matters. All Directors
have access to the advice and services of the
Group Company Secretary, who is responsible
for ensuring compliance with Board
procedures. Directors also have the right to
seek independent professional advice at the
Company’s reasonable expense.
DIRECTORS’ AND OFFICERS’
LIABILITY INSUR ANCE
The Company maintains directors’ and
officers’ liability insurance, which gives
appropriate cover for legal action brought
against its Directors.
CONFLICTS
The Board operates a policy to identify and,
when appropriate, manage actual or potential
conflicts of interest affecting Directors.
Directors are required to submit any actual or
potential conflicts of interest they may have
with the Company to the Board for approval.
Any conflicts of interest are recorded and
reviewed by the Board at each meeting.
Directors have a continuing duty to keep
the Board updated about any changes to
these conflicts.
The Chair is responsible for the leadership of
the Board and ensuring its effectiveness on
all aspects of its role. The day to day running
of the Group is delegated by the Board
to the Chief Executive who is supported
by the Executive Committee. The Senior
Independent Director and other Non-
Executive Directors challenge constructively
and hold the Executive Directors accountable
for the delivery of the Company’s strategy.
The division of responsibilities of the Chair,
Chief Executive and Senior Independent
Director are clearly established in writing
and approved by the Board. For further
information on the responsibility of each
Board member, see page 67.
WORK OF THE BOARD
The Board retains responsibility for the
approval of certain matters which include:
Group strategy; the annual budget; the
dividend policy; major investments and
disposals; and the financial structure.
There is an approved Schedule of Matters
Reserved for Decision by the Board, which is
reviewed periodically.
Most Board meetings take place in central
London but during the year meetings and
asset tours took place in Warsaw and East
London. The Board met with management
teams in these locations and had tours of the
Group’s property portfolios.
The Board values meeting and hearing
from different people in the business
who are close to the Company’s markets
and who can tell the Board what they are
seeing and hearing on the ground, as well
as from external sources who give a wider
perspective on market trends. During the
year, presentations were given by Magdalena
Szulc, the Business Unit Director for Central
Europe, Alan Holland, the Business Unit
Director for Greater London, and Jim Hartley,
the Business Unit Director for Northern
Europe, on their business areas. This allows
the Directors to gain further insight on market
trends and provides the context for them to
make strategic decisions about acquisitions,
disposals and the development pipeline.
James Power, Director of Digital & Technology,
also presented on the work to prepare for the
impact of Brexit on the business.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 71
GOVERNANCE REPORT
CASE STUDY: BOARD EVALUATION
As we reported last year, we appointed
Independent Audit to undertake our triennial,
externally facilitated evaluation and this
was conducted in the early part of 2018.
Independent Audit has no other connection
with the Company. The process was divided
into a number of stages:
STAGE 1
Initial meeting with the Chair and General
Counsel and Group Company Secretary
to agree the process and ensure that
Independent Audit were briefed on the
business and the key issues facing the
Board. Independent Audit reviewed all
the Board and Committee papers for the
previous 12 months.
STAGE 2
Interviews were held with each of the
Directors, as well as the General Counsel
and Group Company Secretary and the
Group HR Director.
STAGE 3
Independent Audit observed the Board
meeting in April 2018.
STAGE 4
There was a preliminary feedback meeting
with the Chair, and a separate meeting
with the Senior Independent Director,
to discuss the feedback on the Chair.
STAGE 5
A report setting out the findings of
the review was circulated to the Board.
STAGE 6
Time was allocated to a feedback session
at a Board meeting, with Independent
Audit, to discuss the report and the list
of recommendations.
CONCLUSIONS OF THE REVIEW
The Review confirmed that the Board and its
Committees continued to operate effectively.
It identified a number of positive attributes,
including:
££ a good level of mutual trust and respect;
££ an open and inclusive style and pragmatic
and meritocratic approach;
££ a strong sense of common purpose
and desire to act in the best interest of
the business;
££ Although the Review concluded that the
Board’s approach to executive succession
planning was consistent with good practice,
the Committee has agreed to ensure that
more time be allocated to discussions
around succession planning, leadership
development and talent management.
££ A number of recommendations were
made about the relevant skills and
experience which the Committee may
wish to consider when it next appoints
a Non-Executive Director.
££ an absence of any personal agendas
BOARD CHANGES
or politics;
££ a balanced contribution from members with
no one person dominating the proceedings;
and
££ a good balance between support
and challenge.
The Board benefits from strong corporate
support while information from the
management team is of high quality.
It was acknowledged that, following a long
period of stability, the Board had undergone
a significant amount of change over the
last two years, including the retirement
and appointment of three Directors, and
the internal appointment of a new Senior
Independent Director. This has inevitably
caused a degree of temporary disruption.
Notwithstanding these changes, there was
a unanimous view that the Board is now
benefiting from fresh perspective and
challenge, more gender and ethnic diversity,
a greater degree of creative tension and
strong debate and healthy disagreement.
ACTIONS
The Review was an excellent opportunity for
the Board to stand back and to consider ways
of maximising its strengths and highlighting
areas for further development.
NOMINATION COMMITTEE
££ Following the Review, the Board decided
to change the composition of this
Committee so that it was comprised
of all of the Non-Executive Directors.
££ There was support for the Chair to
maintain a cohesive Board, in particular
in anticipation of a further Non-Executive
Director change during the course of 2019.
The Board collectively agreed to ensure
that new Directors were supported as they
got to know the business and had the
opportunity to spend some informal time
with the other Board members to accelerate
their getting to know each other.
REVIEW OF HOW THE BOARD USES ITS TIME
££ Comments made in the Review prompted
the Board to review and discuss how it
spends its time. It concluded that there
was an appropriate balance of time spent
on strategy, operational matters, risk and
governance but this balance should be kept
under review to ensure that the Board as
a whole derived maximum value from the
Directors when they were together.
££ The Non-Executive Directors encouraged
the Executive Directors to create time
for some unscripted debate and this was
addressed at the Strategy Day in November.
OVERSIGHT OF CULTURE
££ The Review concluded that the Company
has a strong and distinctive culture,
underpinned by clearly articulated values.
Although culture does feature in a number
of Board discussions, it was agreed that it
could be more clearly articulated. In line
with the New Code, the Board have agreed
to have dedicated agenda items about
culture going forward.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 72
GOVERNANCE
GOVERNANCE REPORT
CONTINUED
BOARD COMMITTEES
INDUCTION TR AINING
ONGOING TR AINING
As is the case with all newly appointed
Directors, including Carol last year, Sue
Clayton participated in a comprehensive
induction programme when she joined the
Company, and received detailed information
on the Group and its governance structure.
Sue had a number of individual meetings
with the other Directors, as well as meeting
Business Unit Directors, Heads of Function
and other senior managers. She visited
a number of assets in both the UK and
Continental Europe. She also met with the
PwC audit partner, the KMPG internal audit
partner and the key relationship directors at
the Company’s brokers, UBS and BAML.
Ongoing training is provided to the Board and
to Directors on specific issues (both business
related and regulatory) during the year while
individual Directors attend external courses
which are specific to their area of expertise,
such as remuneration or audit. This helps
to ensure that the Board keeps up to date
with evolving regulatory and legal matters.
From time to time, meetings with specialists
in the business are arranged for Directors
who may wish to gain a deeper insight into a
particular topic, such as derivative and EPRA
accounting. The Directors may also raise any
training needs with the Chair which helps to
ensure the training programme meets the
needs of the Board, individual Directors and
the business.
The Board has delegated a number of its
responsibilities to the Audit, Nomination and
Remuneration Committees. The Terms of
Reference of these Committees can be found
at www.SEGRO.com. Further details on the
roles and responsibilities of these Committees
can be found on page 66.
ATTENDANCE AT BOARD AND BOARD
COMMITTEE MEETINGS
During 2018, there were seven scheduled
Board meetings. The Board also has the
flexibility to meet in person or by telephone
as the need arises on an ad hoc basis.
Each Director has committed to attend all
scheduled Board and Committee meetings
and would not do so only in exceptional
circumstances. Similarly, every effort is made
by Directors to attend ad hoc meetings either
in person or by using conference facilities.
On the rare occasion that a Director cannot
attend a meeting they are still provided with
the papers in advance of the meeting and are
given an opportunity to discuss them with the
Chair or the Chief Executive.
Attendance at Board and Board Committee meetings during 2018 is set out in the table below.
Sue Clayton
Gerald Corbett
Soumen Das
Carol Fairweather
Christopher Fisher
Margaret Ford
Andy Gulliford
Martin Moore
Phil Redding
Mark Robertshaw
David Sleath
Doug Webb
Total number of meetings
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
5/5
7/7
6/7
7/7
7/7
2/2
7/7
7/7
7/7
4/4
7/7
7/7
7
2/2
N/A
N/A
3/3
3/3
1/1
N/A
3/3
N/A
N/A
N/A
3/3
3
2/2
5/5
N/A
2/2
5/5
1/1
N/A
4/4
N/A
N/A
3/3
5/5
5
N/A
N/A
N/A
N/A
5/5
1/1
N/A
5/5
N/A
1/1
N/A
4/4
5
AGM
N/A
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1
All Board and Committee members attended each meeting that they were eligible to attend with the exception of Soumen Das,
who missed one Board meeting due to a close family bereavement.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
73
ROLE OF THE EXECUTIVE AND
EXECUTIVE COMMITTEES
Responsibility for all operational matters,
including the implementation of Group
strategy, is delegated to the Chief Executive.
The Executive Committee supports the Chief
Executive in the delivery of strategy and
reviews operational and financial performance.
The Committee carries out a pre-approval
review of items requiring Board approval
and acts as a primary approval channel for
matters below Board approval level at each
of its meetings. At every meeting it receives a
Health and Safety incident report.
The Executive Committee has its own Terms
of Reference. This Committee meets formally
each month and during the year also met
informally most weeks to consider day to
day issues.
The Executive Committee delegates
some of its responsibilities to a further
three Committees:
£ the Investment Committee;
£ the Operations Committee; and
£ the Risk Committee.
These Committees have their own Terms of
Reference and membership includes at least
one member of the Executive Committee and
some members of the Leadership team.
REAL ESTATE IS A NEW SECTOR FOR
YOU, HOW HAVE YOU FOUND IT AND
IS IT DIFFERENT FROM YOUR
RETAIL EXPERIENCE?
Whilst the sector and business model are different,
there are many common themes. It is all about the
customer and responding to their demands in a
flexible and agile way. It requires the business to
be managed dynamically as new trends emerge –
whether that be increasing digitalisation, the use of
robotics, environmental innovations or changing
demands for space. It is important that we keep one
eye on the horizon to ensure we are moving forward
with the needs and demands of our stakeholders in
the ever-changing world.
THOUGHTS FROM CAROL FAIRWEATHER
ON HER FIRST YEAR
ANY THOUGHTS ON THE ANNUAL
STRATEGY DAY?
The day was a great opportunity to see some of our
assets in East London and to spend some time with
the team from the Greater London Business Unit.
These tours are useful to build our understanding
of the business as well as a chance to spend some
informal time with the other Directors. In the more
formal part of the meeting it was particularly helpful
to work through the Group’s Medium Term Plan
and debate the evolution of our strategy for the next
few years.
WHAT DO YOU THINK ABOUT
BOARD DYNAMICS?
The Board works well with a good balance between
new members as well as those who have been with
SEGRO for longer. I was made to feel welcome by
the other Directors who supported me while I got
to know the business. The Board is collegiate and
diverse, with no one person dominating the debate
or thinking. The Directors are conscientious and
respectful, with a mix of entrepreneurial and more
traditional ideas.
WHAT DO YOU THINK WILL BE THE FOCUS
FOR THE YEAR AHEAD?
It would be remiss not to mention the near term
economic and political uncertainty that exists,
particularly in the UK. That said, the Company is
in excellent shape and we will continue to focus
on executing our strategy, evolving as we need
to, as we respond to the ever changing needs of
our customers.
On a personal level, I am looking forward to taking
on the Audit Committee Chair, which you can read
about on page 80.
Carol joined the Company in January 2018 and will
succeed Doug Webb as Audit Committee Chair later
in 2019. Here, on the anniversary of her joining,
she gives some thoughts on her first year with
the Company.
WHAT ARE YOUR THOUGHTS ON YOUR
FIRST YEAR WITH SEGRO?
My overriding impression is that we have a very
clear strategy which is being well executed and
there are many opportunities to drive growth and
performance over the coming years. We have
high quality assets, a great team and a strong
customer base. The tone from the top, which sets
the corporate culture, is strong and the Purpose
and Values are clearly embedded throughout the
business. Alongside this we have a clear governance
framework which is well understood.
HOW HAVE YOU GOT TO KNOW
THE COMPANY?
My induction programme hit just the right note,
with a well paced, thorough programme tailored to
my needs. I believe the best way to understand a
business is to see the company in operation from the
ground up. I was given free access to all our teams
across the business. I valued seeing the breadth of
assets in the different markets and understanding
the huge variety of customers that we have.
WHAT DOES MEETING PEOPLE FROM
AROUND THE BUSINESS BRING TO YOU?
It helps bring the business to life by understanding
how things work and what matters to our employees
and customers. There is no substitute for getting
out and meeting people – the bench strength of the
SEGRO team right across the business is striking.
It also gave me insight into the culture to see first-
hand how the Purpose and Values are being lived.
SEGRO’s employees are passionate and proud of
their business – and rightly so.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 74
GOVERNANCE
GOVERNANCE REPORT
CONTINUED
KEY ACTIVITIES OF THE BOARD DURING 2018
Strategy and Leadership
Governance
Stakeholder engagement
• Review and discussion of strategic objectives and plans to achieve them.
• Review of the Medium Term Plan.
• Presentation from the Company’s independent valuers on the 2017 Full year, and 2018 Half year valuation.
• Rolling reviews of the performance of investments and developments over the previous three years.
• Reports on the market outlook for the occupier and investment markets.
• Reviews of the wider economic environment, political uncertainty and Brexit considerations.
• Annual Strategy Day including a review of asset plans and portfolio planning.
• Approval of a €300 million US Private Placement transaction and approval of the extension of the maturity of a €70
million bilateral bank lending commitment.
• Presentations from the Business Unit Directors for Central Europe, Northern Europe and Greater London.
• Various investment approvals including the acquisition of the Roxhill management platform, the acquisition of the
Coventry JV interest, various land purchases and asset sales.
• Approval of the 2019 budget.
• Approval of 2017 Full year results and final dividend, and the 2018 Half year results and interim dividend.
• Approval of Principal Risks and risk appetite.
• Review of the conclusions of the 2018 external Board evaluation.
• Review of the annual Health and Safety report and monthly incident report.
• Approval of the appointment of Non-Executive Directors and Committee membership.
• Approval of Tax Strategy.
• Annual review of corporate governance and an update on corporate and regulatory changes and reporting requirements.
• Presentations from the Company’s brokers on shareholders’/analysts’ attitudes to the Company and investor feedback.
• Approval of the Slavery and Human Trafficking Statement.
• Report on the Code of Ethics including the Anti-Bribery and Corruption policies.
• Annual reports on community engagement and charitable giving.
Customers
Employees
• Annual report on the results of customer satisfaction survey.
• Asset tours in Warsaw and East London to meet customers to see how they use their space.
• Review of people strategy, succession planning and talent management.
• Review of the Diversity Policy.
and geopolitical environment and specific property
investment and occupier markets.
This meeting gave the Directors a chance to debate
the assumptions, strategic choices and outputs
underlying the Group’s Medium Term Plan and to
consider the annual portfolio review and individual
asset plans which alongside our view of the cycle,
will form the basis of our investment decisions over
the coming years. This is a particularly valuable
exercise in our current rapidly changing world. The
meeting also provided an opportunity for the Board
to consider a number of other topics including
progress towards achieving critical mass in sub-scale
markets, funding structure and future trends.
Earlier in the year, the Board had had a session with
some external guests, discussing 'Proptech' and
broad trends and technologies which may become
disruptors to the Company and its customers in the
future. At this meeting, the Directors were updated
on the work which was being undertaken by the
business to explore these areas and consider what
they might mean for the Company. As in previous
years, it was agreed that the people strategy would
be considered at a separate meeting, to ensure that
plenty of time was allocated to this important subject.
GER ALD CORBET T
STR ATEGY DAY
As with most companies, the Directors value an
opportunity once a year to step away from the
routine of the corporate calendar and spend some
time reflecting on strategy and the wider business
environment. This year, the Board started this two-
day session in East London. The Directors heard
from the Business Unit Director for Greater London,
and his senior team, about the strategy for this
Business Unit, focusing in particular on progress with
East Plus, the partnership with the Greater London
Authority to deliver developments in a number of
industrial locations. This was followed by a tour of our
East and North London portfolio, seeing some of the
East Plus developments, taking in some competitors’
schemes and seeing some new opportunities. The trip
concluded with a visit to the newly built Camden Town
brewery which, unsurprisingly, provided to be popular
with everyone.
Moving on to a private dinner and continuing through
the following day, the Directors shared their different
perspectives and views on the current macroeconomic
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 75
RELATIONS WITH STAKEHOLDERS
SEGRO’s principal duty is to deliver long-term,
sustainable returns to shareholders, but we
are also mindful of the impact of our actions
and the decisions that we make on our wider
stakeholders and the communities in which
we operate.
Communication and engagement with
stakeholders is important to the Board as
it strengthens the business and promotes
the Company’s success to benefit both
stakeholders and shareholders alike.
During the year, the Directors have:
£ reviewed the Group’s monthly Health and
Safety incident report and annual Health
and Safety review;
£ received a report about Communities and
Charities activities;
£ approved the Slavery and
Human Trafficking Statement and
associated policies;
£ received reports on employee engagement
and talent management;
£ considered the results of our annual
customer satisfaction survey;
£ organised and attended a Customer Futures
Forum; and
£ discussed shareholder feedback with our
brokers, Bank of America Merrill Lynch
and UBS.
ENGAGEMENT WITH SHAREHOLDERS
The Directors need to be aware of
shareholders’ views and welcome open,
meaningful discussions with shareholders, in
particular with regard to strategy, governance,
and remuneration.
The Chief Executive and the Chief Financial
Officer are the Company’s principal
spokesmen with investors, fund managers,
analysts, the press and other interested
stakeholders. The Board is committed
to providing investors with regular
announcements of significant events affecting
the Group, including business strategy and
financial performance.
The Company organises a dedicated investor
relations programme with institutional
investors, which includes formal events during
the year along with a regular series of one-
to-one and group meetings. These events
also provide an opportunity for shareholders
to meet members of the senior management
team. See the chart below for further details.
The Senior Independent Director, the Chair
and the Committee Chairs are available to
shareholders to discuss governance and
strategy or any concerns they may have which
contact through the usual channels has failed
to resolve or is otherwise inappropriate.
The Chair also attends the financial results
presentations which is a good opportunity to
spend time with the analysts and investors
who attend. The Board is kept informed about
any discussions with shareholders and the
Directors are provided regularly with analysts’
reports and investor feedback.
SHAREHOLDER ENGAGEMENT 2018
Investor presentations
Investor roadshows
Full year results
Half year results
Equity sales
presentations (x2)
Trading Updates
(Q1 and Q3)
Annual General
Meeting
Site visits
London
Milan
Paris
Slough
Amsterdam (x2)
Boston
Chicago
London (x3)
New York (x2)
Paris
San Francisco
Sweden/Finland
Toronto
Investor conferences
Amsterdam
Cape Town
London (x2)
Miami
New York
The Company’s website provides shareholders
with comprehensive information on the
Group’s recent business activities and financial
developments, including webcasts, press
releases and recordings of interviews with the
Chief Executive.
There is a dedicated Investor Relations team
which reports to the Chief Financial Officer.
Communication with investors and analysts is
an ongoing process throughout the year on
a proactive and reactive basis. This includes
regular scheduled Investor Relations events,
outlined in the box below, as well as one-
to-one and group meetings with Executive
Directors, tours of the Company’s properties
and equity sales team presentations at global
and local investment banks. During the year,
the Chief Executive, along with the Executive
Directors, senior management and Investor
Relations team met with representatives from
over 200 institutions.
SHAREHOLDER ENGAGEMENT AT THE AGM
The Directors appreciate shareholders taking
the time to attend the AGM and having
the opportunity to talk to them about the
business, its achievements during the previous
year and plans for the future. It also allows the
Directors to hear what the Company’s private
shareholders really care about. The Board
values the time that the AGM affords them
to meet before or after the more formal
business of the meeting and are grateful for
those shareholders who attend the meeting
and ask interesting and informative questions.
During the meeting itself, the Chief Executive
gave a presentation on the results of the
Company for 2017 as well as details on the
business, including the active development
pipeline. The highlights of the recently
announced Q1 2018 Trading Update were
noted, and David Sleath shared his thoughts
for the year ahead before the Board took
questions from the floor.
The Notice of AGM is posted to shareholders
at least 20 working days before the meeting.
The Company proposes separate resolutions
on each substantially separate issue, with
voting conducted by poll. The Board believes
this voting process is fairer than a show of
hands since all shares voted at the meeting,
as well as proxy votes lodged before the
meeting, are counted. For each resolution,
shareholders will have the option to vote either
for or against a resolution, or to withhold their
vote. Following the meeting, the results of
votes lodged for and against each resolution
are announced to the London Stock Exchange
and displayed on the Company’s website.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 76
GOVERNANCE
GOVERNANCE REPORT
CONTINUED
ENGAGEMENT WITH EMPLOYEES
The Company’s Purpose and Values help
to unify employees and describe the core
beliefs about how SEGRO does business.
Further details on Purpose and Values can be
found on page 42.
The Company believes in regular dialogue
with employees and holds frequent briefings
in each of its offices.
The Board regularly tours its assets with senior
employees, giving them a more informal
space to talk about the business, and allowing
Board members to get a further feel of the
culture of the Company. During 2018 this
took place in Warsaw, where the Board had
lunch with the office, as well as East London.
Carol and Sue also met employees as part of
their induction programme.
The Board also encourages all employees to
take a stake in the Company by becoming
shareholders through the SIP and GSIP share
schemes, where employees are given shares in
SEGRO. Senior employees also participate in
the Company’s LTIP scheme.
The Board regularly hears from the Group HR
Director about employee engagement.
Towards the end of 2018, all employees were
invited to take part in the Group’s biennial
Employee Engagement Survey. There was
a high response rate to the survey (91 per
cent) with a significant level of employee
engagement achieved (92 per cent).
For further information on our employees and
the results of the Survey see page 42.
ENGAGEMENT WITH CUSTOMERS
The Company’s business model is based
on owning and managing warehouses and
its relationship with its customers is critical
to its success. SEGRO aims to create long-
term sustainable business relations with its
customers, recognising the mutual benefits
that can flow through partnership. It is
important that customers are consistently
satisfied with the product and service levels
they receive from the Company. The Board
receives the results of the annual customer
satisfaction survey and is updated on how the
business has responded. It is pleasing to note
the good results received again this year – see
page 50 for more information.
The Chief Executive and Chief Operating
Officer also attended a Customers Futures
Forum which we had arranged for some of
our customers to discuss future market trends
and considerations. Further details about
the work the Company carries out with its
customers can be found on page 50.
ENGAGEMENT WITH SUPPLIERS
The Company seeks to maintain the highest
ethical standards of conduct throughout its
supply chain. In particular, where appropriate,
the Company values long-term relationships
with its suppliers, built on mutual values and
trust. To ensure that the Company continues
to use suppliers that have been thoroughly
checked and approved as legitimate,
competent, safe and appropriate to use,
regular dialogue and face to face meetings are
held with suppliers. The Company also makes
sure that it pays its suppliers promptly, see
page 51 for more details.
Health and safety is central to the successful
execution of the strategy. We are committed
to working closely with all of our suppliers
to ensure SEGRO’s high health and safety
standards and requirements are met.
For further details, see page 43.
Being mindful of human rights, the Company
has a Modern Slavery and Labour Standards
Supplier Code and published its second
annual Modern Slavery statement during
the year, to ensure that all of its suppliers are
acting responsibly and are aware of the risks
of slavery and human trafficking within their
own organisation and supply chain.
ENGAGEMENT WITH DEBT INVESTORS
2018 was another active year for the
Company’s debt programme with the Group
taking advantage of continued favourable
financing conditions. During the year the
Group issued €300 million of new debt in
its second US Private Placement transaction.
Further detail can be found on page 31.
The Chief Financial Officer and the
Treasury team keep in regular contact with
the Company’s key relationship banks,
bondholders and unsecured lenders, as well
as with the provider of SEGRO’s credit rating,
Fitch Ratings, Inc.
PENSIONS
The Company sponsors the SEGRO Pension
Scheme (the Scheme) in the UK, which is a
defined benefit scheme that is closed to new
members and to future accrual. The Company
has always valued its relationship with the
Trustees and ensured that the Scheme is
appropriately funded. During 2018, the
Trustees and the Company formed a Joint
Working Group (JWG) to work together
collaboratively, looking into de-risking
options for the Scheme. The JWG worked
well together, selecting partners to help with
the process and identifying an insurance
company to work with. Consequently, the
Trustees contracted to buy-out the Scheme
with an insurer in December 2018, effectively
de-risking the Scheme. This was an excellent
outcome, showing how the joint working
approach can fulfil common objectives by
reducing investment and funding risks for
the Company while securing benefits for
the Scheme members. Further details are in
Note 18 on page 156.
CODE OF ETHICS
The Company does not tolerate fraud,
impropriety or dishonesty of any kind.
The Board receives reports on the Code
of Ethics, including Anti-Bribery and
Corruption policies. The Company’s policy
on whistleblowing, sets out the procedure by
which employees and any third parties can
use a confidential external service to raise
concerns by email or telephone, whether in
relation to financial reporting or other matters.
The Audit Committee receives an anti-bribery
and corruption report at each meeting since
it is responsible for ensuring that appropriate
safeguards are in place for the detection of
fraud and prevention of bribery, including
overseeing and monitoring the Group’s
anti-bribery and corruption policies and
procedures. There were no causes of concern
during 2018.
HEALTH AND SAFETY
Health and safety is a prime concern for
our business and a Health and Safety report
is prepared and discussed at every Board
meeting. Further information on Health and
Safety can be found on page 43.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
77
NOMINATION COMMITTEE REPORT
The composition, diversity
and skills of the Board
and senior management
are vital drivers of the
successful implementation
and operation of
the strategy.”
GER ALD CORBET T
CHAIR OF THE NOMINATION COMMIT TEE
I am pleased to present the Nomination
Committee Report for 2018. In accordance
with the Code and following the results
of the Board evaluation, the Committee is
now made up entirely of Non-Executive
Directors. Further details of the Committee’s
members can be found on pages 62 to 65.
The Committee’s key role centres around
Board recruitment and succession to ensure
the Company has the right people in the right
places. In accordance with the spirit of the
New Code, the Nomination Committee had a
greater focus in 2018 on diversity, succession
planning and talent management.
The Nomination Committee is responsible for:
£ regularly reviewing the size, diversity, skills,
experience, independence and knowledge
of the Board and its Committees, to ensure
that they are appropriately balanced with
the right structure, size and composition
to operate effectively and to deliver the
strategy. This ensures that each Director is
able to effectively discharge his or her duty
to act in the best interests of shareholders
and other key stakeholders, while enabling
the business to operate effectively and
deliver on strategy;
£ leading the process for Board and
Committee appointments to ensure
that the process is formal, rigorous and
transparent. To identify and nominate for
Board approval, candidates to fill Board and
Committee vacancies, identifying the skills
required for the particular role, appointing
a search firm, recognising the benefits
of diversity, and in the case of the Non-
Executive Directors, ensuring that they will
have sufficient time for the job;
£ ensuring the Company’s leadership skills
are fully aligned with the Company’s long-
term strategy;
£ considering succession planning for the
Executive and Non-Executive Directors.
Ensuring that succession planning is in
place for members of the Leadership team,
to create a strong pipeline of diverse and
talented individuals who are available
to support the Company in meeting its
future business objectives and achieving its
strategic goals;
£ considering the diversity and
inclusion policy;
£ considering the talent development
programme for the wider workforce; and
£ recommending the election/re-election of
the Directors by shareholders, having due
regard to their performance and ability to
continue to contribute to the Board, taking
into consideration the skill, experience and
knowledge required along with the need for
progressive refreshing of the Board.
Details of the skills and experience each
Director brings to the Board, are set out on
pages 62 to 65.
APPR AISAL PROCESS
The expertise and performance of the
Directors is considered each year. The annual
appraisal of the Chair is led by the Senior
Independent Director, Martin Moore.
This year, as the Committee was to consider
the Chair’s re-appointment for a second three
year term, Martin undertook a more thorough
review. He met with Independent Audit to
discuss the feedback they had received on
the Chair, and he also met with each of the
Directors and the Company Secretary to
discuss his performance. There was agreement
that the Chair was performing his role well
and there was unanimous support for his
re-appointment. The Chair leads the appraisal
of the Chief Executive by arranging a meeting
of Non-Executive Directors to discuss his
performance. The Non-Executive Directors
agreed that the Chief Executive continues to
perform well, executing his role with energy
and leading an effective executive team.
The performance of the other Non-Executive
Directors is appraised by the Chair whilst
the Executive Directors are appraised by the
Chief Executive with feedback from other
Directors where appropriate. The Board is
satisfied that all Directors possess relevant
experience and appropriate levels of real
estate, financial and commercial experience
across various industries.
APPOINTMENT OF DIRECTORS
Following the appraisal process, the
Nomination Committee concluded that
each of the Directors continued to make an
effective contribution to the Board. It also
considered the time commitments of the
Non-Executive Directors and concluded that
each Director is able to commit sufficient time
to the Company and to fulfil their duty to
promote the success of the Company.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 78
GOVERNANCE
NOMINATION COMMITTEE REPORT
CONTINUED
During the year the Nomination Committee
reappointed Christopher Fisher for a third
three-year term. The Committee was mindful
that since the proposed renewal was beyond
six years, it should be subject to particularly
rigorous review and should take into account
the need for progressive change of the Board.
The Committee acknowledged that there
had been a number of Director changes
over the past two years, so refreshing the
Board was not a particular objective at this
time. Christopher's period of service, and
the continuity and stability which that gave
the Board, was considered to be especially
valuable. Following consideration of
Christopher’s performance, the Committee
agreed that he was effective, made a valuable
contribution to the meetings and continued
to demonstrate commitment to the role, and
recommended his reappointment for a further
three-year term from September 2018.
Martin Moore became the Senior
Independent Director in April 2018, following
Baroness Ford’s retirement. As mentioned
earlier, he led the process for Gerald's re-
appointment for a further three-year term.
In accordance with the Code, each of the
Directors will submit themselves for re-election
at the 2019 AGM, and Mary Barnard and Sue
Clayton will submit themselves for election.
APPOINTMENT OF NON-EXECUTIVE
DIRECTORS
The Committee was aware in 2017 that
over the following two years it would need
to recruit three Non-Executive Directors in
order to ensure orderly succession. It was
committed to finding candidates with the
appropriate skills and experience to replace
those of the retiring Directors and where
possible to increase diversity. The Committee
agreed the role specification and, in particular,
identified the required skills and attributes.
Russell Reynolds, formerly known as The
Zygos Partnership, was appointed to lead the
search as it has undertaken previous Non-
Executive Director searches and has a good
understanding of the Company and its culture.
For each recruitment, a long list of candidates
was circulated to the Directors for comments
and the Committee agreed the short lists.
Generally the first round of interviews were
conducted by the Chair and Chief Executive
followed by other members of the Committee.
Subsequent interviews were arranged with the
Executive Directors where appropriate.
As previously reported, the Board appointed
Carol Fairweather in January 2018 and Sue
Clayton in June 2018, and has recently
announced the appointment of Mary Barnard.
This now completes the Committee’s current
work for the orderly rotation of Non-
Executive Directors.
INDEPENDENCE
Doug Webb will have served nine years
with us in May 2019. Due to the number
of recent Board changes, the Nomination
Committee has recommended to the Board
that he remain in office for a period to ensure
continuity, although he will retire from the
Audit Committee after the 2019 AGM.
The Committee and the Board consider that
Doug remains independent, notwithstanding
having served a nine year term.
In 2018, we welcomed Sue Clayton as Non-
Executive Director. Since Sue is a part time
Executive Director of CBRE Limited (CBRE),
the Company’s independent valuer, particular
consideration was given to her independence
on appointment. When assessing her
independence, the Committee noted that
Sue had no involvement in the preparation
of the Company’s valuation, nor did she
hold any line of managerial responsibility,
directly or indirectly, over the CBRE valuation
team. It was agreed that during her term of
appointment with the Company, Sue should
have no involvement in reviewing CBRE’s
performance or effectiveness, their fees or
their appointment. Having sought additional
assurances from both CBRE and Sue that in
each of their views, her independence was not
compromised, the Committee confirmed that it
was satisfied that Sue was independent in both
character and judgement, and was pleased to
recommend Sue’s appointment to the Board.
SUCCESSION PLANNING
Below the Board, the Committee considers
succession planning regularly as it recognises
the importance of creating and supporting a
suitably talented diverse pipeline of leaders
ready to serve as the next generation of plc
Directors. It reviews the skills and experience
of the current Board, and considers whether
they are appropriate to support the delivery of
the Company’s strategic goals both now and
in the future.
The Group HR Director regularly presents
to the Board on the Company’s succession
planning and talent development programme.
The Company’s strategy is well established
and its execution not dependent on any
one individual. For Executive Directors and
for roles in the Leadership team, plans are
in place for sudden, unforeseen absences,
for medium-term orderly succession and
for longer-term succession. These plans are
then used to provide development plans
for our most talented people and to ensure
that looking forward, we have the right
people to deliver our strategy. We encourage
regular contact between members of senior
management and the Board. This may be by a
Board presentation, a tour of assets or a one-
to-one session with Non-Executive Directors
to discuss a specific issue.
DIVERSITY
The Directors are committed to having a
balanced Board which recognises the benefits
of diversity in its broadest sense and the
value that this brings to the organisation in
terms of skills, knowledge and experience.
Our Board Diversity Policy is available at
www.SEGRO.com.
With respect to gender specifically, the Board
aspires to promote greater gender diversity.
When running the process to appoint the
Non-Executive Directors as described above,
the Committee recognised that how it selected
and briefed the executive search firms and,
in particular, how it described the skills
and experience needed for the roles were
important elements in attracting as wider pool
of candidates as possible. The Committee will
only use the services of executive search firms
who have signed up to the Voluntary Code of
Conduct for Executive Search Firms.
In the final selection decision, all Board
appointments are made on merit and relevant
experience, against the criteria identified by
the Committee with regard to the benefits of
diversity, including gender.
We are members of the 30% Club which aims
to achieve of 30 per cent of women on FTSE
100 boards by 2020. As at 31 December
2018, there were two female and eight male
Board members. By 1 March 2019, there will
be three female Board members and eight
male. See page 42 for further information
on Board diversity. We also support the
aspirations of the Hampton Alexander review
to identify and develop the next generation
of female talent. For further details of the
Group’s approach to diversity below the
Board, please see pages 42 and 43.
GER ALD CORBET T
CHAIR OF THE NOMINATION COMMIT TEE
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 79
AUDIT COMMITTEE REPORT
ACTIVITIES OF THE COMMITTEE IN 2018
COMMITTEE CHANGES
As well as ensuring that the financial integrity
of the Company is maintained, risk remains a
focus of the Committee. We are responsible
for providing independent scrutiny and
ensuring that appropriate and robust policies
and procedures are in place to identify and
assess risk as well as to manage internal
controls and risk management systems.
We also take an active interest in the
robustness of the valuation process since
valuation is the most significant estimate in the
financial statements. Our other key activities,
including oversight of the external and internal
audit functions, are set out in more detail on
pages 81 to 83.
MEETINGS AND COMPOSITION
The Committee is composed entirely of
independent Non-Executive Directors who
met three times in 2018. The Committee is
an open forum for discussion and I encourage
participation and debate by all members. I also
enjoy a constructive working relationship with
the Company’s management team, finance
function, external and internal auditors, and
so am able to drop in or pick up the phone
to discuss any matters that arise outside of
scheduled meetings. The Committee also has
the flexibility to meet more frequently on an
ad hoc basis where necessary. I, and my other
Committee members, find it very useful to
be able to discuss matters in ‘real time’ rather
than wait for a scheduled meeting.
To give greater flavour to the matters being
discussed during the year, as usual, a number
of additional attendees joined our meetings,
including the Group Financial Controller
who explained and discussed the accounting
judgements and treatment given to particular
transactions, and the Director of Digital
& Technology who summarised how the
Company approached cyber security, as well
as other specialists including the Director
of Tax and General Counsel. This gives us
further assurance that the Executive is being
supported by the appropriate specialists
and that there is a pool of talent within
the Company.
Having served over eight years as the
Committee Chair, I intend to retire from the
Committee following the AGM and will be
replaced by Carol Fairweather. Carol has
provided valuable support and fresh insight
to the Committee throughout her time as a
member and I wish her, and the rest of my
Committee members, well for the future.
Some thoughts from Carol on taking over
as Audit Committee Chair are set out on
page 80.
I am also delighted to extend a warm
welcome to Sue Clayton as a member of the
Committee. As you will have read elsewhere,
although Sue is a part-time Executive Director
of CBRE, the Company’s valuer, I and my
other Committee members are completely
satisfied that she is independent and indeed
welcome the wealth of experience and insight
that she brings to the Committee.
2018 will also be the last year for our lead
audit partner, Craig Hughes, who will rotate
off our account and be replaced by John
Waters. On behalf of the Committee, I
would like to take the opportunity to thank
Craig and welcome John. He will bring fresh
and new thinking to the role whilst being
supported by a strong team already familiar to
the Company.
DISCHARGE OF RESPONSIBILITIES
It has been a pleasure to be the Chair of
the Committee. The regular discussion and
challenge that the Committee has with the
talented management team, the external
and internal audit teams, coupled with the
comprehensive information provided to the
Committee, has assisted us in appropriately
discharging our duties and responsibilities.
I thank all those who contribute to the Audit
Committee function for their hard work
dedication and commitment to the Committee
and the Company.
DOUG WEBB
CHAIR OF THE AUDIT COMMIT TEE
Formal, rigorous and
transparent processes
ensure the integrity
of the Company’s
financial reporting.”
DOUG WEBB
CHAIR OF THE AUDIT COMMIT TEE
I am delighted to present the Audit
Committee Report, which will be my
last as Chair. 2018 has been another
successful and busy year for the Company,
with the development pipeline delivering
a record number of completions, and
sound capital investments and divestments
adding to the strong returns. Since one
of the Committee’s principal roles is to
satisfy itself on the integrity of the financial
statements having reviewed the significant
financial reporting judgements and
estimates, during the year we discussed
and debated a number of the key
transactions which have contributed
towards the healthy set of financial results
which you will have read about elsewhere
in this Annual Report. We were satisfied
that the appropriate financial treatment
had been applied to them. Further details
on these transactions can be found in the
Strategic Report and Financial Review.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 80
GOVERNANCE
AUDIT COMMITTEE REPORT
CONTINUED
COMPOSITION
Each Committee member is independent
and has considerable commercial knowledge.
The Committee as a whole has the relevant
competence in property and financial
experience to properly discharge its duties
and both the Committee Chair and Carol
Fairweather satisfy the requirement to bring
recent and relevant financial experience.
As detailed in the Nomination Committee
Report on page 78, Sue Clayton is a part
time Executive Director of the Company’s
valuer. Although the Committee supports the
Nomination Committee’s assertion on Sue’s
independence, should Sue ever be conflicted
and need to be excused from any of the
Committee’s discussions and decisions, the
Committee would still be quorate without her.
MEETINGS AND MAIN ACTIVITIES DURING
THE YEAR
Throughout the year the Committee has acted
in accordance with its Terms of Reference
which can be found at www.SEGRO.com.
In particular, its main activities have been:
£ reviewing and monitoring the integrity,
consistency and key accounting judgements
and estimates made by management, to
ensure that the quality of the Company’s
financial reporting is maintained, including
going concern, in the Company’s Half and
Full year Financial Statements;
£ assessing the independence of the valuer of
the Group’s property portfolio and gaining
assurance around the valuation process;
£ ensuring that the impact of the various debt
financing transactions (detailed further on
page 31) had been accurately reflected in
the Half year and Full year results;
£ ensuring compliance with applicable
accounting standards, monitoring
developments in accounting regulations as
they affect the Group and reviewing the
appropriateness of accounting policies and
practices in place;
£ overseeing matters relating to tax and any
potential impact tax matters may have on
the integrity of the Financial Statements;
£ monitoring the effectiveness of the Group’s
risk management systems and considering
the adequacy of the actions being taken to
identify risks and mitigate the exposure of
the Group to them;
CAROL’S THOUGHTS ABOUT TAKING ON THE ROLE OF AUDIT COMMITTEE CHAIR
It will be a pleasure to assume this
responsibility following Doug’s retirement
from the Committee after the AGM.
Doug has certainly left it in good shape.
He has created a Committee that is
disciplined, conscientious and which
encourages open discussion, whilst the
quality of the management reporting is
excellent. These are standards that I will be
keen to maintain.
Doug and I have worked closely together
since I joined the Company to ensure a
thorough induction into the work of the
Committee, and more latterly to enable a
smooth handover. He has been friendly
and welcoming and his knowledge of
the Company and its history, as well as
his experience, have been very helpful in
allowing me to quickly get up to speed
with my new role. I have also spent time
familiarising myself with EPRA reporting
metrics as these are property industry
specific. I have shadowed Doug in his private
meetings with CBRE, PwC and KPMG,
and am grateful for the insight into the
operations of the Committee and the role
of Chair this has brought. I look forward to
continuing Doug’s good work in 2019 and
would like to take this opportunity on behalf
of myself and fellow Committee members,
to thank Doug for his great leadership.
£ reviewing the adequacy of internal
financial controls and broader internal
control systems;
£ examining the performance of the external
and internal auditors, their objectivity,
effectiveness and independence, as well as
the terms of their engagement and scope of
their audit and agreeing the annual internal
audit plan;
£ monitoring the ratio and level of audit to
non-audit fees paid to the external auditor
and agreeing their remuneration for
the year;
£ analysing and challenging the results of
internal audit reviews and management’s
plans to resolve any actions arising
from them;
£ advising the Board on whether the process
supporting the preparation of the Annual
Report taken as a whole, is appropriate to
allow the Board to conclude that the Annual
Report is fair, balanced and understandable
and provides the information necessary
to shareholders to assess the Group’s
position and performance, business model
and strategy;
£ ensuring the process followed to support
the making of the viability statement
remained robust and was correctly followed;
and
£ ensuring appropriate safeguards are in place
for the detection of fraud and prevention
of bribery. This extends to responsibility
for overseeing and monitoring the Group’s
anti-bribery and corruption policies and
procedures contained in the Company’s
Code of Ethics.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 81
Chart 1 below sets out the significant matters considered by the Committee during the year in relation to the Financial Statements.
CHART 1: 2018 SIGNIFICANT MATTERS
Significant matter
Valuation of the property portfolio
Valuation is central to the business performance and is a significant estimate for the
Committee as it is inherently subjective, because the valuer must make assumptions
and judgements in reaching its conclusions. This is a recurring risk for the Group
as it is key to its IFRS profitability, balance sheet portfolio value, net asset value,
total property return, and employee incentives. It also affects investment decisions
and the implementation of the Company’s Disciplined Capital Allocation policy.
It is included on the Risk Register and the process risk map as a potential key
business risk.
The action taken
The Committee ensured that there was a robust process in place to satisfy itself
that the valuation of the property portfolio by CBRE, a leading firm in the UK
and Continental European property markets, was carried out appropriately and
independently. Given the significance, the full Board met twice with CBRE to review,
challenge, debate and consider the valuation process; understand any particular
issues encountered in the valuation; and discuss the processes and methodologies
used. The Chair of the Audit Committee and Carol Fairweather also met separately
with CBRE to discuss such matters which allowed them to scrutinise the valuation
process and ensure the valuer remained independent, objective and effective.
The Committee confirmed that it was satisfied that the valuation was not subject
to undue influence and had been carried out fairly and appropriately, and in
accordance with the industry valuation standards, and therefore suitable for
inclusion in the Financial Statements.
For details of the Group’s properties and related accounting policies see Note 13
and Note 1 of the Financial Statements. For details of the results of the valuation
see Note 13 of the Financial Statements.
Significant matter
The action taken
Accounting for significant acquisition, disposals and transactions
During the year, the Company made a number of acquisitions and disposals
and carried out other transactions, which were large and/or complex. Certain
transactions were considered to be significant because of the level of materiality
involved and/or any unusual terms or conditions or judgements, and because of the
risks inherent in the accounting process, including when a transaction or revenue
should be recognised, and what the appropriate accounting treatment should be.
The accounting treatment of acquisitions, disposals and transactions themselves,
is a recurring risk for the Group and is considered to be significant, since an
inappropriate approach could cause a misstatement of the Group’s financial position
and/or results. The application of the accounting treatment for each particular
transaction is judged on its own particular facts and circumstances.
The Committee considered the accounting treatment of key, complex transactions
during 2018 including the accounting treatment applied to acquisitions and
disposals of various properties, and the calculation of the SELP performance fee
due to the Company, by reviewing and challenging management’s papers on
accounting proposals and judgements.
Following a review of the accounting treatment for these significant transactions, in
particular the point at which each transaction should be recognised, the Committee
was satisfied that all relevant matters had been fully and adequately addressed and
that the approach adopted by the Company was appropriate in each case, and in
accordance with IFRS.
The Committee challenged the application of accounting policy and internal
controls relating to revenue recognition and reviewed reports from the external
auditor and management.
For further details of the accounting treatment applied to such significant
transactions, see Note 1 of the Financial Statements.
FAIR, BALANCED AND UNDERSTANDABLE
The Board is required to confirm that they
consider, taken as a whole, that the Annual
Report is fair, balanced and understandable
and provides the information necessary
for shareholders to assess the Company’s
position and performance, business model
and strategy. In order to make this statement,
the Committee ensured that the due diligence
exercise which was described in the 2015
Annual Report was followed.
The Board has made the ‘fair, balanced and
understandable' statement on page 108,
following the Committee’s confirmation
that the processes and controls around
the preparation of the Annual Report are
appropriate, robust and consistent.
VIABILITY STATEMENT
The Committee ensured that the process
put in place in 2015 to allow the Board to
make the viability statement, on page 55,
was robust, in line with market practice and
had been correctly and properly followed.
The Committee is comfortable with the
process followed to make the viability
statement and has confirmed this to the Board.
EXTERNAL AUDITOR
The Committee has worked with
PricewaterhouseCoopers LLP (PwC) to
ensure that the external audit, a key area of
oversight, operated effectively. The Committee
periodically meets privately with the lead
partner, Craig Hughes, to discuss their work
and their observations on the Company.
No areas of concern have been raised.
In addition, the Committee Chair occasionally
has meetings and telephone calls with
Craig or his colleagues to discuss matters as
they arise throughout the year, such as the
accounting treatment to be applied to the
SELP performance fee received by SEGRO.
It is believed that this is much more effective
and helpful than just waiting to discuss matters
at the scheduled meetings. The constructive
relationship with PwC and the ability to
challenge and discuss matters throughout the
year is something the Committee values.
OVERSIGHT
In July 2018, PwC presented their
audit plan for the year ahead which the
Committee considered and then approved.
PwC highlighted the key areas of risk,
which were primarily identified as areas
of judgement and complexity and were
consistent with those areas identified by the
Committee. The level of audit materiality was
also discussed and agreed.
PwC presented a detailed report of their
audit findings at the year end, which were
reviewed and discussed. A similar review of
the external auditor’s report was undertaken
by the Committee at the Half year. As part
of this review the Committee questioned
and challenged the work undertaken and
the findings and the key assumptions made,
with particular attention to the areas of audit
risk identified.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 82
GOVERNANCE
AUDIT COMMITTEE REPORT
CONTINUED
CHART 2: AUDIT AND NON-AUDIT FEES PAID TO PRICEWATERHOUSECOOPERS LLP
Audit fees (£m)
Non-audit fees (£m)
Ratio of non-audit fees to audit fees (%)
2018
0.72
0.06
9
2017
0.81
0.49
61
2016
0.68
0.09
13
The above table excludes fees paid to PwC in respect of joint ventures. If these were included, the 2018 ratio of audit to non-audit fees would
have been 18 per cent.
EFFECTIVENESS
REMUNERATION AND INDEPENDENCE
RISK
The Committee assesses the effectiveness of
the external audit process on an annual basis,
by reviewing a number of factors:
£ performance in discharging the audit and
Half year review;
£ independence and objectivity; and
£ reappointment and remuneration.
Taking into account the views of management
involved in the audit, the Committee was
satisfied with the performance of PwC and
recommended to the Board that it propose to
shareholders that PwC should be reappointed
for the 2019 financial year. The Company
complies with the Competition and Market
Authority Order 2014 relating to audit
tendering and the provision of non-audit
services. There are no contractual obligations
which restrict the Committee’s choice of
external auditor or which put in place a
minimum period for their tenure. The external
audit was last tendered in 2015 following
which the auditor changed from Deloitte LLP
to PwC, and so there are no current plans to
re-tender the services of the external auditor.
As you will have seen from the Principal
Risks on pages 56 to 58, risk management is
taken seriously by all at SEGRO. We are ever
aware of the need to ensure that new and
emerging risks, as well as more established
principal risks, are adequately managed and
mitigated. The Board recognises that effective
risk management is key to the long-term
sustainable growth of the business and
the achievement of the Group’s strategic
objectives. As a result of this, risk management
is embedded in the Company’s decision
making and robust processes have been put in
place to ensure this remains the case. There is
an on-going process for identifying, evaluating
and managing the principal risks faced by
the Group, which has been in place during
the year. The Board assumes responsibility
for the effective management of risk across
the Group, determined by its risk appetite,
as well as ensuring that each business area
implements appropriate internal controls.
The Committee reviews the effectiveness of
the risk management process on behalf of the
Board and is satisfied that it remains robust
for the financial year in question and up to the
date of this Report.
The Committee considers the remuneration
of the external auditor at least on a semi-
annual basis and approves its remuneration.
It also keeps under close review the ratio of
audit to non-audit fees to ensure that the
independence and objectivity of the external
auditor are safeguarded. This is further
maintained by the Policy for Approval of Non-
Audit Services (available at www.SEGRO.com)
which recognises that there are certain
circumstances where (i) PwC will not be used
in any circumstances; (ii) PwC may be used,
subject to the approval of the Chief Financial
Officer; and (iii) PwC may be used, subject
to the approval of the Audit Committee.
In addition, the lead audit partner must
also approve any non-audit work that PwC
proposes to carry out for the Company before
an engagement is accepted.
In 2018, fees for audit services, (excluding the
SELP joint venture), amounted to £718,000
and the non-audit fees amounted to £63,000.
The Committee has concluded that PwC
remains independent and objective, and
that the level of non-audit to audit fees is
acceptable for 2018. Further details of these
fees, and fees in respect of the audit of the
Group’s SELP joint venture for which PwC is
the auditor, are provided in Note 6(ii) to the
Financial Statements. The non-audit fee for
2018 equates to 9 per cent of the average
audit fees of the last three years. Chart 2 sets
out the ratio of audit to non-audit fees for each
of the past three years.
The Committee is satisfied that PwC continues
to provide appropriate levels of challenge
and scrutiny, and remained independent.
PwC has provided written confirmation of its
independence to the Committee.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
83
The draft consolidated statements are
reviewed by various individuals including
those independent of the preparer. The review
includes checking internal consistency,
consistency with other statements, and
consistency with internal accounting records.
The Committee and the Board review the
draft consolidated Financial Statements.
The Committee received reports from
management and the auditor on significant
judgements, changes in accounting policies,
and other relevant matters relating to
the consolidated Financial Statements.
The Financial Statements are also subject to
external audit.
COMMITTEE EFFECTIVENESS
The review of the Committee’s effectiveness
was included as part of the Board evaluation
process (detailed on page 71) and found
the Committee to be performing effectively.
In addition, the quality of the papers and
presentations by management, coupled with
the level of challenge by the Committee
with management, PwC, KPMG and CBRE,
and the quality of discussions held, gives the
Committee further comfort and assurance that
it is performing its role effectively.
INTERNAL AUDIT
INTERNAL CONTROL
The Committee is responsible for reviewing
the adequacy and effectiveness of internal
control systems on behalf of the Board.
This review is consistent with the Code,
and covers all material areas of the Group,
including risk management (see page 52 of
Principal Risks) and compliance with controls
in relation to the process for preparing the
Financial Statements.
Internal controls are regularly reviewed by the
Board and the effectiveness of the Group’s
processes to manage them are frequently
considered by the Committee which reviews a
schedule listing all outstanding control points,
noting the priority attaching to them and the
progress made against agreed timeframes
for resolution. The Committee confirms that
it has not been advised of or identified any
failings or weaknesses which it regards to
be significant.
FINANCIAL REPORTING PROCESS
The Group has established internal controls
and risk management systems in relation
to the process for preparing the Financial
Statements. Various checks on internal
financial controls take place throughout
the year, including internal audits.
Developments in accounting regulations
and best practice in financial reporting are
monitored by the Company and where
appropriate, reflected in the Financial
Statements. Training is also provided to the
finance teams and the Committee is kept
appropriately informed.
The financial reporting from each business
unit is subject to review by a local finance
manager prior to being submitted to the
Group Finance function. The results of each
business unit are subject to further review by
the Group Finance function. The results are
then consolidated by Group Finance and are
subject to various levels of review including by
senior management.
The Committee believes that the value of
internal audit is enhanced by having a third
party perform this function, as this supports
the independent challenge of management
and gives greater access to expertise than an
internal function could provide. KPMG has
performed the role since its appointment in
2007 and reappointment in 2014 following
a tender. During their tenure, there has
been a number of rotations of lead partners
and audit managers to ensure that a fresh
perspective is given, and their independence
and scrutiny maintained.
Topics selected for internal audit were
based on a review of the Group’s key risks
which had not been subject to recent audit.
The proposed internal audit programme
for the following year was considered and
approved by the Committee in December,
although it is adapted during the year to
incorporate any new or increased risks
which materialise.
The Committee believes that both the process
for determining the internal audit programme,
and the programme itself, are appropriate
and effective, particularly since there is scope
for the Company to react to events, new
information and situations which come to light
during the year and include them if necessary.
Each internal audit during 2018 confirmed
that the relevant areas were appropriately
controlled, and the identified enhancements
were entered into the schedule which lists
control points which require improvement
actions (see Internal Control below).
Once each internal audit is complete, a
questionnaire is issued by KPMG to the
process owner about their internal audit as
well as to the other relevant employees, to
ensure that real-time feedback is collected
on the quality and effectiveness of its audit.
The results of this feedback are provided to
the Committee along with detailed findings
and recommendations of the internal audits
themselves. The feedback on the internal
audits was largely positive and no areas of
particular concern have been brought to
the Committee’s attention. The lead KPMG
partner also attends Committee meetings to
present its report and the Committee also
meets privately with him during the year.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 84
GOVERNANCE
REMUNERATION
Taking account of these strong results and
our continuing outperformance of the peer
group over the year, with a TSR of +3.1 per
cent verses the FTSE 350 Real Estate index of
–13.7 per cent, the Committee has approved
(subject to the final Total Property Return
(TPR) data being available) the following
performance-related payments to the
Executive Directors this year:
£ the Bonus payments will be 88.3 per cent of
their maximum award (see page 91); and
£ the 2015 LTIP award will pay out
100 per cent (see page 96).
When the 2015 LTIP award was made the
share price was 422 pence and this has
risen 39 per cent over the vesting period to
588 pence on 31 December 2018.
Given this strong performance, and the
returns for shareholders, the Committee
considered it was entirely appropriate that
the variable components of pay for the
Executive Directors have paid out close to
their maximum. When approving these
payments, the Committee considered whether
or not they represented a fair reflection of
the underlying performance of the business,
which they clearly do.
In keeping with the Policy, 2018 base salary
increases for Executive Directors were in
line with (and did not exceed) the average
increases for employees across the Group.
TOTAL PROPERTY RETURN
PERFORMANCE MEASURE
Shareholders have occasionally asked us
why we use the same measure, TPR, in both
the Bonus and the LTIP. The Committee
believes that TPR is one of the best metrics
for measuring performance as the Executives
are being measured against the relative
performance of our portfolio against industry
benchmarks. So, in the current stage of
the property cycle, where asset values have
been rising in our sector, for executives to
be rewarded they cannot just rely on market
uplift, but must also ensure that our portfolio
is outperforming.
To remind you, the fundamentals supporting
our current Remuneration Policy (the Policy)
which will continue to apply under the
proposed 2019 Policy are that it:
£ aligns with our strategy and the success of
the business in the short and the long term;
£ is straightforward and easy to understand;
£ is based on principles which are
applied consistently;
£ results in a reward framework which reflects
performance; and
£ is transparent to the executives, the
workforce and shareholders.
In summary, our remuneration framework
for our Executive Directors and the wider
workforce is aligned with the strategic
direction and performance of SEGRO as
well as the interests of our shareholders,
see chart opposite.
The current Policy was approved in 2017
with over 94 per cent of votes in favour and
the Directors Remuneration Report last year
received over 97 per cent of votes in favour.
We continue to value securing such support
in the future.
COMPANY PERFORMANCE
AND OUTTURNS
The Company has delivered sustained
and very healthy returns to shareholders.
As illustrated on page 92, an investment of
£100 in SEGRO shares at the start of 2012
would have generated a gain (including
reinvestment of the dividend) of just under
£300 in 7 years compared to the FTSE 350
REIT index of a gain of just under £100.
This out performance has been the main
reason why SEGRO is now the largest UK
listed REIT by market capitalisation and an
established constituent of the FTSE 100.
In 2018, we delivered another year of
strong operating and financial performance,
as reviewed by David Sleath on page 6.
Adjusted profit before tax is up 24.4 per cent
to £241.5 million and adjusted earnings per
share are up 17.6 per cent. EPRA NAV per
share has risen by 17 per cent to 650 pence.
The balance sheet remains in good shape
with a conservative loan-to-value ratio of 29
per cent. The Board is recommending a final
dividend of 13.25 pence per share, making
the full year dividend 18.8 pence per share,
an increase of 13.3 per cent.
Our remuneration
framework is aligned with
the strategic direction and
performance of SEGRO”
CHRISTOPHER FISHER
CHAIR OF THE REMUNER ATION COMMIT TEE
On behalf of the Board, I am pleased
to present our Remuneration
Report for 2018.
I have chaired the Remuneration
Committee since May 2017, having
served as an Independent Non-Executive
Director and Remuneration Committee
member since 2012. Accordingly, I have
been closely involved with the evolution
of our remuneration policies and their
implementation over this period. We are
now proposing a revised Remuneration
Policy (2019 Policy) which we are only
contemplating after the most careful
consideration and consultation.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 85
REMUNERATION:
REWARDING AGAINST PERFORMANCE
The chart below shows how the Directors’ and workforce remuneration was aligned with our strategy in 2018.
OUR GOAL AND STR ATEGIC PILLARS
HOW OUR PERFORMANCE MEASURES ALIGN TO OUR STR ATEGY
1. OUR GOAL
OUR GOAL IS TO BE THE BEST OWNER-
MANAGER AND DEVELOPER OF WAREHOUSE
PROPERTIES IN EUROPE AND A LE ADING
INCOME-FOCUSED REIT.
2. DISCIPLINED CAPITAL
ALLOCATION
3. OPER ATIONAL
EXCELLENCE
4. EFFICIENT CAPITAL &
CORPOR ATE STRUCTURE
CURRENT KPIs
Total property return
EPRA NAV per share
EPRA vacancy rate
Customer satisfaction
Loan to value ratio
Total shareholder return
Adjusted EPS
Total cost ratio
Rent roll growth
PERFORMANCE MEASURES
ANNUAL BONUS ME ASURES:
Adjusted PBT (33.3%)
Rent roll growth (33.3%)
Relative TPR over 1 year (33.3%)
LTIP ME ASURES:
Relative TSR over 3 years (50%)
Relative TPR over 3 years (50%)
ALL PERFORMANCE MEASURES FEED
DIRECTLY INTO BOTH DIRECTORS’
AND EMPLOYEES’ REMUNER ATION
EXECUTIVE DIRECTORS
SALARY
BONUS
DSPB
LTIP
PENSION (UK)
SIP
SAYE
Pay rise in line with employee pay
Maximum 150%
Targets:
• TPR
• RRG
• Adjusted PBT
50% of Bonus
deferred
3 years
Maximum 200%
30/20% of salary
paid as cash
Maximum £3,000
3 year savings
period
3 years
2 year holding
period
Targets:
• TSR
• TPR
Minimum 3 year
hold
£500/month
maximum
ALL EMPLOYEES
SALARY
BONUS
DSPB
LTIP
PENSION (UK)
SIP
SAYE
Average increases approved by
the Committee
All employees are
eligible for a bonus
Targets:
• TPR
• RRG
• Adjusted PBT
• Personal
performance
Leadership team
25% of Bonus
deferred
3 years
Variable awards
for Leadership
team and senior
managers
3 years
No holding period
Targets:
• TSR
• TPR
12% matched
contribution
Maximum £3,000
3 years savings
period
Minimum 3 year
hold
£500/month
maximum
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 86
GOVERNANCE
REMUNERATION
CONTINUED
Having established that TPR is such an
important measure, it was included in the
Bonus scheme to ensure that everyday
decisions about the portfolio were being
taken with this in mind. The LTIP scheme,
by definition, measures performance over a
longer period and so using TPR here, it acts as
a balance to the Bonus scheme making sure
that decisions are made for the long term and
not just for short-term benefit.
Further, the TPR measures used for the Bonus
and LTIP reflect the different award periods
and so exactly the same data is not used twice.
WORK OF THE COMMITTEE DURING
THE YEAR
The key areas of focus of the Committee were:
£ the approval of the Executive Directors’
annual salary increases, the approval of
the 2017 Bonus payments and the outturn
of the 2014 LTIP award, along with the
approval of the 2018 Bonus and 2018
LTIP targets;
£ reviewing shareholder feedback following
the AGM;
£ monitoring the changing trends in
corporate governance, the UK Corporate
Governance Code 2018 (the New Code)
and associated guidance; and
£ a review of the Policy, drafting the 2019
Policy and consultation with shareholders.
STAKEHOLDER ENGAGEMENT
The Committee has three primary
stakeholders: shareholders; Directors whose
pay and benefits are within its remit; and the
Company’s workforce.
£ Shareholders
I am committed to ensuring that there
is always an open dialogue with our
shareholders. The Committee values
shareholder engagement and I am available
should shareholders wish to discuss their views
on current practice or emerging issues.
I refer later to the consultation exercise which
was followed in relation to the proposed 2019
Policy. We appreciated the engagement with
our larger shareholders during this process
and their input and support in reviewing our
proposals and helping us to develop them.
£ Directors
2019 REMUNER ATION POLICY
After each meeting of the Remuneration
Committee I report to the Board on any
significant decisions which will impact on
the Company generally or the principles of
remuneration for the Directors.
£ The Company’s workforce
The Committee’s remit includes considering
the remuneration framework for the
workforce and monitoring the remuneration
arrangements for the Executive Committee.
It ensures that workforce remuneration is
structured to reward everyone fairly and, in
a year of strong Company performance, to
ensure that everyone shares in its success.
The reward framework for the workforce is
based on the Policy and mirrors the structure
which applies to the Executive Directors.
Every employee is eligible for an annual
bonus; the maximum award is based on role
and seniority with a quarter of the award
being calculated on the basis of personal
performance, while the other three metrics are
the same as those for the Executive Directors.
Those in the Leadership team are subject
to bonus deferral and, along with senior
managers, they are eligible for LTIP awards,
which are subject to the same performance
conditions as the Executive Directors.
The Company offers schemes to encourage
employee share ownership.
Each year, when considering pay increases,
bonus awards and targets for the Executives,
the Committee receives a report from the
Group HR Director on remuneration for every
member of the Leadership team and a more
general report on pay across the Group.
THE YEAR AHEAD
The key areas of focus for the Committee in
2019 will be:
£ approval of the Executive Directors’ salary
increases, the 2018 Bonus payments and
the outturn of the 2015 LTIP award, along
with the approval of the 2019 Bonus and
2019 LTIP targets;
£ monitoring the emerging trends in
corporate governance;
£ implementing the proposed changes to the
2019 Policy, subject to receiving shareholder
approval; and
£ updating the Committee’s Terms of
Reference to reflect changes in the
New Code.
For a number of years, we have been
concerned that the quantum of our
remuneration package for Executive Directors
was no longer serving the Company’s interests
as well as it should. Addressing such concerns
is, naturally, a sensitive subject but, since our
last remuneration policy review in 2016/17,
we felt the need to do so was becoming more
pressing while at the same time the evidence
to justify an exceptional change was becoming
more compelling.
The catalyst to take action was a combination
of these growing concerns and the further
evolution last year of the UK Corporate
Governance Code (the Code) as it applied
to remuneration. This led us to commission
an independent review of our Policy to take
account of emerging best practice as well
as to examine whether or not it would be in
the Company’s best interest to modify any
elements of our current remuneration package
for each Executive Director.
One of the elements of evidence that
contributed to our concerns regarding the
current validity of our Policy arose from the
external recruitment of our Chief Financial
Officer, who joined us in 2017, where we
found, in order to provide a competitive
package, that we needed to pay him
significantly more than his predecessor.
The conclusion of the independent review
by Korn Ferry was that certain adjustments
were needed to our remuneration package,
particularly as it related to salary levels,
the scale of longer term performance
opportunities and the level and nature of
shareholding guidelines. They found that
the remuneration opportunity at SEGRO
was well adrift from comparable companies,
no longer reflected the scale and nature of
the associated responsibilities, may not be
sufficiently motivating for the existing team
and, most importantly, ill-equipped us for
future succession planning.
With regard to succession planning, particularly
as it related to the position of Chief Executive,
while it is not an immediate issue we are
conscious that we need to address now
the competitiveness of his remuneration
package for this to be seen to be an attractive
opportunity to potential succession candidates,
thereby fostering their retention or supporting
their attraction. We judged that failure to
address this matter would be prejudicial to the
Company’s long-term interests.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 87
The proposed increases in remuneration
have been informed by comparable data
but have not been determined by them; had
this been the case the proposed increases
would have been much larger and in our
view not justifiable. These proposals have
not been generated in response to internal
pressure: the Executive ‘tail’ has not ‘wagged’
the Remuneration Committee ‘dog’; rather,
we have tried to strike a balance between
the prevailing environment which expects a
degree of restraint to executive pay and the
current and future needs of the Company.
While any significant percentage increase in
salary is sensitive, the resulting levels of fixed
and variable pay which we are proposing are
still well within the boundaries of comparable
data. Specifically, the fixed pay and total pay
opportunity would still be below mid-market
levels, based upon pay levels in companies in
the FTSE51-100 and the average of the four
other largest UK listed REITs.
In considering how best to proceed, the
option was available to the Remuneration
Committee to take certain steps now under
its existing authorities and leave further
changes to next year when the remuneration
framework was next due for its scheduled
review. We felt, however, that it would be
better practice to come now with a complete
package which could be judged in the round
and with all elements only implemented with
shareholder approval.
Accordingly, last Autumn we initiated two
rounds of consultations with our major
shareholders on these draft proposals.
The feedback from this exercise has led us to
modify our initial thoughts, particularly as they
relate to the phasing of the proposed increase
OUR PROPOSALS
(1) Salary:
Chief Executive
in the salary of the Chief Executive and to the
strengthening of the terms of shareholding
guidelines to include a post-employment
requirement. In addition, since the Autumn
there has been increased governance focus on
the level of executive pension contributions.
We have felt it appropriate to give further
weight to this in the final package we are
proposing, in which you will see a phased
10 per cent of salary reduction in the pension
contributions of the Chief Executive has
been included.
In the absence of these proposals the Chief
Executive’s salary would have been increased
by 3.5 per cent this year, in line with the
general workforce. If there were a similar
outcome next year, the proposed increase
in his salary beyond what would otherwise
occur is in total 10 per cent. Given that the
package now includes a 10 per cent reduction
in his pension contributions over the same
period the net effect on fixed remuneration
is correspondingly small. Of course, the shift
within this towards salary has a knock-on
effect on the variable pay opportunity, but this
is both deliberate and, we believe, appropriate.
WHAT IS NOW BEING PROPOSED?
As you will see from the chart below there
are four material elements: an uplift in base
salary for three of our Executive Directors,
which would subsume the normal annual
review; an increase in the LTIP opportunity,
alongside a new performance metric; a
reduction in pension benefits; and increases
in shareholding requirements. There are no
proposed changes to the arrangements for the
annual bonus.
Under the current Policy, the LTIP is founded
upon TPR and Total Shareholder Return (TSR).
We reviewed the targets for the LTIP and
felt that they were sufficiently challenging,
reinforcing our pay for performance culture.
In the context of the proposed additional
LTIP opportunity we concluded that a further
challenge should be created through a new
performance measure. By introducing a
measure of the increase in Net Asset Value
plus dividends paid to shareholders (Total
Accounting Return or TAR), we create a
more balanced and stretching assessment of
performance. This measure adds the impacts
of gearing, overhead expenses, interest, tax
and corporate activity to TPR achieved and
so is complementary to TSR but without the
potential short-term volatility created by share
price fluctuations.
OVER ALL IMPACT
These proposals by their incremental nature
will take some years to have a full effect on
the rewards and incentives of our current
Executive Directors and to be relevant to
future decision making and performance.
The main increase in overall remuneration will
only be delivered through short and long-
term incentives if the business performs, and
will predominantly be paid in shares which
will now have more demanding retention
requirements. As our LTIP grants are based
on salary levels at the preceding year end,
rather than at the time of grant, the increased
opportunity will only fully apply from
2021. Even after these proposals, the Chief
Executive’s fixed pay and total pay opportunity
would remain below mid-market levels.
Increases of 8.5 per cent in April 2019 and 8.4 per cent in April 2020 conditional on satisfactory performance
of the individual and the Company.
Chief Investment Officer/Chief Operating Officer
An increase of 8.4 per cent in April 2019.
(2) LTIP Award:
Removal of exceptional maximum award of 300 per cent of salary.
Increase awards to 250 per cent of salary (currently 200 per cent).
Introduce a third performance measure of relative Total Accounting Return.
Threshold vesting to be reduced to 20 per cent (from 25 per cent).
(3) Pension provisions:
Chief Executive cash allowance
To reduce to 25 per cent of salary (currently 30 per cent) in April 2019 with a commitment to reduce to
20 per cent in April 2020.
New Executive Director appointments
To receive a pension or cash allowance in line with the UK workforce.
(4) Shareholding guidelines:
Quantum
Post-employment
Malus and clawback
To increase for the Chief Executive to 300 per cent of salary (currently 250 per cent) and to 250 per cent
of salary (currently 200 per cent) for other Executive Directors.
To introduce a requirement for the Executive Directors to continue to hold the full amount of the shareholding
guidelines for two years after leaving the Company.
These clauses in the Bonus, DSBP and LTIP rules will be amended to ensure they will operate if there is a business
failure and will extend to significant reputational damage.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
88
GOVERNANCE
REMUNERATION
CONTINUED
CONCLUSION
As Chair of the Committee, I believe that
the remuneration culture at SEGRO is
rightly a robust one, but I also believe we
are now experiencing some mis-alignments
of sufficient significance for it to be in the
Company’s best interest to address them.
We are acutely aware of the sensitivity
surrounding changes to executive pay in the
listed UK environment and the Committee has
spent a considerable amount of time reflecting
and consulting on the proposed 2019 Policy.
It has not been a decision that has been
taken lightly but it must be right that policies
are capable of evolution when justified,
which we firmly believe to be so in this case.
The Committee believes that the proposed
changes are right for both the Company and
our shareholders. The Committee, with the
support of all the Non-Executive Directors,
recommends the two resolutions giving effect
to these proposals to our shareholders.
If you have any questions about remuneration
generally, or the contents of this Report or
the proposed 2019 Policy, do please contact
me at christopher.fisher@segro.com. I will be
attending the AGM and should be pleased
to answer any questions which you may have
about the Committee’s work.
CHRISTOPHER FISHER
CHAIR OF THE REMUNER ATION COMMIT TEE
We will have in place a more balanced
incentive package which will be more
stretching to deliver than currently due to the
additional long-term performance condition.
We will continue to reward long-term
relative not absolute out performance against
the sector.
AGM VOTING
We will have two resolutions on Directors’
remuneration at the 2019 AGM.
The resolution to approve the Directors’
Remuneration Report covers the salary, Chief
Executive’s pension reduction, shareholding
guideline changes and enhancements to
clawback provisions.
The resolution to approve the 2019 Policy
covers the changes to the LTIP for Executive
Directors and some minor additional changes
for example how we will limit pension benefits
for future Board appointments to the level
provided to the UK workforce, currently
12 per cent of salary.
OUR AIM
Our aim is to ensure that our Remuneration
Policy can apply in a fair and appropriate
way for the next three-year period from the
2019 AGM, that we are better placed for
succession planning purposes, that there
continues to be strong alignment between
executive remuneration and value creation for
shareholders, and that we are taking account
at the earliest opportunity of the New Code
and other best practice features which are
important to our shareholders.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 89
2018 ANNUAL REMUNER ATION REPORT
The following section provides details of how the Company’s Remuneration Policy was applied during the financial year ended 31 December 2018.
DIRECTORS’ REMUNERATION – EXECUTIVE DIRECTORS’ SINGLE FIGURE (AUDITED)
CHART 1: EXECUTIVE DIRECTORS’ SINGLE TOTAL FIGURE OF REMUNER ATION FOR 2018
Salary
Taxable
benefits
Single year
variable
– Bonus
including
DSBP
Multiple year
variable
– LTIP
Pension
benefit
2018
£000
2017
£000
2018
£000
2017
£000
2018
£000
2017
£000
2018
£000
2017
£000
2018
£000
David Sleath
Soumen Das
Andy Gulliford
Phil Redding
Total
633
470
414
414
615
443
402
402
1,931
1,862
20
20
20
20
80
20
19
20
19
78
845
628
553
553
929
690
608
608
1,904
2,373
190
567
1,247
1,247
407
1,553
1,553
94
83
83
Other
Total
2018
£000
2017
£000
2018
£000
2017
£000
4
4
4
4
4
3,596
1,327
1,783
4
4
2,321
2,321
4,125
2,975
2,667
2,666
2017
£000
184
89
80
80
2,579
2,835
4,965
5,886
450
433
16
1,339 10,021
12,433
Taxable benefits
This includes private medical healthcare, plus cash allowance in lieu of a company car. In addition, Executive Directors are entitled to life assurance
which is not taxable.
Single year variable – Bonus including DSBP
The single year variable amount includes the cash Bonus payable and monetary value of the shares awarded under the Deferred Share Bonus
Plan (DSBP). In accordance with the Policy, 50 per cent of any Bonus earned in 2018 will be deferred into shares under the DSBP. Vesting of
shares is dependent on continued employment or good leaver status. See Chart 3 for details of the 2018 Bonus payment.
As the MSCI Benchmark data was not available at the date of publication of the 2017 Annual Report, the 2017 Bonus payments disclosed last
year were based on an estimate of 100 per cent of the TPR element being achieved. The TPR element has since been confirmed at 100 per cent
and accordingly no adjustment has been made to the 2017 figure.
Multiple year variable – LTIP
2018
The outturn for the 2015 Long Term Incentive Plan (LTIP) which vests in 2019 has been estimated at 100 per cent and the vesting share price has
been estimated at 612.96 pence, based on the three-month average share price ending 31 December 2018. For further information see page 96.
It is estimated that £534,240 of the above figure for David Sleath and £349,685 of the above figures for Andy Gulliford and Phil Redding may
be attributed to a share price appreciation of 190.46 pence per share, based on an actual award price of 422.50 pence and an estimated vesting
share price of 612.96 pence, and £156,586 of the above figure for Soumen Das may be attributed to share price appreciation of 178.96 pence
per share, based on an actual award price of 434.00 pence and an estimated vesting price of 612.96 pence.
The monetary value of the 2015 LTIP includes a cash value of 66 pence per share for David Sleath, Andy Gulliford and Phil Redding and
35 pence per share for Soumen Das, equivalent to the dividends that they would have received had they held the shares from the award date.
The Committee has the right to decide that this payment may be made in cash or shares.
The Committee has not exercised discretion in respect of the vesting of the 2015 LTIP.
2017
In the 2017 Annual Report the estimated vesting share price for the 2014 LTIP, which vested in 2018, was 552.16 pence, and the figure in the
above table has been re-presented to reflect the actual vesting share price of 638.53 pence.
Pension benefit
In 2018, each of the Executive Directors received cash in lieu of pension.
Other
This includes SIP, based on the number of shares awarded during the year and the share price at the date of grant, and Sharesave, based on the
discount represented by the option price, multiplied by the annual savings. For Soumen Das, the 2017 figure includes the value of replacement
awards made in 2017 under the rules of the DSBP. For further information, see Chart 14 on page 96 of the 2017 Annual Report.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
90
GOVERNANCE
REMUNERATION
CONTINUED
BASE SALARY (AUDITED)
On 1 April 2018, the Chief Executive’s base salary was £637,600, the Chief Financial Officer’s base salary was £473,800, and the base salaries of
the Chief Investment Officer and the Chief Operating Officer were each £417,465.
From 1 April 2019, David Sleath will receive an increase to salary of 8.5 per cent, Andy Gulliford and Phil Redding will receive an increase to
salary of 8.4 per cent and Soumen Das will receive an increase to salary of 3.5 per cent.
NON-EXECUTIVE DIRECTORS’ SINGLE FIGURE (AUDITED)
The Non-Executive Directors’ fees are reviewed by the Board in the absence of the Non-Executive Directors, while the fees paid to the Chair are
reviewed by the Committee.
The Non-Executive Directors’ fees were last increased in January 2018. The base Non-Executive Director fee is £60,000 per annum, the fee for
a Director chairing a Board Committee is £75,000 per annum and the fee for the Senior Independent Director is £75,000 per annum. The Chair
continues to be paid £250,000 per annum. It is proposed that his fee will be reviewed towards the end of 2019 and in the meantime remains at
the level set in 2016.
The Chair and Non-Executive Directors do not participate in any of the Company’s share-based incentive schemes nor do they receive any other
benefits or rights under the pension schemes. Chart 2 shows the total remuneration received by each of the Non-Executive Directors and the
Chair during the year.
CHART 2: INDEPENDENT NON-EXECUTIVE DIRECTORS’ SINGLE TOTAL FIGURE OF REMUNER ATION FOR 2018
Gerald Corbett
Sue Clayton1
Carol Fairweather2
Christopher Fisher3
Margaret Ford4
Martin Moore5
Mark Robertshaw6
Doug Webb
Chair
Chair of the Remuneration Committee (since 18 May 2017)
Senior Independent Director (until 19 April 2018),
Chair of the Remuneration Committee (until 18 May 2017)
Senior Independent Director (since 19 April 2018)
Chair of the Audit Committee
1 Sue Clayton was appointed as a Director on 1 June 2018.
2 Carol Fairweather was appointed as a Director on 1 January 2018.
3 Christopher Fisher succeeded Margaret Ford as Chair of the Remuneration Committee on 18 May 2017.
4 Margaret Ford resigned as a Director on 19 April 2018.
5 Martin Moore succeeded Margaret Ford as Senior Independent Director on 19 April 2018.
6 Mark Robertshaw resigned as a Director on 31 July 2018.
2018
£000
250
35
60
75
23
70
35
75
Total fees
2017
£000
250
–
–
61
71
55
55
65
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
91
CHART 3: BONUS PAYMENT 2018
65%
PBT
TPR
100%
RRG
100%
The actual TPR performance for the
Company’s assets for bonus purposes in
2018 was 16.8 per cent, being 17.6 per cent
for the UK and 15 per cent for Continental
Europe. At the date of this report the MSCI
Benchmark was only available for the UK, at
16.4 per cent.
On the basis of the performance of the
Company’s assets against the MSCI TPR
Benchmark as noted above, and for the
purposes of this Report, the Committee has
estimated that 65 per cent of the overall TPR
will be achieved for 2018 Bonus payments.
The TPR figures stated above are different to
those stated in the KPls on page 38, which
relate to standing investments only.
The Adjusted PBT and RRG element of
the 2018 Bonus will be paid in April 2019,
less a 50 per cent deduction for the DSBP.
Payment of the TPR element will be deferred
until Summer 2019, when the European MSCI
Benchmarks become available. Accordingly,
the actual payment made under the TPR
element of the 2018 Bonus, together with
the deferral under the DSBP, may differ
from the amount disclosed in this Report.
The DSBP award will be made once the final
Bonus figures can be calculated. The vesting
of the 2018 DSBP will be in April 2022,
the third anniversary of the payment of the
profit and RRG element of the 2018 Bonus.
Any payments under the 2018 Bonus and any
awards made under the DSBP will be made in
accordance with the Remuneration Policy.
BONUS PAYMENT 2018 (AUDITED)
For the Executive Directors, the 2018
Bonus comprised three equally weighted
components: Adjusted Profit Before Tax (PBT);
rent roll growth (RRG); and relative TPR.
£ Profit – Adjusted PBT against target
For this element, a Bonus is earned for
Adjusted PBT performance against target.
50 per cent is earned on achieving the
threshold target (£222.1 million for 2018),
rising to 100 per cent for achieving the
maximum target (£238.8 million for 2018).
100 per cent of this element was achieved
in 2018, with Adjusted PBT performance for
bonus purposes of £246.1 million.
£ Rent roll growth (RRG) against target
For this element, a Bonus is earned if the
rent roll growth from the existing standing
stock is positive (the threshold). Once the
threshold is achieved, the Bonus is determined
based on total RRG (existing standing stock
plus the impact of development RRG), with
a sliding pay-out scale rising from 0 per
cent for flat total RRG through to 100 per
cent for achieving the maximum increase
(£40.3 million in 2018). In 2018, RRG from
standing stock was positive, thus ensuring
the threshold was achieved. Total RRG
including the contribution from developments
was £52.6 million for Bonus purposes and,
accordingly, 100 per cent of this element
was achieved.
Bonus targets for Adjusted PBT and RRG
are set at the start of the year. The outturns
were calculated using a consistent exchange
rate and also include adjustments for specific
items (including acquisitions and disposals) in
accordance with the Bonus scheme rules as
approved by the Committee.
£ TPR – Relative TPR against the
MSCI Benchmark
For this element, a Bonus is earned if the
Company’s TPR is in line with the TPR
of a comparable externally calculated
Benchmark, rising on a straight-line basis
to 100 per cent when the Company’s TPR
exceeds the Benchmark by 1.5 per cent.
The Company’s TPR performance excludes
land. The Benchmark is calculated by MSCI
based on All Industrial Country benchmarks
weighted to reflect the approximate mix of the
Company’s portfolio.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 92
GOVERNANCE
REMUNERATION
CONTINUED
BONUS PAYMENT 2017
Calculation of the TPR element of the Bonus payment is based on comparison with the MSCI Benchmark, the data for which was not available at
the time of publication of the 2017 Annual Report. The Remuneration Committee estimated that 100 per cent of this element would be achieved
and the actual TPR data confirmed that this was correct.
CHIEF EXECUTIVE SINGLE FIGURE
CHART 4: TEN-YEAR CHIEF EXECUTIVE SINGLE TOTAL FIGURE OF REMUNER ATION
Year
2018
2017
2016
2015
2014
2013
2012
20111
2010
2009
Chief Executive
David Sleath
David Sleath
David Sleath
David Sleath
David Sleath
David Sleath
David Sleath
David Sleath
Ian Coull
Ian Coull
Ian Coull
Chief Executive single
figure of remuneration
£000
Short-term incentive
payout against
maximum
opportunity
%
Long-term incentive
vesting rates
against maximum
opportunity
%
3,596
4,1252
3,788
2,388
2,043
1,370
1,194
860
411
1,896
1,557
88.3
100.0
99.2
100.0
66.7
75.4
56.7
100.0
100.0
97.3
75.3
100.0
100.0
100.0
42.3
42.9
0.0
21.6
19.1
26.0
26.0
0.0
1 On 28 April 2011, Ian Coull retired as Chief Executive and David Sleath was appointed to this role. The values shown above have been pro-rated accordingly.
2 This figure has been updated since the 2017 Annual Report as some values were estimated. For further information see Chart 1.
CHARTS 5 AND 6: TSR CHARTS
Chart 5 shows TSR for the Company over the last ten financial years compared with the FTSE 350 REITs and the FTSE 100 Index. The
Committee has determined that these indices provide useful comparators as the Company, or its peers, are constituents of them. Chart 6 shows
TSR for the Company over the last seven financial years since the current strategy under David Sleath was adopted in 2011, compared with the
same benchmarks as Chart 5.
CHART 5: COMPOSITE TEN-YEAR TSR CHART
CHART 6: COMPOSITE SEVEN-YEAR TSR CHART
450
400
350
300
250
200
150
100
50
450
400
350
300
250
200
150
100
50
JAN
2009
DEC
2009
DEC
2010
DEC
2011
DEC
2012
DEC
2013
DEC
2014
DEC
2015
DEC
2016
DEC
2017
DEC
2018
JAN
2012
DEC
2012
DEC
2013
DEC
2014
DEC
2015
DEC
2016
DEC
2017
DEC
2018
SEGRO
FTSE 100
FTSE 350 REITs
SEGRO
FTSE 100
FTSE 350 REITs
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
93
CHART 7: PERCENTAGE INCREASE IN CHIEF EXECUTIVE REMUNER ATION COMPARED TO THE AVER AGE PER EMPLOYEE
Salary received during year
Taxable benefits received during year
Annual variable pay received during year
(Bonus and DSBP)
Total
Chief Executive
2018
£000
633
20
845
1,498
2017
£000
615
20
929
1,564
Average per
employee1
2018
£000
87
9
42
138
Increase
%
3
0
(9)
(4)
2017
£000
83
8
46
137
Increase
%
5
7
(8)
1
1 Average per employee is based on UK employees who have been continually employed for the entirety of 2017 and 2018 and entitled to receive annual variable payment. UK employees represent
approximately 54 per cent of the workforce.
CHART 8: CEO PAY R ATIO
Year
2018
Method
A
25th percentile
pay ratio
Median
pay ratio
75th percentile
pay ratio
65:1
41:1
24:1
The Chief Executive’s single total figure of remuneration for 2018 used for the calculation of the above ratios is detailed in Chart 1. The Committee has estimated the TPR element of the 2018 Bonus and
the outturn of the 2015 LTIP Award, which will vest in 2019, as MSCI Benchmark data was not available at the date of the publication of the 2018 Annual Report.
CHART 9: RELATIVE IMPORTANCE OF SPEND ON PAY
Year
2018 (2017 final and 2018 interim)
2017 (2016 final and 2017 interim)
DIRECTOR SHAREHOLDINGS (AUDITED)
Total dividend
paid
(£m)
Total employee
expenditure
(£m)
169.9
145.7
39.5
37.6
The interests of the Directors and their immediate families in the ordinary shares of the Company at 1 January 2018 and 31 December 2018
were as set out below.
CHART 10: DIRECTORS’ BENEFICIAL INTERESTS IN SHARES
Gerald Corbett
Sue Clayton2
Soumen Das
Carol Fairweather3
Christopher Fisher
Margaret Ford4
Andy Gulliford
Martin Moore
Phil Redding
Mark Robertshaw5
David Sleath
Doug Webb
Beneficial interests1
31.12.2018
Ordinary 10p
shares
01.01.2018
Ordinary 10p
shares
63,960
–
153,345
12,000
20,592
22,312
481,809
17,442
345,094
19,200
691,854
26,541
63,960
–
92,322
–
20,592
22,312
340,815
17,442
318,865
19,200
652,899
25,922
1 Beneficial interests in Chart 10 above represent shares beneficially held by each Director, including any ordinary shares held beneficially by spouses as well as shares held on behalf of the Executive
Directors by the Trustees of the SIP. Between 31 December 2018 and 14 February 2019 there were no changes in respect of the Directors’ shareholdings. The Trustees of the SIP held a non-beneficial
interest in 486,289 shares as at 1 January 2018, 472,175 shares as at 31 December 2018 (2017: 486,289) and 470,501 shares as at 14 February 2019. The Trustees of the 1994 SEGRO plc Employees’
Benefit Trust held 665,653 shares as at 1 January 2018 and 432,924 shares as at 31 December 2018 (2017: 665,653 shares). There was no change in their holdings between 31 December 2018 and
14 February 2019. As with other employees, the Directors are deemed to have a potential interest in these shares, being beneficiaries under these two Trusts.
2 As a part-time Executive Director of CBRE, there is a restriction on Sue Clayton’s ability to own shares in SEGRO plc. She is therefore exempt from the Non- Executive Directors’ shareholding
requirements until such time as this restriction no longer applies.
3 Carol Fairweather was appointed to the Board on 1 January 2018.
4 Margaret Ford retired from the Board on 19 April 2018. The figure in the table shows her holdings as at that date.
5 Mark Robertshaw retired from the Board on 31 July 2018. The figure in the table shows his holdings as at that date.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 94
GOVERNANCE
REMUNERATION
CONTINUED
CHART 11: EXECUTIVE DIRECTORS’ OVER ALL INTERESTS IN SHARES
David Sleath
Soumen Das
Andy Gulliford
Phil Redding
Beneficial
interests
(including
SIP shares)
691,854
153,345
481,809
345,094
Subject to
deferral under
DSBP
266,126
171,007
148,533
148,533
Subject to
achievement of
performance
conditions
under
LTIP
1,011,357
667,400
662,063
662,063
Options
outstanding
under
Sharesave
4,914
4,914
4,265
3,616
Total as at
31.12.18
1,974,251
996,666
1,296,670
1,159,306
POLICY ON SHAREHOLDING GUIDELINES (FROM 1 JANUARY 2019) (AUDITED)
Executive Directors are expected to build a shareholding equivalent to 250 per cent the value of their base salary calculated by reference to the
share price as at 31 December 2018. The Chief Executive is expected to hold shares equivalent to 300 per cent his base salary. The number
of shares held which contribute towards the shareholding requirement comprise beneficial interests including SIP shares held in trust and
shares under award in the DSBP net of income tax and National Insurance, but excludes shares under award in the LTIP and outstanding
Sharesave options.
Executive Directors are required to retain half of their LTIP and DSBP shares post vesting until the above guidelines have been met
and maintained.
Non-Executive Directors are expected to own shares equivalent to 100 per cent of their annual fees calculated by reference to the share price as
at 31 December 2018.
CHART 12: EXECUTIVE DIRECTORS’ SHAREHOLDING AND SHAREHOLDING REQUIREMENTS
David Sleath
Soumen Das
Andy Gulliford
Phil Redding
Number of shares
held as at
31.12.181
832,900
243,978
560,531
423,816
Value of shares
held as at
31.12.182
4,902,499
1,436,055
3,299,285
2,494,581
Shareholding as a
percentage of
salary as at
31.12.18
(%)
768.9
303.1
790.3
597.6
Shareholding
requirements met
1 Comprised beneficial holdings and shares under award in the DSBP net of income tax and National Insurance.
2 Value of shares calculated using share price of 588.6p as at 31 December 2018.
CHART 13: NON-EXECUTIVE DIRECTORS’ SHAREHOLDING AND SHAREHOLDING REQUIREMENTS
Gerald Corbett
Sue Clayton2
Carol Fairweather
Christopher Fisher
Martin Moore
Doug Webb
Number of shares
held as at
31.12.18
Value of shares
held as at
31.12.181
Shareholding as a
percentage of
annual fees as at
31.12.18
(%)
Shareholding
requirements met
63,960
–
12,000
20,592
17,442
26,541
376,469
–
70,632
121,205
102,664
156,220
150.6
–
117.7
161.6
136.9
208.3
n/a
1 Value of shares calculated using share price of 588.6p as at 31 December 2018.
2 As a part-time Executive Director of CBRE, there is a restriction on Sue Clayton’s ability to own shares in SEGRO plc. She is therefore exempt from the Non-Executive Directors’ shareholding
requirements until such time as this restriction no longer applies.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 95
EXECUTIVE DIRECTOR SHARE SCHEME HOLDINGS (AUDITED)
DSBP
The DSBP was implemented for the 2010 Bonus payment onwards for the Executive Directors and the Leadership team. Since 2013, the deferral
percentage has been 50 per cent for Executive Directors. The shares held under the DSBP are shown in Chart 14 below. On vesting, the
Committee may deliver shares or a cash equivalent to the value of the dividends that would have been paid over the three-year holding period.
CHART 14: DSBP AWARDS OUTSTANDING
No. of shares
over which
awards granted
during
the year1
No. of shares
under award
01.01.18
Share price of
shares on grant
(pence)2
Face value of
award made
in 2018
(£)
No. of shares
released
during
the year
Date of grant
Share price on
date of release
(pence)
No. of shares
under award
31.12.18
End of
holding
period
DAVID SLEATH
2014 DSBP
2015 DSBP
2016 DSBP
2017 DSBP
TOTAL
SOUMEN DAS3
Replacement award
Replacement award
Replacement award
2016 DSBP
2017 DSBP
TOTAL
ANDY GULLIFORD
2014 DSBP
2015 DSBP
2016 DSBP
2017 DSBP
TOTAL
PHIL REDDING
2014 DSBP
2015 DSBP
2016 DSBP
2017 DSBP
TOTAL
30.06.15
26.05.16
28.06.17
28.06.18
02.05.17
02.05.17
02.05.17
28.06.17
28.06.18
30.06.15
26.05.16
28.06.17
28.06.18
30.06.15
26.05.16
28.06.17
28.06.18
72,617
105,935
90,271
–
–
–
–
69,920
268,823
56,105
31,577
72,999
14,474
–
–
–
–
–
51,957
175,155
38,024
55,471
47,283
–
–
–
–
45,779
140,778
38,024
55,471
47,283
–
–
–
–
45,779
140,778
408.0
432.1
495.5
664.0
434.0
434.0
434.0
495.5
664.0
408.0
432.1
495.5
664.0
408.0
432.1
495.5
664.0
–
–
–
464,269
–
–
–
–
334,994
–
–
–
303,973
–
–
–
303,973
72,617
647.0
–
28.04.18
–
–
–
–
–
–
56,105
647.0
–
–
–
–
–
–
–
–
105,935
28.04.19
90,271
69,920
266,126
–
31,577
72,999
14,474
51,957
171,007
28.04.20
28.04.21
01.04.18
01.03.19
01.03.19
28.04.20
28.04.21
38,024
647.0
–
28.04.18
–
–
–
–
–
–
55,471
47,283
45,779
148,533
28.04.19
28.04.20
28.04.21
38,024
647.0
–
28.04.18
–
–
–
–
–
–
55,471
47,283
45,779
148,533
28.04.19
28.04.20
28.04.21
1 Awards are granted in the form of a provisional allocation of shares.
2 The share price of shares on grant is based on the mid-market quotation price for the day before the event, with the exception of the Replacement Awards granted to Soumen Das in 2017 where the
share price on grant was determined by the Committee to reflect the fair value of the awards forfeited on leaving his previous employer.
3 In order to recruit Soumen Das, it was necessary to buy out his 2016 bonus entitlement and the share awards he forfeited upon leaving his previous employer. Further details are available on page 96
of the 2016 Annual Report.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
96
GOVERNANCE
REMUNERATION
CONTINUED
LTIP
LTIP awards made after the 2017 AGM are subject to a three-year performance period and a two-year holding period. LTIP awards made before
the 2017 AGM were subject to a four-year performance period. All LTIP awards are subject to TSR and TPR performance conditions, which are
equally weighted and measured over the performance period:
£ TSR – this benchmark is based on the weighted mean TSR of other FTSE 350 REITs. 25 per cent of this element vests if the Company’s TSR
over the performance period is in line with benchmark TSR, rising on a straight-line basis to 100 per cent vesting if the benchmark is exceeded
by 5 per cent per year.
£ TPR – this benchmark is based on the MSCI All Industrial Country benchmarks weighted to reflect the approximate geographical mix of the
Group’s portfolio. 25 per cent of this element vests if the Company’s TPR over the performance period is in line with the MSCI Benchmark,
rising on a straight-line basis to 100 per cent if the MSCI Benchmark is exceeded by 1.5 per cent per year.
The 2014 LTIP Award vested on 2 May 2018, subject to the TSR and TPR performance conditions over the four-year performance period to
31 December 2017. As previously reported, 100 per cent of the TSR element vested. The 2017 Remuneration Report estimated that the TPR
element would vest at 100 per cent. The Company’s actual TPR over the performance period was 17.1 per cent and the benchmark was 14.7
per cent. The Company’s TPR outperformance of 2.1 per cent compared with the benchmark led to 100 per cent of the TPR element vesting.
Overall, this resulted in a total payout of 100 per cent for the 2014 LTIP Award.
The 2015 LTIP Award will vest on 22 May 2019, subject to relative TSR and TPR over the four-year performance period to 31 December
2018. The Company’s TSR over the performance period was 96.6 per cent and the benchmark TSR was -3.1 per cent. The Company’s TSR
outperformance of 19.3 per cent per annum compared with the benchmark will lead to 100 per cent of the TSR element vesting. As with the
Bonus, the complete TPR data will not be available until after the date of this Report. For the purposes of the Director’s single figure calculations
(Chart 1), the performance for the TPR element has been estimated. The estimated calculation is based on the Company’s actual annualised
TPR between 2015 and 2018 of 16.3 per cent and an estimated MSCI Benchmark over the same period of 13.8 per cent. On this basis, the
Company’s four year TPR to 31 December 2018 has exceeded the estimated MSCI Benchmark by more than 1.5 per cent which would lead to
100 per cent of the TPR element vesting.
Vesting of the TPR element of the LTIP will be deferred until Summer 2019, when the European MSCI Benchmarks become available.
Accordingly, the actual number of shares which will vest under the 2015 LTIP Award, may differ from the amount disclosed in this Report.
Details of the LTIP awards granted to the Executive Directors are set out in Chart 15. Any awards made under the LTIP in 2019 will be made in
accordance with the Remuneration Policy.
The Committee has the discretion to adjust awards downwards at vesting if it is not satisfied that the outcome is a fair reflection of underlying
performance, or in the event of excessive risk-taking or misstatement. No such discretion was exercised in respect of the vesting of the
2014 Award.
Dividends will accrue on LTIP shares which are released on vesting and may be paid in cash or shares.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 97
End of
performance
period
over which
performance
conditions
have to
be met
31.12.17
31.12.18
31.12.19
31.12.195
31.12.20
31.12.17
31.12.18
31.12.19
31.12.195
31.12.20
31.12.17
31.12.18
31.12.19
31.12.195
31.12.20
31.12.17
31.12.18
31.12.19
31.12.195
31.12.20
CHART 15: LTIP AWARDS OUTSTANDING
No. of
shares over
which
awards
granted
during
the year1
No. of
shares
under
award
01.01.18
Share price
of shares
on grant
(pence)2
Face value
of award
made in
2018
(£)
No. of
shares lapsed/
not released
during
the year
No. of
shares
released
during
the year
Share price
on date
of release
(pence)
No. of
shares
under
award
31.12.18
Date of grant
DAVID SLEATH
09.04.14
338,909
22.05.15
280,500
290,152
243,813
–
–
–
–
2014 LTIP
2015 LTIP
2016 LTIP
2017 LTIP
2018 LTIP
TOTAL
SOUMEN DAS3
2014 LTIP
2015 LTIP
2016 LTIP
2017 LTIP
2018 LTIP
TOTAL
ANDY GULLIFORD
2014 LTIP
2015 LTIP
2016 LTIP
2017 LTIP
2018 LTIP
TOTAL
PHIL REDDING
2014 LTIP
2015 LTIP
2016 LTIP
2017 LTIP
2018 LTIP
TOTAL
07.04.16
28.04.17
26.04.18
02.05.17
02.05.17
02.05.17
28.04.17
26.04.18
09.04.14
22.05.15
07.04.16
28.04.17
26.04.18
09.04.14
22.05.15
07.04.16
28.04.17
26.04.18
–
196,892
1,153,374
58,151
87,498
153,674
279,9184
–
–
–
–
–
146,310
579,241
221,831
183,600
189,916
159,634
–
–
–
–
–
128,913
754,981
221,831
183,600
189,916
159,634
–
–
–
–
–
128,913
754,981
339.5
422.5
420.7
493.0
628.8
434.0
434.0
434.0
493.0
628.8
339.5
422.5
420.7
493.0
628.8
339.5
422.5
420.7
493.0
628.8
–
–
–
–
1,238,057
–
–
–
–
919,997
–
–
–
–
810,605
–
–
–
–
810,605
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
338,909
638.53
–
–
–
–
–
–
–
–
58,151
638.53
–
–
–
–
–
–
–
–
221,831
638.53
–
–
–
–
–
–
–
–
221,831
638.53
–
–
–
–
–
–
–
–
–
280,500
290,152
243,813
196,892
1,011,357
–
87,498
153,674
279,918
146,310
667,400
–
183,600
189,916
159,634
128,913
662,063
–
183,600
189,916
159,634
128,913
662,063
1 Awards are granted in the form of a provisional allocation of shares.
2 The share price of shares on grant is based on the mid-market quotation price for the day before the award, with the exception of the Replacement Awards granted to Soumen Das in 2017 where the
share price on grant was determined by the Committee to reflect the fair value of the awards forfeited on leaving his previous employer.
3 In order to recruit Soumen Das it was necessary to buy out the share awards he forfeited upon leaving his previous employer. Further details are available on page 96 of the 2016 Annual Report.
These awards are subject to the same performance conditions as the other LTIP Awards.
4 As part of his recruitment package, Soumen Das was awarded 300 per cent of salary in respect of the 2017 LTIP.
5 Following the approval of the Remuneration Policy at the 2017 AGM, LTIP awards made after the 2017 AGM are subject to a three-year performance period and a two-year holding period.
Awards made before the 2017 AGM were subject to a four-year performance period.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
98
GOVERNANCE
REMUNERATION
CONTINUED
SHARESAVE (AUDITED)
CHART 16: SHARESAVE OPTIONS OUTSTANDING
Date of grant
No. of shares
under option
01.01.18
Options
granted
during
the year
DAVID SLEATH
2017 Sharesave
TOTAL
SOUMEN DAS
2017 Sharesave
TOTAL
ANDY GULLIFORD
2015 Sharesave
02.05.17
4,914
4,914
02.05.17
4,914
4,914
01.05.15
2,804
2017 Sharesave
02.05.17
2,457
–
–
–
–
Option price
(pence)
366.24
366.24
320.84
2,804
366.24
–
–
–
–
Options
exercised
during
the year
Options
lapsed
during
the year
No. of
shares under
option at
31.12.18
Period in which
options can be
exercised
–
–
–
–
–
–
–
4,914
4,914
4,914
4,914
-
2,457
1,808
4,265
–
3,616
3,616
01.06.20 –
30.11.20
01.06.20 –
30.11.20
01.06.18 –
30.11.18
01.06.20 –
30.11.20
01.06.21 –
30.11.21
01.06.18 –
30.11.18
01.06.21 –
30.11.21
2018 Sharesave
18.04.18
–
1,808
497.76
TOTAL
PHIL REDDING
2015 Sharesave
5,261
01.05.15
5,609
–
320.84
5,609
2018 Sharesave
18.04.18
–
3,616
497.76
–
TOTAL
SIP
CHART 17: SIP SHARES HELD IN TRUST
5,609
David Sleath
Soumen Das
Andy Gulliford
Phil Redding
No. of shares in trust
01.01.18
Shares awarded
during the year
No. of shares in trust
31.12.18
7,419
–
8,236
7,372
468
468
468
468
7,887
468
8,704
7,840
Further information about the share schemes can be found in Note 19 to the Financial Statements on pages 159 to 161.
EXECUTIVE DIRECTORS’ PENSION ARRANGEMENTS AND OTHER FEES (AUDITED)
CHART 18: DEFINED BENEFIT SCHEME
David Sleath1
Andy Gulliford3
Phil Redding3
Pension input amount, net of Directors’
contributions, in the year ending 31.12.18
£
n/a
n/a
n/a
Defined benefit pension
accrued at 31.12.182
£
–
45,000
61,000
1 David Sleath left the SEGRO Pension Scheme on 17 April 2011. The defined benefit pension accrued at 31 December 2017 was £81,000 pa. During 2018, he transferred his pension to an external
pension arrangement and has no further entitlement under the SEGRO Pension Scheme.
2 Pensions are payable from normal retirement age, which is 62, and can be taken earlier with appropriate reductions.
3 Andy Gulliford and Phil Redding left the SEGRO Pension Scheme on 31 March 2016 and receive a cash payment in lieu of pension contributions.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
99
PENSION ENTITLEMENT IN THE EVENT OF SEVERANCE
There are no contractual arrangements that would guarantee a pension with limited or no abatement on severance or early retirement.
FEES FOR EXTERNAL NON-EXECUTIVE APPOINTMENTS
Currently, none of the Executive Directors have an external non-executive appointment.
EXIT PAYMENTS AND ARRANGEMENTS (AUDITED)
No exit payments were made to Directors during the year.
FORMER DIRECTORS (AUDITED)
Ex gratia payments totalling £44,930 (2017: £54,517) were made during the year to three former Directors, who retired over 10 years ago.
These payments were made under legacy arrangements which are no longer offered.
Justin Read, a former Director of the Company, was appointed as Chair of the Trustees of the SEGRO Pension Scheme on 21 March 2017.
He receives a fee of £35,000 from the Company for this role.
REMUNERATION COMMITTEE ADVISERS
The Committee has access to sufficient resources to discharge its duties, which include access to independent remuneration advisers, the General
Counsel and Group Company Secretary, the Group HR Director and other advisers as required.
The Committee is responsible for appointing its external advisers and during the year it invited the Chair of the Committee and the Group HR
Director to interview potential advisers and make a recommendation for appointment. Following the process, the Committee appointed Korn
Ferry to review the Executive Directors’ remuneration and to assist with a consultation exercise with some of the Company’s largest shareholders.
Korn Ferry provided advice on Executive Directors’ remuneration, market and best practice guidance, including the new provisions of the New
Code. Its total fees for advice to the Committee in 2018 were £106,983, calculated on a time-cost basis.
The Committee determined that Korn Ferry provided independent remuneration advice and does not have any connections with the Company or
provide any other services which may impair its independence. Korn Ferry are a signatory to the Code of Conduct for Remuneration Consultants
in the UK.
Kepler Associates, a brand of Mercer, provided benchmark information to the Committee and the Company about Non-Executive Director
fees. Its total fees for advice to the Committee in 2018 were £18,820 (2017: £55,950), calculated on a time-cost basis. Aon and Lane Clark &
Peacock provided information to the Company in respect of pension-related matters. During the year, Slaughter and May provided advice to the
Company in respect of its share-based incentive schemes as well as regulatory and pension matters.
SHAREHOLDER VOTING
Chart 19 below shows the results of the advisory vote on the 2017 Remuneration Report at the Company’s AGM on 19 April 2018, plus the
binding vote on the Remuneration Policy at the Company’s AGM on 20 April 2017.
CHART 19: SHAREHOLDER VOTING AT THE 2018 AGM
To approve the Directors’ Remuneration Report for the
financial year ended 31 December 2017
To approve the Directors’ Remuneration Policy contained
in the Directors’ Remuneration Report for the financial year
ended 31 December 2016
Votes for
(including
discretionary)
% For
Votes against
% Against
Total votes cast
Votes withheld1
798,471,164
97.42
21,139,253
2.58
819,610,417
168,304
753,070,320
94.41
44,582,288
5.59
797,652,608
1,041,367
1 A withheld vote is not a vote in law and is not counted in the calculation of the proportion of votes cast for and against a resolution.
This report was approved by the Board on 14 February 2019 and signed on its behalf by
CHRISTOPHER FISHER
CHAIR OF THE REMUNER ATION COMMIT TEE
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 100
GOVERNANCE
REMUNERATION POLICY
The key aim of the Remuneration Policy is to align the interests of Executive Directors with those of the shareholders by supporting the delivery
of strategy. The structure of the remuneration framework is designed to reflect the strategic direction of the business and to align it with the
Company’s KPIs. In setting the Remuneration Policy, the Committee takes into consideration, amongst other matters, investor guidelines and the
maximum amount of remuneration the Executive Directors could receive should all targets be met. The Executive Directors’ remuneration is
set within a remuneration framework which applies to all employees across the Group. Each of the key elements of the remuneration package is
designed to drive the creation of long-term shareholder value, without encouraging Executive Directors to take inappropriate risk.
Each year, with the support of external advisers, the Committee undertakes a review of the remuneration of the Executive Directors.
It has oversight of the remuneration of the Leadership team, who are the senior managers immediately below Board level. It considers the
responsibilities, experience and performance of the Executive Directors and pay across the Group.
Changes to the Policy since approval at the 2017 AGM are outlined in the Chair’s letter on pages 86 to 88 and are detailed below.
Subject to approval by shareholders at the 2019 AGM, this policy will be effective for the 2019 performance year and will apply to incentive
awards with performance periods beginning on 1 January 2019.
CHANGES TO THE POLICY
If approved at the 2019 AGM the following changes will be made to the Policy approved in 2017:
£ there will no longer be the opportunity to make maximum LTIP awards of 300 per cent of salary. The normal grant level will be 250 per cent
of salary;
£ greater flexibility on the performance conditions that can be set for LTIP awards is being introduced. Leading shareholders will be consulted
before significant changes are made in the future;
£ future Executive Directors will receive a pension benefit no higher than that provided (as a percentage of salary) to the majority of the UK
workforce; and
£ Non-Executive Directors may receive fees for additional roles they perform on behalf of the Board in their non-executive capacity.
CHART 1: REMUNER ATION POLICY TABLE: EXECUTIVE DIRECTORS
Element
Salary
Strategic purpose
Operation
Maximum potential value
To attract and motivate
high-calibre leaders in
a competitive market
and to recognise their
skills, experience and
contribution to Group
performance.
The Committee reviews Executive
Directors’ base salaries each year in
the context of total remuneration,
taking into account the Directors’
responsibilities, experience and
performance, pay across the Group
and market competitiveness.
Pension
benefits
To provide a
market competitive
remuneration package.
Retirement benefits are available
to all UK employees and
employees in certain Continental
European jurisdictions dependent
on local market practice and
geographical differences.
Performance metrics
Not applicable.
None.
The maximum annual salary increase
will not normally exceed the average
increase which applies across the
wider workforce. However, larger
increases may be awarded in certain
circumstances including, but not
limited to: an increase in scope or
responsibilities of the role; salary
progression for a newly appointed
Director; and where the Director’s
salary has fallen significantly below the
market positioning.
Currently, the Chief Executive
receives a cash allowance of 30 per
cent of salary in lieu of pension and
other Executive Directors receive 20
per cent of salary. Future Executive
Directors will receive the level received
by the majority of the UK workforce
(currently a contribution to their
pension plan of 12 per cent of salary).
The cash allowance for Directors is
offered in lieu of membership of the
defined contribution Group Personal
Pension Plan.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 101
Strategic purpose
Operation
Maximum potential value
Performance metrics
Bonuses are awarded annually
and paid for performance over the
financial year.
The maximum Bonus opportunity
for Executive Directors is 150 per cent
of salary.
Element
Bonus
To focus on the delivery
of annual goals, to strive
for superior performance
and to achieve specific
targets which support
strategy, in particular for
income generation, total
property returns and
recurring profit.
Deferred Share
Bonus Plan
(‘DSBP’)
To encourage retention
of senior managers and
provide a long-term link
between the Bonus and
share price growth so as
to encourage long-term
decision making.
Long Term
Incentive Plan
(‘LTIP’)
Sharesave
To reward the execution
of strategy and drive
long-term returns for
shareholders. The
awards are designed to
align the most senior
managers’ goals with the
creation of sustainable
growth in shareholder
value. The awards will
also increase retention of
these senior managers.
To provide a
market competitive
remuneration package
and to encourage
employee share
ownership across
the Group.
The Bonus is reviewed each
financial year to ensure performance
measures and targets are
appropriate and support the
business strategy.
Payment is based on the
achievement of performance targets.
The Committee retains discretion
to reduce the amount of the Bonus
award in the light of underlying
performance during the year.
The rules of the Bonus contain
malus and clawback provisions.
50 per cent of any Bonus awarded
in the year is deferred into shares
in the DSBP for three years before
vesting. The award does not carry
any entitlement to dividends,
however the Committee may,
at the time of the release of the
shares, deliver shares or a cash
sum equivalent to the value of
the dividends that would have
been paid over the three-year
holding period.
The rules of the DSBP contain malus
and clawback provisions.
For LTIP awards dividends will
accrue on the LTIP shares which
are released on vesting and
will be paid in shares or cash.
The Committee has discretion
to adjust awards downwards at
vesting if it is not satisfied that
the outcome is a fair reflection
of underlying performance, or in
the event of excessive risk-taking
or misstatement.
The rules of the LTIP contain malus
and clawback provisions.
Sharesave is a HMRC approved
scheme open to all UK employees.
Savings can be made over a three-
year period to purchase shares in
the Company at a price which is
set at the beginning of the saving
period. This price is usually set
at a 20 per cent discount to the
market price.
The Bonus Scheme is based on three,
equally weighted elements which
the Committee may review from
time-to-time, to ensure that they
continue to reflect the Company’s
strategic priorities: Adjusted PBT
against budget including adjustments
for acquisitions and disposals, constant
foreign exchange rate and other
adjustments allowed under the scheme
rules, which supports the objective of
delivering a sustainable, progressive
dividend; relative TPR against an MSCI
Benchmark which is the best and most
important internal driver of TSR; and
rent roll growth which focuses on
driving the future rental income and
Adjusted PBT of the business.
For Executive Directors, 50 per cent
of the Bonus earned in respect of the
previous year’s performance.
Vesting of shares is dependent on
continued employment or good
leaver status.
The normal LTIP grant for Executive
Directors is 250 per cent of salary in
performance shares.
LTIP awards are subject to stretching
performance conditions, which
are measured over a three-year
performance period. A two-year
compulsory holding period applies
to these LTIP shares after vesting
and subject to payment of tax and
statutory deductions.
Awards to be granted in 2019 will
be subject to equally weighted Total
Shareholder Return, Total Property
Return and Total Accounting Return
performance conditions.
Employees may save up to the HMRC
limit across all Sharesave grants.
None.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 102
GOVERNANCE
REMUNERATION POLICY
CONTINUED
Element
Strategic purpose
Operation
Maximum potential value
Performance metrics
Share Incentive
Plan (‘SIP’) and
Global Share
Incentive Plan
(‘GSIP’)
Other benefits
To provide a
market competitive
remuneration package
and to encourage
employee share
ownership across the
Group.
To provide a
market competitive
remuneration package.
SIP is a HMRC approved scheme
open to all UK employees, subject
to service. Eligible employees are
awarded shares annually up to the
HMRC limits. GSIP is designed on a
similar basis to SIP, but is not HMRC
approved and is operated for non-
UK employees.
Other benefits currently include:
car allowance; life assurance;
disability insurance; private
medical insurance; and health
screening. The Committee retains
the discretion to offer additional
benefits as appropriate, for example,
assistance with relocation.
The maximum award is subject to the
HMRC limit.
Award is based on achievement of
prior year profit before tax against
budget and is subject to a three-year
holding period.
—
None.
ADDITIONAL NOTES
Remuneration Policy: the policy for the Executive Directors is designed with regard to the pay and benefits for employees across the Group.
All employees are eligible for an annual Bonus on the same performance measures which are consistent with those of the Executive Directors
save that those below Board level have a fourth target based on their personal performance. The maximum Bonus opportunity is fixed
according to seniority banding across the Company. The LTIP performance conditions are the same for all participants and the size of awards are
determined by seniority.
Subject to consultation with major shareholders, the Committee retains the ability to adjust and/or to set different LTIP and Bonus performance
measures if events occur (such as a change in strategy, a material acquisition and/or divestment of a Group business, or change in prevailing
market conditions) which cause the Committee to determine that the measures are no longer appropriate and that amendment is required so that
they achieve their original purpose.
Payments from existing awards: Executive Directors are eligible to receive payment from any award made prior to the approval and
implementation of the Remuneration Policy.
CHART 2: REMUNER ATION POLICY TABLE: CHAIR AND NON-EXECUTIVE DIRECTORS
Element
Fees
Strategic purpose
Operation
Maximum potential value
Performance metrics
Any increases in the fees of the Chair
or the Non-Executive Directors will
be based upon changes in roles and
responsibilities and market data.
—
To attract high-calibre
Non-Executive Directors
and provide market
appropriate fees.
Fees are reviewed every two years
taking into account relevant market
data. Additional fees are payable to
reflect the time commitments and
additional responsibilities.
The fee paid to the Chair is set by the
Committee while the fees paid to the
Non-Executive Directors are set by
the Board.
No Director is involved in setting their
own remuneration.
Non-Executive Directors do not
participate in any performance related
remuneration and they do not receive
any benefits.
POLICY ON SERVICE CONTRACTS
EXECUTIVE DIRECTORS
The Company may terminate the Executive Directors’ service contract on up to 12 months notice, with no liquidated damages provisions.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 103
NON-EXECUTIVE DIRECTORS
The Chair and the Non-Executive Directors have letters of appointment which set out their duties and anticipated time commitment to the
Company. They are required to disclose to the Board any changes to their other significant commitments. The Non-Executive Directors are
appointed for an initial term of three years. The appointments may be extended for further three-year periods on the recommendation of the
Nomination Committee and subject to the Board’s agreement. The Non-Executive Directors’ letters of appointment contain a three-month notice
period and the Chair’s contains a six-month notice period. Further details are set out in Chart 3.
CHART 3: DATES OF APPOINTMENT AND CONTR ACTUAL NOTICE PERIOD
Name
Gerald Corbett1
David Sleath2
Soumen Das
Andy Gulliford
Phil Redding
Sue Clayton
Carol Fairweather
Christopher Fisher
Martin Moore
Doug Webb
1 Appointed as Chair on 22 April 2016.
2 Appointed as Chief Executive on 28 April 2011.
POLICY ON RECRUITMENT
Date of appointment
1 March 2016
1 January 2006
16 January 2017
1 May 2013
1 May 2013
1 June 2018
1 January 2018
1 October 2012
1 July 2014
1 May 2010
Notice period
6 months
12 months by the Company, 6 months by the Director
12 months by the Company, 6 months by the Director
12 months by the Company, 6 months by the Director
12 months by the Company, 6 months by the Director
3 months
3 months
3 months
3 months
3 months
In determining appropriate remuneration for a new Executive Director, the Committee will take into consideration all relevant factors to ensure
that arrangements are in the best interests of both the Company and its shareholders. The Committee may make an award in respect of a new
appointment to ‘buy out’ incentive arrangements forfeited on leaving a previous employer. In doing so, the Committee will take account of
relevant factors, including any performance conditions attached to these awards, the likelihood of those conditions being met, and the proportion
of the vesting period remaining, and will seek to do no more than match the fair value of awards foregone. In limited circumstances where
employees are awarded benefits for which Executive Directors are not eligible, such as share retention awards, the Committee would consider
honouring existing awards should these employees be appointed to the Board.
CHART 4: RECRUITMENT POLICY
Component
Base salary
Bonus
DSBP
LTIP
Pension
Approach
Maximum opportunity
The base salaries of new appointees will be determined taking into account the
experience and skills of the individual, pay across the Group, relevant market data
and their previous salary
—
The structure set out in the Remuneration Policy table will apply to new appointees
with the relevant maximum being pro-rated for their first year of employment
150 per cent of salary
The structure set out in the Remuneration Policy table will apply to new appointees
50 per cent of the bonus awarded will be deferred
New appointees will be eligible for awards under the LTIP on the same terms as
the other Executive Directors
250 per cent of salary
New appointees will be offered membership of the SEGRO plc Group Personal
Pension Plan or a cash alternative
The level provided to the majority of the UK workforce
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
104
GOVERNANCE
REMUNERATION POLICY
CONTINUED
POLICY ON TERMINATION PAYMENTS
The Company retains the right to terminate the service contract of any Executive Director subject to contractually agreed payments in lieu of
notice which are limited to annual salary plus any specified benefits. Payments are normally phased over the 12-month notice period, based on
the principle of a Director’s duty to seek alternative employment and thereby mitigate their loss.
The Committee reserves the right to make additional exit payments where such payments are made in good faith, for example: in discharge
of an existing legal obligation (or by way of damages for breach of such an obligation); or by way of settlement or compromise of any claim
arising in connection with the termination of a Director’s office or employment. In determining compensation, the Committee will take into
account the circumstances of the departure, best practice and the provisions of the Code, and will take legal advice on the Company’s liability to
pay compensation.
Under the rules of the LTIP and the DSBP, the Committee has discretion to declare a Director leaving the Company to be a ‘good leaver’ as
defined under the respective rules of the schemes. In respect of LTIP, this would normally allow the Directors, who the Committee determines to
be good leavers, to receive their shares at the end of the holding period, subject to the achievement of performance conditions, with any vesting
pro-rated in accordance with the proportion of the vesting period served. In respect of DSBP, this would normally allow the Directors, who the
Committee determines to be good leavers, to receive their shares, in full, at the end of the holding period.
Where a Director may be entitled to pursue a claim against the Company in respect of their statutory employment rights or any other claim
arising from the employment or its termination, the Company will be entitled to negotiate settlement terms (financial or otherwise) with the
Director that the Committee considers to be reasonable in all the circumstances and in the best interests of the Company and to enter into a
Settlement Agreement with the Director to effect both the terms agreed under the Service Agreement and any additional statutory or other
claims, including bonus and/or share awards, in line with the policies described above.
In the event of a change of control of the Company, the Employee Benefit Trust, in consultation with the Company, has the discretion to
determine whether, and the extent to which, awards vest. Financial performance and institutional guidelines would be taken into account in
exercising this discretion.
Non-Executive Directors are not entitled to any compensation on loss of office.
POLICY ON EXECUTIVE DIRECTORS’ EXTERNAL APPOINTMENTS
With the support of the Chair and Chief Executive, the Executive Directors may normally be permitted to take one non-executive directorship
outside the Group, as these roles can broaden the experience brought to the Board. Such appointments require Board approval and the time
commitment the appointment will require is taken into consideration. Executive Directors may retain fees for external appointments.
Any outstanding share awards made in accordance with a previous Remuneration Policy will remain in effect and will vest in accordance with the
terms under which they were granted.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 105
PERFORMANCE SCENARIOS
Chart 5 below sets out an indication of the level of remuneration that would be received by each Executive Director in accordance with the
incentive opportunities outlined in the Remuneration Report for 2019 on the basis of the latest salary information.
CHART 5: INDICATION OF POTENTIAL REMUNER ATION IN FIRST YEAR OF POLICY APPRECIATION
Fixed
Short Term
Long Term
50% share price growth on 2019 LTIP
h
t
a
e
S
l
i
d
v
a
D
s
a
D
n
e
m
u
o
S
d
r
o
f
i
l
l
u
G
y
d
n
A
i
g
n
d
d
e
R
l
i
h
P
Maximum
On Target
Minimum
Maximum
On Target
Minimum
Maximum
On Target
Minimum
Maximum
On Target
Minimum
0
£500,000
£1,000,000
£1,500,000
£2,000,000
£2,500,000
£3,000,000
£3,500,000
£4,000,000
£4,500,000
The minimum remuneration payable comprises salary payable during 2019, benefits and cash in lieu of pension contributions. The maximum
payable assumes full pay-out under the Bonus and full vesting of the LTIP. On target remuneration assumes a pay-out of 50 per cent of the
maximum Bonus and a 20 per cent vesting of the LTIP. The impact of a 50 per cent share price growth on the maximum available opportunity
has been indicated for the 2019 LTIP, which will vest in 2022 and then be subject to a two-year holding period.
CONSIDERATION OF CONDITIONS ELSEWHERE IN THE GROUP
The Remuneration Policy for the Executive Directors is designed with regard to the policy for the workforce as a whole. The Committee now
approves the remuneration of the Executive Committee. The Committee is kept updated through the year on general employment conditions
and it approves the budget for annual salary increases. The Company did not consult with employees in formulating the Remuneration Policy.
CONSIDERATION OF SHAREHOLDER VIEWS
The Committee remains committed to open dialogue with shareholders on remuneration. When determining remuneration, the Committee takes
into account the guidance of investor bodies and shareholder views. In 2019, it consulted with shareholders on the proposed changes to the 2019
Policy covered in the Chair’s letter.
The Chair of the Remuneration Committee is available for meetings with shareholders should they have any concerns about remuneration
matters which they wish to discuss.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
106
GOVERNANCE
DIRECTORS’ REPORT
SHARE CAPITAL
The issued share capital for the year is set out on page 159.
There is one class of share in issue and there are no restrictions on the voting rights attached to these shares or the transfer of securities in the
Company, and all shares are fully paid.
The Company made no purchases of its own shares during the year.
DIVIDENDS
Subject to approval by shareholders at the 2019 AGM, a final dividend of 13.25 pence per share will be paid (2017: 11.35 pence) bringing the
total dividend for 2018 to 18.8 pence (2017: 16.6 pence). The final dividend will be paid as a Property Income Distribution. The Board proposes
to offer a scrip dividend option for the 2018 final dividend.
The ex-dividend date for the final dividend will be 21 March 2019, the record date will be 22 March 2019 and the payment date will be
2 May 2019.
CHANGE OF CONTROL
£ Contracts and joint venture agreements
There are a number of contracts and joint venture agreements that could allow the counterparties to terminate or alter those arrangements in the
event of a change of control of the Company. These arrangements are commercially confidential and their disclosure could be seriously prejudicial
to the Company.
£ Borrowings and other financial instruments
The Group has a number of borrowing facilities provided by various lenders. These facilities generally include provisions that may require
any outstanding borrowings to be repaid or the amendment or termination of the facilities upon the occurrence of a change of control of
the Company.
£ Employee share plans
The Company’s share plans contain provisions as a result of which options and awards may vest or become exercisable on change of control of
the Company, in accordance with the rules of the plans.
EMPLOYEES AND DIRECTORS
There are no agreements between the Company and its Directors or employees providing for compensation for loss of office or employment that
occurs specifically because of a takeover bid, with the exception of provisions of the Company’s share schemes as detailed above.
£ Directors’ authorities in relation to shares
The Directors’ authorities in relation to issuing, allotting or buying back shares are governed by the Company’s Articles of Association and the
resolutions passed by shareholders at a general meeting. These documents do not form part of this Report.
£ Process for appointment/removal of Directors
The Company is governed by its Articles of Association, the UK Corporate Governance Code, the Companies Act 2006 and related legislation
with regards to the appointment and removal of Directors. Directors are appointed by the Board and elected by shareholders. Directors may be
removed by the Board or shareholders as applicable.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018 107
SUBSTANTIAL INTERESTS IN THE SHARE CAPITAL OF THE COMPANY
The following major interests, amounting to 3 per cent or more of the ordinary issued share capital have been notified to the Company.
Shareholder
BlackRock Inc
APG Asset Management N.V.
State Street Corporation
The Vanguard Group, Inc
Artemis Investment Management
Legal & General Group
As at 31 December 2018
Number of
shares
Percentage of Issued
Share Capital
100,873,625
59,909,091
45,527,985
42,070,945
36,571,595
33,820,119
9.95
5.91
4.49
4.15
3.61
3.34
On 10 January 2019, the Company was notified by APG Asset Management N.V. that their holding in the Company had increased to 61,130,291
shares, 6.03 per cent of the issued share capital. No further announcements were made to the Company between 31 December 2018 and
14 February 2019.
ARTICLES OF ASSOCIATION
Shareholders may amend the Company’s Articles of Association by special resolution.
POLITICAL DONATIONS
No political donations were made by the Company or its subsidiaries during the year.
DIRECTORS’ INDEMNITIES
No Company Directors were indemnified during the year.
OVERSEAS BR ANCHES
The Company has a branch in Paris, France.
DIRECTORS’ REPORT DISCLOSURES
Certain Directors’ Report disclosures have been made in the Strategic Report so as to increase their prominence. These disclosures include those
relating to: greenhouse gas emissions; financial instruments and certain financial risks; employee involvement; the employment, training and
advancement of disabled persons; the review of the Group’s business during the year and any future developments.
AUDITOR OF THE COMPANY
A resolution to reappoint PricewaterhouseCoopers LLP as auditor of the Company is to be proposed at the 2019 AGM.
DISCLOSURE OF INFORMATION TO THE AUDITOR
Each of the persons who is a Director at the date of approval of this Report confirms that:
£ so far as the Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and
£ each Director has taken all the steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information
and to establish that the Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.
The Directors’ Report has been approved by the Board and signed on its behalf by
ELIZABETH BLEASE
GENER AL COUNSEL AND GROUP COMPANY SECRETARY
14 FEBRUARY 2019
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
108
GOVERNANCE
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the Financial Statements in accordance
with applicable law and regulation.
Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have prepared the
Group and Company Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European
Union. Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view
of the state of affairs of the Group and the Company and of the profit or loss of the Group and the Company for that period. In preparing these
Financial Statements, the Directors are required to:
£ Select suitable accounting policies and then apply them consistently;
£ Make judgements and accounting estimates that are reasonable and prudent;
£ State whether applicable IFRSs as adopted by the European Union have been followed for the Group and the Company Financial Statements,
subject to any material departures disclosed and explained in the Financial Statements;
£ Prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company’s
transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group and enable them to ensure
that the Financial Statements and the Directors’ Remuneration Report comply with the Companies Act 2006 and, as regards the Group Financial
Statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for
taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group and Company’s position and performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the Governance section of the Annual Report confirm that, to the best of
their knowledge:
£ The Group and Company Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit or loss of the Group and Company; and
£ The Strategic Report includes a fair review of the development and performance of the business and the position of the Group and Company,
together with a description of the principal risks and uncertainties that it faces.
By order of the Board
DAVID SLEATH
CHIEF EXECUTIVE
14 FEBRUARY 2019
SOUMEN DAS
CHIEF FINANCIAL OFFICER
14 FEBRUARY 2019
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
109
FINANCIAL STATEMENTS
In this section we present our Financial Statements for the year, presented in accordance
with International Financial Reporting Standards, as adopted by the European Union.
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SEGRO PLC
GROUP INCOME STATEMENT
GROUP STATEMENT OF
COMPREHENSIVE INCOME
BALANCE SHEETS
STATEMENTS OF CHANGES IN EQUIT Y
CASH FLOW STATEMENTS
110
117
117
118
119
121
NOTES TO THE FINANCIAL STATEMENTS
122
FIVE-YEAR FINANCIAL RESULTS
FINANCIAL INFORMATION
ANALYSIS OF SHAREHOLDERS
SHAREHOLDER INFORMATION
GLOSSARY OF TERMS
181
182
182
183
184
110
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SEGRO PLC
REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS
Opinion
In our opinion, SEGRO plc’s Group Financial Statements and Company Financial Statements (the “Financial Statements”):
– Give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2018 and of the Group’s profit and the
Group’s and the Company’s cash flows for the year then ended;
– Have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and,
as regards the Company’s Financial Statements, as applied in accordance with the provisions of the Companies Act 2006; and
– Have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group Financial Statements,
Article 4 of the IAS Regulation.
We have audited the Financial Statements, included within the Annual Report & Accounts 2018 (the ‘Annual Report’), which comprise: the Group
and Company Balance Sheets as at 31 December 2018; the Group Income Statement and the Group Statement of Comprehensive Income, the
Group and Company Cash Flow Statements, and the Group and Company Statements of Changes in Equity for the year then ended; and the
notes to the Financial Statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (‘ISAs (UK)’) and applicable law. Our responsibilities under
ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the Financial Statements section of our report. We believe that the
audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the Financial Statements
in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to the
Group or the Company.
Other than those disclosed in Note 6 to the Financial Statements, we have provided no non-audit services to the Group or the Company in the
period from 1 January 2018 to 31 December 2018.
Our audit approach
Overview
– Overall Group materiality: £91.7 million (2017: £79.4 million), based on 1% of total assets.
– Overall Company materiality: £72.6 million (2017: £68.6 million), based on 1% of total assets.
Materiality
– Group specific materiality: £12.1 (2017: 9.7 million), based on 5% of adjusted profit before tax, for items impacting
adjusted profit before tax.
– Audit procedures on Rental Income and Valuation of Investment Properties are performed centrally by the Group
audit team from the UK.
Audit scope
– Full scope audit of the SELP Joint Venture by local component auditors.
– Specified procedures performed by local auditors.
– Over 87% coverage of Assets, Liabilities, Income and Expenditure of the Group.
Key audit
matters
– Valuation of investment properties.
– Large and/or complex transactions.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTS
111
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the Financial Statements. In particular,
we looked at where the Directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and the Company and their industry, we identified that the principal risks of non-compliance with
laws and regulations related to compliance with the Real Estate Investment Trust (REIT) status and SIIC regime (see page 138 of the Annual
Report), and we considered the extent to which non-compliance might have a material effect on the financial statements of the Group and
Company. We also considered those laws and regulations that have a direct impact on the financial statements of the Group and Company such
as the Companies Act 2006, the UK tax legislation and equivalent local laws and regulations applicable to significant components of the Group.
We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of
controls), and determined that the principal risks were related to posting inappropriate journal entries to increase revenue or reduce expenditure,
and management bias in accounting estimates and judgemental areas of the financial statements such as valuation of investment properties.
The Group engagement team shared this risk assessment with the component auditors referred to in the scoping section of our report below, so
that they could include appropriate audit procedures, where applicable, in response to such risks in their work. Audit procedures performed by
the Group engagement team and/or component auditors included:
– Discussions with management and internal audit, including consideration of known or suspected instances of non-compliance with laws and
regulations and fraud, and review of the reports made by internal audit;
– Understanding management’s internal controls designed to prevent and detect irregularities;
– Assessment of matters, if any, reported on the Group’s whistleblowing helpline and the results of management’s investigation of such matters;
– Reviewing the Group’s litigation register in so far as it related to non-compliance with laws and regulations and fraud;
– Reviewing relevant meeting minutes, including those of the Board of Directors and the Audit Committee;
– Designing audit procedures to incorporate unpredictability around the nature, timing and extent of our testing of expenses;
– Review of tax compliance with the involvement of our tax specialists in the audit;
– Procedures relating to the valuation of investment properties described in the related key audit matter below; and
– Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations or posted by users posting a
low amount of journals in the period.
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations is
from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not detecting a
material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment
by, for example, forgery or intentional misrepresentations, or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the Financial Statements
of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the
auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the
efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the
context of our audit of the Financial Statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters. This is not a complete list of all risks identified by our audit.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 112
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SEGRO PLC CONTINUED
Key audit matter
How our audit addressed the key audit matter
Valuation of investment properties – Group
Refer to page 81 (Audit Committee Report) and the Financial
Statements (including notes to the Financial Statements;
Note 1, Significant accounting policies; Note 13, Properties;
and Note 27, Property valuation techniques and related
quantitative information).
Assessing the Valuers’ expertise and objectivity
We assessed the Valuers’ qualifications and expertise and read their terms of engagement with the
Group to determine whether there were any matters that might have affected their objectivity or
may have imposed scope limitations upon their work. We also considered fees and other contractual
arrangements that might exist between the Group and the Valuers. We found no evidence to suggest
that the objectivity of the Valuers was compromised.
The Group’s investment properties were carried at
£7,801 million as at 31 December 2018 and a total (realised
and unrealised) property gain of £853 million was recognised
in the Group income statement. We focused on this area due
to the existence of significant judgement, coupled with the fact
that only small differences in individual property valuations
when aggregated could result in material misstatement. The
portfolio includes warehouses and light industrial buildings,
including warehouses used as data centres and for logistics
operations. These are concentrated in the UK, France, Germany,
and Poland. The remainder of the portfolio is located across
other European countries including Spain, the Netherlands and
the Czech Republic.
The portfolio includes completed investments and properties
under construction. The methodology applied in determining
the valuation is set out in Notes 13 and 27 of the Financial
Statements. The valuation of the Group’s portfolio is inherently
subjective due to, among other factors, the individual nature
of each property, its location and the expected future rentals
for that particular property. For developments, factors include
projected costs to complete, time until practical completion and
the ability to let if no pre-let agreement is in place. Valuations
are carried out by third party valuers, CBRE Ltd (the ‘Valuers’).
The Valuers were engaged by the Directors, and performed
their work in accordance with the Royal Institute of Chartered
Surveyors (‘RICS’) Valuation – Professional Standards. The
Valuers used by the Group have considerable experience of
the markets in which the Group operates. The valuations take
into account the property-specific information referred to
above (including the current tenancy agreements and rental
income, condition and location of the property, and future
rental prospects), as well as prevailing market yields and
market transactions.
Testing the valuations
Assumptions and capital movement:
Our work covered the valuation of every material property in the Group.
We obtained and read the CBRE valuation reports covering every property.
We held meetings with management and the Valuers, at which the valuations and the key assumptions
therein were discussed, focusing on the largest properties and any outliers (where the assumptions
used and/or year on year capital value movement are out of line with externally published market data
for the relevant sector).
To verify that the valuation approach was suitable for use in determining the carrying value for
investment properties in the Financial Statements, we:
– Confirmed that the valuation approach was in accordance with RICS standards;
– Obtained valuation details of every property held by the Group and set an expected range for yield
and capital value movement, determined by reference to published benchmarks and using our
experience and knowledge of the market. Compared the investment yields used by the Valuers to
the expected range of yields and the year on year capital movement to our expected range;
– Assessed the reasonableness of other assumptions that are not so readily comparable with published
benchmarks, such as Estimated Rental Value; and,
– Verified where there could be alternative use opportunities, that this had been appropriately taken
into account.
Where assumptions were outside the expected range or otherwise appeared unusual, and/or valuations
showed unexpected movements, we undertook further investigations and, when necessary, held
further discussions with the Valuers and obtained evidence to support explanations received. The
supporting evidence and valuation commentaries provided by the Valuers, enabled us to consider the
property specific factors that had or may have had an impact on value, including recent comparable
transactions where appropriate.
Information and standing data:
We tested the standing data the Group provided to the Valuers for use in the performance of the
valuation. This involved re-performing controls on a sample basis over the input of lease data for leases
and testing the accuracy of lease and other property information. For development properties, we also
confirmed that the supporting information for construction contracts and budgets was consistent with
the Group’s records, for example by inspecting original construction contracts. For developments,
capitalised expenditure was tested on a sample basis to invoices, and budgeted costs to complete
were compared to supporting evidence (for example construction contracts) to support the inputs
included within their valuation at the year end. We agreed the amounts per the valuation reports to the
accounting records and from there we agreed the related balances through to the Financial Statements.
Overall outcome
Based on the work performed we found that the assumptions were supported by evidence
we obtained.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTS 113
Key audit matter
How our audit addressed the key audit matter
Large and/or complex transactions – Group
Refer to page 81 (Audit Committee Report) and the Financial
Statements (including notes to the Financial Statements; Note 1,
Significant accounting policies and Note 13, Properties). There
were a number of transactions during the year which warranted
particular additional audit focus due to the magnitude of the
transactions and/or the potential for complex contractual terms
that introduce judgement into how they were accounted for.
Key transactions subject to additional audit focus were:
– Acquisition of investment property assets for £194 million; and
– Disposal of investment property assets of £432 million.
For each large and/or complex transaction, we made inquiries with management in order to
understand their nature and obtained supporting documentation as necessary to verify the
transactions. We assessed the proposed accounting treatment in relation to the Group’s accounting
policies and relevant IFRSs.
Acquisitions and disposals
We tested acquisitions and disposals of investment properties by examining:
– Sale and Purchase Agreements and completion statements; and
– Bank statements to agree consideration received or paid.
Overall outcome
No material issues were identified as a result of our testing.
We determined that there were no key audit matters applicable to the Company to communicate in our report.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the Financial Statements as a
whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which
they operate.
The Group’s reportable segments are the geographical Business Units: Greater London, Thames Valley, National Logistics, Northern Europe,
Southern Europe and Central Europe. We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion
on the Financial Statements as a whole, taking into account the geographic structure of the Group, the accounting processes and controls, and
the industry in which the Group operates.
The Group operates a common IT environment, processes and controls for rental income and payroll across all its reported segments.
The Group’s valuation and treasury functions are also based at the corporate centre in the UK. The related balances were therefore audited by
the Group audit team from the UK, using Computer Assisted Audit Techniques for the work on rental income. Additional specified procedures
were performed by audit teams on location in each business unit, such that the total testing programme provided sufficient audit evidence over all
financial statement line items.
The SELP Joint Venture was included as being in scope for a full scope audit, with the work on rental income and valuation of investment
properties for the Joint Venture performed by the Group audit team.
Throughout the audit process, the Group audit team has had various interactions with the audit teams on location in each business unit to
oversee the audit process. Taking into account the components and Joint Ventures subject to a full scope audit, the centralised and other testing
performed, coverage over the Group Balance Sheet and Group Income Statement was as follows:
Assets
Liabilities
Income
Expenditure
98% coverage
97% coverage
99% coverage
87% coverage
The audit of the Company Financial Statements was performed entirely by the Group audit team in the UK, leveraging on the work performed
on the Group audit where appropriate with additional audit procedures performed on other Company specific balances.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 114
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SEGRO PLC CONTINUED
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together
with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the
individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the
Financial Statements as a whole.
Based on our professional judgement, we determined materiality for the Financial Statements as a whole as follows:
Overall materiality
£91.7 million (2017: £79.4 million).
How we determined it
1% of total assets.
Group Financial Statements
Company Financial Statements
£72.6 million (2017: £68.6 million).
1% of total assets.
Rationale for benchmark applied
The primary measurement attribute of the Group is the
carrying value of property investments. On this basis, we set
an overall Group materiality level based on total assets.
The primary measurement attribute of the Company is the
carrying value of investments in subsidiaries. On this basis, we set
an overall Company materiality level based on total assets.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of
materiality allocated across components was between £35.0 million and £82.5 million. In addition, we set a specific overall materiality level of
£12.1 million (2017: £9.7 million), equating to 5 per cent of adjusted profit before tax, for items impacting adjusted profit before tax. In arriving
at this judgement we had regard to the fact that the adjusted profit before tax is a secondary financial indicator of the Group (refer to Note 2 of
the Financial Statements on pages 128 and 129 where the term is defined in full). Certain components were audited to a local statutory audit
materiality that was also less than our overall Group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £4.6 million (Group audit)
(2017: £4.0 million) or £1.0 million (2017: £1.0 million) in the case of misstatements impacting adjusted profit before tax, and £3.6 million
(Company audit) (2017: £3.4 million) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or draw attention to in respect of the
Directors’ statement in the Financial Statements about whether the Directors considered it appropriate
to adopt the going concern basis of accounting in preparing the Financial Statements and the Directors’
identification of any material uncertainties to the Group’s and the Company’s ability to continue as a going
concern over a period of at least twelve months from the date of approval of the Financial Statements.
Outcome
We have nothing material to add or to draw attention
to. However, because not all future events or conditions
can be predicted, this statement is not a guarantee as
to the Group’s and Company’s ability to continue as a
going concern.
We are required to report if the Directors’ statement relating to going concern in accordance with Listing
Rule 9.8.6R(3) is materially inconsistent with our knowledge obtained in the audit.
We have nothing to report.
REPORTING ON OTHER INFORMATION
The other information comprises all of the information in the Annual Report other than the Financial Statements and our auditors’ report thereon.
The Directors are responsible for the other information. Our opinion on the Financial Statements does not cover the other information and,
accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the Financial Statements, our responsibility is to read the other information and, in doing so, consider whether
the other information is materially inconsistent with the Financial Statements or our knowledge obtained in the audit, or otherwise appears to
be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to
conclude whether there is a material misstatement of the Financial Statements or a material misstatement of the other information. If, based on
the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.
We have nothing to report based on these responsibilities.
With respect to the Strategic Report, Directors’ Report and Corporate Governance Statement, we also considered whether the disclosures
required by the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06), ISAs (UK)
and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described below (required
by ISAs (UK) unless otherwise stated).
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTS 115
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the year ended
31 December 2018 is consistent with the Financial Statements and has been prepared in accordance with applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material
misstatements in the Strategic Report and Directors’ Report. (CA06)
Corporate Governance Statement
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement (on pages 60 to 108) about
internal controls and risk management systems in relation to financial reporting processes and about share capital structures in compliance with rules 7.2.5 and 7.2.6 of
the Disclosure Guidance and Transparency Rules sourcebook of the FCA (“DTR”) is consistent with the Financial Statements and has been prepared in accordance with
applicable legal requirements. (CA06)
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of the audit, we did not identify any material
misstatements in this information. (CA06)
In our opinion, based on the work undertaken in the course of the audit, the information given in the Corporate Governance Statement (on pages 60 to 108) with
respect to the Company’s corporate governance code and practices and about its administrative, management and supervisory bodies and their committees complies
with rules 7.2.2, 7.2.3 and 7.2.7 of the DTR. (CA06)
We have nothing to report arising from our responsibility to report if a Corporate Governance Statement has not been prepared by the Company. (CA06)
The Directors’ assessment of the prospects of the Group and of the principal risks that would threaten the solvency or liquidity of the Group
We have nothing material to add or draw attention to regarding:
– The Directors’ confirmation on page 53 of the Annual Report that they have carried out a robust assessment of the principal risks facing the Group, including those
that would threaten its business model, future performance, solvency or liquidity.
– The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
– The Directors’ explanation on page 55 of the Annual Report as to how they have assessed the prospects of the Group, over what period they have done so and
why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications
or assumptions.
We have nothing to report having performed a review of the Directors’ statement that they have carried out a robust assessment of the principal risks facing the Group
and statement in relation to the longer-term viability of the Group. Our review was substantially less in scope than an audit and only consisted of making inquiries
and considering the Directors’ process supporting their statements; checking that the statements are in alignment with the relevant provisions of the UK Corporate
Governance Code (the “Code”); and considering whether the statements are consistent with the knowledge and understanding of the Group and Company and their
environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
– The statement given by the Directors, on page 108, that they consider the Annual Report taken as a whole to be fair, balanced and understandable, and provides the
information necessary for the members to assess the Group’s and Company’s position and performance, business model and strategy is materially inconsistent with
our knowledge of the Group and Company obtained in the course of performing our audit.
– The section of the Annual Report on pages 79 to 83 describing the work of the Audit Committee does not appropriately address matters communicated by us to the
Audit Committee.
– The Directors’ statement relating to the Company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified,
under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. (CA06)
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 116
INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF SEGRO PLC CONTINUED
RESPONSIBILITIES FOR THE FINANCIAL STATEMENTS AND THE AUDIT
Responsibilities of the Directors for the Financial Statements
As explained more fully in the Statement of Directors’ Responsibilities set out on page 108, the Directors are responsible for the preparation of
the Financial Statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The Directors
are also responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from
material misstatement, whether due to fraud or error.
In preparing the Financial Statements, the Directors are responsible for assessing the Group’s and the Company’s ability to continue as a going
concern, disclosing as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either
intend to liquidate the Group or the Company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the Financial Statements as a whole are free from material misstatement,
whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is
not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can
arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these Financial Statements.
A further description of our responsibilities for the audit of the Financial Statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part
16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other
purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent
in writing.
OTHER REQUIRED REPORTING
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
– we have not received all the information and explanations we require for our audit; or
– adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from branches not
visited by us; or
– certain disclosures of Directors’ remuneration specified by law are not made; or
– the Company Financial Statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the accounting
records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the audit committee, we were appointed by the members on 22 April 2016 to audit the Financial Statements
for the year ended 31 December 2016 and subsequent financial periods. The period of total uninterrupted engagement is 3 years, covering the
years ended 31 December 2016 to 31 December 2018.
CR AIG HUGHES (SENIOR STATUTORY AUDITOR)
FOR AND ON BEHALF OF PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS AND STATUTORY AUDITORS
LONDON
14 FEBRUARY 2019
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTS GROUP INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2018
Revenue
Gross rental income
Property operating expenses
Net rental income
Joint venture fee income
Administration expenses
Pension buy-out costs
Share of profit from joint ventures after tax
Realised and unrealised property gain
Goodwill and other amounts written off on acquisitions and amortisation of intangibles
Operating profit
Finance income
Finance costs
Profit before tax
Tax
Profit after tax
Attributable to equity shareholders
Attributable to non-controlling interests
Earnings per share (pence)
Basic
Diluted
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2018
Profit for the year
Items that will not be reclassified subsequently to profit or loss
Actuarial gain/(loss) on defined benefit pension schemes
Items that may be reclassified subsequently to profit or loss
Foreign exchange movement arising on translation of international operations
Fair value movements on derivatives and borrowings in effective hedge relationships
Tax on components of other comprehensive income
Other comprehensive profit before transfers
Transfer to income statement of amount realised on fair value of interest rate swaps and derivatives
Total comprehensive profit for the year
Attributable to equity shareholders
Attributable to non-controlling interests
117
2017
£m
334.7
272.9
(52.2)
220.7
24.3
(39.7)
–
108.1
889.0
(0.6)
1,201.8
40.6
(266.1)
976.3
(20.0)
956.3
952.7
3.6
2018
£m
369.0
297.7
(50.1)
247.6
44.9
(44.1)
(51.8)
124.2
852.6
–
1,173.4
33.4
(107.7)
1,099.1
(33.0)
1,066.1
1,062.6
3.5
105.4
104.8
98.5
97.9
2018
£m
1,066.1
11.0
11.0
29.4
(12.6)
16.8
–
27.8
–
1,093.9
1,090.5
3.4
2017
£m
956.3
(16.2)
(16.2)
27.3
(6.4)
20.9
–
4.7
3.1
964.1
960.6
3.5
Notes
4
4
5
4
6
2, 18
7
8
9
9
10
12
12
Notes
18
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
118
BALANCE SHEETS
AS AT 31 DECEMBER 2018
Assets
Non-current assets
Intangible assets
Investment properties
Other interests in property
Plant and equipment
Investments in subsidiaries
Investments in joint ventures
Other investments
Other receivables
Derivative financial instruments
Pension assets
Current assets
Trading properties
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total assets
Liabilities
Non-current liabilities
Borrowings
Deferred tax liabilities
Trade and other payables
Derivative financial instruments
Current liabilities
Trade and other payables
Derivative financial instruments
Tax liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Capital redemption reserve
Own shares held
Other reserves
Retained earnings brought forward
Profit for the year attributable to owners of the parent
Other movements
Retained earnings
Total equity attributable to owners of the parent
Non-controlling interests
Total equity
Net assets per ordinary share (pence)
Basic
Diluted
GROUP
2018
£m
2017
£m
COMPANY
2018
£m
2017
£m
Notes
13
7
7
8
14
17
18
13
14
17
16
16
10
15
17
15
17
10
19
20
20
21
20
12
12
3.9
7,801.4
15.4
13.3
–
999.9
23.6
26.8
25.7
–
8,910.0
51.7
128.7
11.7
66.5
258.6
9,168.6
2,243.5
26.9
26.2
2.9
2,299.5
261.9
2.8
40.4
305.1
2,604.6
6,564.0
101.3
2,047.7
113.9
(2.0)
246.2
3,150.2
1,062.6
(155.9)
4,056.9
6,564.0
–
6,564.0
648
644
4.0
6,745.4
13.4
14.7
–
792.0
–
–
60.7
38.7
7,668.9
12.5
141.8
2.6
109.3
266.2
7,935.1
2,063.5
34.6
–
–
2,098.1
247.5
4.0
1.3
252.8
2,350.9
5,584.2
100.3
1,998.6
113.9
(3.3)
225.7
2,363.4
952.7
(165.9)
3,150.2
5,585.4
(1.2)
5,584.2
557
554
–
–
–
0.9
7,188.1
–
–
–
25.7
–
7,214.7
–
5.2
11.7
32.3
49.2
7,263.9
2,240.3
–
1,688.6
2.9
3,931.8
26.1
2.8
–
28.9
3,960.7
3,303.2
101.3
2,047.7
113.9
(2.0)
223.8
866.9
108.8
(157.2)
818.5
3,303.2
–
3,303.2
–
–
–
1.4
6,672.9
–
–
–
60.7
38.7
6,773.7
–
6.3
2.6
76.4
85.3
6,859.0
2,061.6
–
1,442.4
–
3,504.0
51.3
4.0
–
55.3
3,559.3
3,299.7
100.3
1,998.6
113.9
(3.3)
223.3
517.7
518.5
(169.3)
866.9
3,299.7
–
3,299.7
The Financial Statements of SEGRO plc (registered number 167591) on pages 117 to 174 were approved
by the Board of Directors and authorised for issue on 14 February 2019 and signed on its behalf by:
DJR SLEATH DIRECTOR S DAS DIRECTOR
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTS
119
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2018
Group
Ordinary share capital
Share premium
Capital redemption reserve1
Own shares held
Other reserves:
Balance
1 January
2018
£m
100.3
1,998.6
113.9
(3.3)
Share-based payments reserve
18.7
Translation, hedging
and other reserves
Merger reserve1
Total other reserves
Retained earnings
Total equity attributable
to owners of the parent
Non-controlling interests2
Total equity
37.9
169.1
225.7
3,150.2
5,585.4
(1.2)
5,584.2
Exchange
movement
£m
Retained
earnings
£m
Items
taken to
other
comprehensive
income
£m
–
–
–
–
–
29.5
–
29.5
–
29.5
(0.1)
29.4
–
–
–
–
–
–
–
–
1,062.6
1,062.6
3.5
1,066.1
–
–
–
–
–
(12.6)
–
(12.6)
11.0
(1.6)
–
(1.6)
FOR THE YEAR ENDED 31 DECEMBER 2017
Balance
1 January
2017
£m
83.0
1,431.1
113.9
(5.5)
13.5
(0.2)
13.8
169.1
196.2
2,363.4
4,182.1
(1.2)
4,180.9
Exchange
movement
£m
Retained
earnings
£m
Items taken
to other
comprehensive
income
£m
–
–
–
–
–
–
27.4
–
27.4
–
27.4
(0.1)
27.3
–
–
–
–
–
–
–
–
–
952.7
952.7
3.6
956.3
–
–
–
–
–
–
(6.4)
–
(6.4)
(16.2)
(22.6)
–
(22.6)
Group
Ordinary share capital
Share premium
Capital redemption reserve1
Own shares held
Other reserves:
Share-based payments reserve
Fair value reserve for AFS
Translation, hedging
and other reserves
Merger reserve1
Total other reserves
Retained earnings
Total equity attributable
to owners of the parent
Non-controlling interests2
Total equity
1 See Note 20.
2 Non-controlling interests relate to Vailog S.r.l.
Shares
issued
£m
0.2
0.4
–
–
–
–
–
–
–
0.6
–
0.6
Shares
issued
£m
16.7
540.5
–
–
–
–
–
–
–
–
557.2
–
557.2
Other
£m
Dividends
£m
Transfers
£m
Balance
31 December
2018
£m
–
–
–
(1.1)
10.3
–
–
10.3
(1.3)
7.9
(2.2)
5.7
0.8
48.7
–
–
–
–
–
–
(169.9)
(120.4)
–
(120.4)
–
–
–
2.4
101.3
2,047.7
113.9
(2.0)
(6.7)
22.3
–
–
(6.7)
4.3
–
–
–
54.8
169.1
246.2
4,056.9
6,564.0
–
6,564.0
Other
£m
Dividends
£m
Transfers
£m
Balance
31 December
2017
£m
–
–
–
(6.7)
10.3
–
3.1
–
13.4
–
6.7
(3.5)
3.2
0.6
27.0
–
–
–
–
–
–
–
(145.7)
(118.1)
–
(118.1)
–
–
–
8.9
(5.1)
0.2
–
–
(4.9)
(4.0)
–
–
–
100.3
1,998.6
113.9
(3.3)
18.7
–
37.9
169.1
225.7
3,150.2
5,585.4
(1.2)
5,584.2
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
120
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2018
Items taken
to other
comprehensive
income
£m
Retained
earnings
£m
Company
Ordinary share capital
Share premium
Capital redemption reserve1
Own shares held
Other reserves:
Share-based payments reserve
Translation hedging and other reserves
Merger reserve1
Total other reserves
Retained earnings
Balance
1 January
2018
£m
100.3
1,998.6
113.9
(3.3)
6.8
47.4
169.1
223.3
866.9
–
–
–
–
–
–
–
–
108.8
Total equity attributable to equity
shareholders
3,299.7
108.8
FOR THE YEAR ENDED 31 DECEMBER 2017
–
–
–
–
–
–
–
–
11.0
11.0
Balance
1 January
2017
£m
83.0
1,431.1
113.9
(5.5)
4.0
47.4
169.1
220.5
517.7
Items taken
to other
comprehensive
income
£m
Retained
earnings
£m
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
518.5
(16.2)
Company
Ordinary share capital
Share premium
Capital redemption reserve1
Own shares held
Other reserves:
Share-based payments reserve
Translation hedging and other reserves
Merger reserve1
Total other reserves
Retained earnings
Total equity attributable to equity
shareholders
1 See Note 20.
Shares
issued
£m
0.2
0.4
–
–
–
–
–
–
–
0.6
Shares
issued
£m
16.7
540.5
–
–
–
–
–
–
–
Other
£m
Dividends
£m
Transfers
£m
Balance
31 December
2018
£m
101.3
2,047.7
113.9
(2.0)
7.3
47.4
169.1
223.8
818.5
0.8
48.7
–
–
–
–
–
–
(169.9)
–
–
–
2.4
(4.1)
–
–
(4.1)
1.7
(120.4)
–
3,303.2
–
–
–
(1.1)
4.6
–
–
4.6
–
3.5
Other
£m
Dividends
£m
Transfers
£m
–
–
–
(6.7)
4.3
–
–
4.3
–
0.6
27.0
–
–
–
–
–
–
(145.7)
–
–
–
8.9
(1.5)
–
–
(1.5)
(7.4)
Balance
31 December
2017
£m
100.3
1,998.6
113.9
(3.3)
6.8
47.4
169.1
223.3
866.9
2,360.7
518.5
(16.2)
557.2
(2.4)
(118.1)
–
3,299.7
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTS
CASH FLOW STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
GROUP
COMPANY
Notes
26(i)
Cash flows from operating activities
Interest received
Dividends received
Interest paid
Cost of early close out of interest rate derivatives and new derivatives transacted
Proceeds from early close out of interest rate derivatives
Cost of early close out of debt
Tax paid
Net cash received/(used in) from operating activities
Cash flows from investing activities
Purchase and development of investment properties
Acquisition of APP assets1
Sale of investment properties
Acquisition of other interest in property
Purchase of plant and equipment and intangibles
Acquisition of other investments
Sale of available-for-sale investments
Investment in subsidiary undertakings
Loan advances paid to subsidiary undertakings
Investment in joint ventures
Divestment in joint ventures
Net cash used in investing activities
Cash flows from financing activities
Dividends paid to ordinary shareholders
Proceeds from borrowings
Repayment of borrowings
Settlement of foreign exchange derivatives
Proceeds from issue of ordinary shares
Purchase of ordinary shares
Net cash generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at the end of the year
16
1 Acquisition of APP assets during 2017 includes £1.2 million of transaction costs.
2018
£m
235.1
44.1
28.6
(99.2)
–
–
(5.7)
(2.6)
200.3
(637.1)
–
480.4
(2.0)
(1.6)
(18.6)
–
–
–
(200.2)
101.0
(278.1)
(120.4)
264.1
(102.0)
(6.4)
0.6
(1.1)
34.8
(43.0)
109.3
0.2
66.5
2017
£m
189.9
61.2
26.6
(140.6)
(50.9)
34.8
(140.4)
(4.9)
(24.3)
(457.9)
(217.2)
317.2
(3.8)
(2.0)
–
0.6
–
–
(137.8)
166.2
(334.7)
(118.1)
1,342.1
(1,274.5)
(63.4)
557.2
(6.7)
436.6
77.6
32.0
(0.3)
109.3
121
2017
£m
(30.8)
189.6
678.0
(140.6)
(45.6)
34.8
(140.4)
–
545.0
–
–
–
–
(0.3)
–
–
(124.7)
(1,192.8)
–
–
2018
£m
(5.8)
140.2
145.8
(99.2)
–
–
(5.7)
–
175.3
–
–
–
–
(0.9)
–
–
(132.4)
(121.0)
–
–
(254.3)
(1,317.8)
(120.4)
264.1
(102.0)
(6.4)
0.6
(1.1)
34.8
(44.2)
76.4
0.1
32.3
(118.1)
1,342.1
(883.8)
(63.4)
557.2
(6.7)
827.3
54.5
22.1
(0.2)
76.4
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
122
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2018
1. SIGNIFICANT ACCOUNTING POLICIES
General information
SEGRO plc (the Company) is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is
given on the inside back cover.
The principal activities of the Company and its subsidiaries (the Group) and the nature of the Group’s operations are set out in the Strategic
Report on pages 12 to 21.
These Financial Statements are presented in pounds sterling because that is the currency of the primary economic environment in which the
Group operates and is the functional currency of the Company.
Basis of preparation
The Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU, IFRS
Interpretations Committee (IFRS IC) interpretations, and the Companies Act 2006 applicable to companies reporting under IFRS. The Group’s
Financial Statements also comply with Article 4 of the EU IAS Regulations. In addition, the Group has also disclosed additional measures relating
to the Best Practice Recommendations Guidelines issued by the European Public Real Estate Association (EPRA) as appropriate, as discussed
further in Note 2.
The Financial Statements have been prepared on a going concern basis. This is discussed in the Financial Review on page 33.
The Directors have taken advantage of the exemption offered by section 408 of the Companies Act 2006 not to present a separate income
statement and statement of comprehensive income for the Company. The Financial Statements have been prepared under the historical cost
convention as modified by the revaluation of properties and certain financial assets and liabilities including derivatives.
The accounting policies set out below have, unless otherwise stated, been applied consistently to all periods presented in these Group
financial statements.
New and amended standards adopted by the Group
In the current year, the Group has applied a number of amendments to IFRSs and a new Interpretation issued by the International Accounting
Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2018.
The following standards and amendments have been adopted by the Group and the Company for the first time for the financial year beginning
on 1 January 2018:
• IFRS 9 ‘Financial instruments’
• IFRS 15 ‘Revenue from contracts with customers’
• Amendments to IAS 40, ‘Investment property’ relating to transfers of investment property
• Annual improvements to IFRSs 2014-2016 Cycle
• IFRIC 22 ‘Foreign currency transactions and advance consideration’
• Amendments to IFRS 2, ‘Share-based payments’, on clarifying how to account for certain types of share-based payment transactions
The Group and the Company had to update its accounting policies following the adoption of IFRS 9 and 15 but there were no retrospective
adjustments following the adoption. This is disclosed further below. The other amendments did not have any impact on the amounts recognised
in prior period and are not expected to significantly affect the current or future periods.
IFRS 9 Financial Instruments
IFRS 9 replaces the provision of IAS 39 that relate to the recognition, classification and measurement of financial assets and financial liability,
derecognition of financial instruments, impairment of financial assets and hedge accounting. The adoption of IFRS 9 from 1 January 2018 resulted
in no adjustments to the amounts recognised in the financial statements. In accordance with the transitional provisions, comparative figures have
not been restated.
a) Classification and measurement
On 1 January 2018 (the date of initial application of IFRS 9), the Group’s management has assessed which business models apply to the financial
assets held by the Group and has classified its financial instruments into the appropriate IFRS 9 categories. The Group did not hold assets
classified as ‘held to maturity’ or ‘available for sale’ under IAS 39 at 1 January 2018 and as a result there was no reclassification of these financial
assets on adoption of IFRS 9. The other financial assets held in the current or previous reporting period have not been reclassified upon adoption
of IFRS 9. See Note 17.
b) Derivatives and hedging activity
The designated foreign exchange contracts and cross currency swap contracts in place as at 31 December 2017 qualified as net investment
hedges under IFRS 9. The Group’s risk management strategies and hedge documentation are aligned with the requirement of IFRS 9 and these
relationships are therefore treated as continuing hedges. The Group has not changed the designation of derivative instruments used as part of its
risk management strategy as hedging relationships under IFRS 9.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTS 123
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
c) Impairment of financial assets
The Group's significant financial assets that are subject to IFRS 9’s new expected credit loss model are trade receivables from the leasing of
investment properties. Based on the reasons set out in the credit risk management section in Note 17 the credit risk associated with unpaid rent
is deemed to be low. The Group was required to revise its impairment methodology under IFRS 9. This did not result in a material change in the
loss allowance recognised under IFRS 9 compared to the previous impairment provision held under IAS 39. Note 17 provides further details on
the measurement of the loss allowance and amount recognised at 31 December 2018.
While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.
The Company holds intercompany loan and receivables balances with the subsidiaries of the Group as disclosed in Note 7. There is no material
impact on the Company only Financial Statements from the recognition of loss allowance for the loans and receivables under IFRS 9 compared to
the previous impairment provision held under IAS 39.
IFRS 15 Revenue from Contracts with Customers
The Group has adopted IFRS 15 Revenue from Contracts with Customers from 1 January 2018.
IFRS 15 does not apply to rental income which makes up over 80 per cent of total revenue of the Group, but does apply to other non-core
revenue streams; service charge income, management and performance fees and proceeds from the sale of trading properties. IFRS 15 did not
have a material impact on the timing of revenue recognition for the non-core income streams.
There were no adjustments to the amounts recognised in the financial statements and no restatement of the comparative for the 2017 financial
year. The wording of the accounting policies for ‘Service charges and other recoveries from tenants’ and ‘Sale of trading properties’ have been
updated in line with the new IFRS 15 requirements.
New standards and interpretations not yet adopted
Certain new accounting standards and interpretations are effective for annual periods beginning on or after 1 January 2019, and have not
been applied in preparing these Financial Statements. The Group’s assessment of the impact of these new standards and interpretations is set
out below.
Title of standard
Nature of change
Impact
IFRS 16 Leases
IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet for a lessee, as the
distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item)
and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for
lessors will not significantly change.
Details of the operating leases held by the Group at 31 December 2018 is shown in Note 24. Management have performed an
assessment of the impact of bringing the existing operating leases held by the Group on balance sheet under IFRS 16. It is not
estimated that IFRS 16 will have a material impact on the gross and net asset position of the Group upon transition and the Income
Statement for the year ending 31 December 2019.
Date of adoption by Group
Mandatory for financial years commencing on or after 1 January 2019. The Group intends to apply the simplified transition
approach and will not restate comparative amounts for the year prior to first adoption.
Amendments to IFRS 3 Business Combinations (subject to EU endorsement) and effective for financial years commencing on or after 1 January
2020 provides a revised framework for evaluating a business and introduces and optional ‘concentration test’. The amendment will impact the
assessment and judgements used in determining whether future property transactions represent an asset acquisition or business combination.
As a result of the amendment it is expected that future transactions are more likely to be treated as an asset acquisition.
There are no other standards that are not yet effective that would be expected to have a material impact on the Group in the current or future
reporting periods and on the foreseeable future transactions.
Basis of consolidation
The consolidated Financial Statements comprise the Financial Statements of the Company and the Subsidiaries “the Group”, plus the Group’s
share of the results and net assets of the joint ventures.
Subsidiaries
Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the entity. In assessing control, the Group takes into
consideration potential voting rights. The acquisition date is the date on which control is transferred to the acquirer. The Financial Statements
of subsidiaries are included in the consolidated Financial Statements from the date that control commences until the date that control ceases.
Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-
controlling interests to have a deficit balance.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 124
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Joint ventures
A joint venture is a contract under which the Group and other parties undertake an activity or invest in an entity, under joint control. The Group
uses equity accounting for such entities, carrying its investment at cost plus the movement in the Group’s share of net assets after acquisition,
less impairment.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated.
Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s
interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of
impairment on the asset transferred.
The Company holds investments in subsidiaries and joint ventures at cost less accumulated impairment losses.
Business combinations
The acquisition of subsidiaries is accounted for using the acquisition method. The cost of the acquisition is measured at the aggregate of the
fair values of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree.
Acquisition related costs are recognised in the Income Statement as incurred. The acquiree’s identifiable assets, liabilities and contingent liabilities
that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or
disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations,
which are recognised and measured at fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset measured at cost, being the excess of the cost of the business combination over the
Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s
interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination,
the excess is recognised immediately in the Income Statement.
The interest of non-controlling interest shareholders in the acquiree is initially measured at their proportion of the net fair value of the assets,
liabilities and contingent liabilities recognised.
When the consideration transferred by the Group in a business combination includes a contingent consideration arrangement, the contingent
consideration is measured at its acquisition-date fair value. Changes in fair value of the contingent consideration that qualify as measurement
period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are
adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition
date) about facts and circumstances that existed at the acquisition date.
Contingent consideration that is classified as an asset or a liability is re-measured at subsequent reporting dates in accordance with IFRS 9, as
appropriate, with the corresponding gain or loss being recognised in the Income Statement.
Foreign currency transactions
Foreign currency transactions are translated to the respective functional currency of Group entities at the foreign exchange rate ruling on the
transaction date. Foreign exchange gains and losses resulting from settling these, or from retranslating monetary assets and liabilities held in
foreign currencies, are booked in the Income Statement. The exception is for foreign currency loans and derivatives that hedge investments in
foreign subsidiaries, where exchange differences are booked in equity until the investment is realised.
Consolidation of foreign entities
Assets and liabilities of foreign entities are translated into sterling at exchange rates ruling at the Balance Sheet date. Their income, expenses and
cash flows are translated at the average rate for the period or at spot rate for significant items. Resultant exchange differences are booked in other
comprehensive income and recognised in the Group Income Statement when the operation is sold.
The principal exchange rates used to translate foreign currency denominated amounts in 2018 are:
Balance Sheet: £1 = €1.11 (31 December 2017: £1 = €1.13). Income Statement: £1= €1.13 (2017: £1 = €1.14).
Investment properties
These properties include completed properties that are generating rent or are available for rent, and development properties that are under
development or available for development. Investment properties comprise freehold and leasehold properties and are first measured at cost
(including transaction costs), then revalued to market value at each reporting date by independent professional valuers. Valuation gains and losses
in a period are taken to the Income Statement. As the Group uses the fair value model, as per IAS 40 Investment Properties, no depreciation
is provided. An asset will be classified as held for sale within investment properties, in line with IFRS 5 Non-Current Assets Held for Sale and
Discontinued Operations, where there is Board approval at the year-end date and the asset is expected to be disposed of within 12 months of the
Balance Sheet date.
Investment properties are transferred to trading properties when there is a change in use and the property ceases to meet the definition of
investment property.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018 125
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Other interests in property
Other interests in property include the cost and related fees in respect of land options, which are initially capitalised and regularly tested for
impairment. The impairment review includes consideration of the resale value of the option and likelihood of achieving planning consent.
Other investments
Other investments includes an equity investment in an entity whose primary business activity is property investment. The investments are initially
measured at cost, and then revalued to fair value. Gains and losses arising from valuation are recognised in the Income Statement within realised
and unrealised property gain.
Trading properties
These are properties being developed for sale or being held for sale after development is complete, and are shown at the lower of cost and net
realisable value. Cost includes direct expenditure and capitalised interest.
Trading properties are transferred to investment properties when there is a change in use usually evidenced by the commencement of an
operating lease to another party, together with the intention to hold the property to generate rent, or for capital appreciation, or for both.
Property acquisitions and disposals
Properties are treated as acquired at the point when the Group assumes the control of ownership and as disposed when transferred to the buyer.
Generally this would occur on completion of contract. Any gains or loss arising on de-recognition of the property, which is calculated as the
difference between the net disposal proceeds and the carrying amount of the asset at the commencement of the accounting period plus capital
expenditure in the period, is included in profit or loss in the period in which the property is derecognised.
Leases
Leases where substantially all of the risks and rewards of ownership are transferred to the lessee are classified as finance leases. All others are
deemed operating leases. Under operating leases, properties leased to tenants are accounted for as investment properties. In cases where only
the buildings part of a property lease qualifies as a finance lease, the land is shown as an investment property.
Revenue
Revenue includes gross rental income, joint venture management and performance fee income, income from service charges and proceeds from
the sale of trading properties.
Rental income
Rental income from properties let as operating leases are recognised on a straight-line basis over the lease term. Lease incentives and initial costs
to arrange leases are capitalised, then amortised on a straight-line basis over the lease term (‘rent averaging’). Surrender premiums received in the
period are included in rental income.
Service charges and other recoveries from tenants
These include income in relation to service charges, directly recoverable expenditure and management fees. Revenue from providing services
is recognised in the accounting period in which the services are rendered. Revenue from services is recognised based on the actual service
provided to the end of the reporting period as a proportion of the total services to be provided and recognised over time. Where the Group acts
as an agent, service charge income is netted against the relevant property operating expenses.
Joint venture management and performance fees
Joint venture management and performance fees are recognised as income in the period to which they relate. Management fees are recognised
in the accounting period in which the services are rendered. Revenue from services is recognised based on the actual service provided to the
end of the reporting period as a proportion of the total services to be provided and recognised over time. Performance fees are recognised
at the end of the performance period to the extent that it is highly probable there will not be a significant future reversal and the fee can be
reliably estimated.
Sale of trading properties
Proceeds from the sale of trading properties are recognised at the point in time at which control of the property has been transferred to the
purchaser. Therefore, revenue is recognised at a point in time and generally occurs on completion of the contract.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 126
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Plant and equipment
Plant and equipment is stated at historic cost less accumulated depreciation. Cost includes purchase price and any directly attributable costs.
Depreciation is recognised so as to write off the cost or valuation of assets (other than investment properties) less their residual values, using the
straight-line method, on the following bases:
Plant and equipment
Solar panels
20% per annum
5% per annum
The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any
changes in estimate accounted for on a prospective basis.
Financial instruments
Borrowings
Borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, borrowings are stated at
amortised cost with any difference between the amount initially recognised and the redemption value being recognised in the Income Statement
over the period of the borrowings, using the effective interest rate method.
Gross borrowing costs relating to direct expenditure on properties under development or undergoing major refurbishment are capitalised.
The interest capitalised is calculated using the Group’s weighted average cost of borrowing for the relevant currency. Interest is capitalised from
the commencement of the development work until the date of practical completion. The capitalisation of finance costs is suspended if there are
prolonged periods when development activity is interrupted.
Derivative financial instruments
The Group uses derivatives (principally interest rate swaps, currency swaps, forward foreign exchange contracts and interest caps) in managing
interest rate risk and currency risk, and does not use them for trading. They are recorded, and subsequently revalued, at fair value, with
revaluation gains or losses being immediately taken to the Income Statement (fair value through profit or loss ‘FVPL’). The exception is for
derivatives qualifying as hedges, when the treatment of the gain/loss depends upon the item being hedged, and may go to other comprehensive
income within the Statement of Comprehensive Income (fair value through other comprehensive income ‘FVOCI’).
Derivatives with a maturity of less than 12 months or that expect to be settled within 12 months of the Balance Sheet date are presented as
current assets or liabilities. Other derivatives are presented as non-current assets or liabilities.
Trade and other receivables and payables
Trade and other receivables are booked at fair value and subsequently measured at amortised cost using the effective interest method. Trade and
other payables are initially measured at fair value, net of transaction costs and subsequently measured at amortised costs using the effective
interest method.
The Group applies the IFRS 9 simplified approach to measuring expected credit losses (‘ECLs’) which uses a lifetime expected loss allowance for
all trade receivables. Note 17 details the Group’s calculation for measuring ECL’s.
Pensions – Defined benefit scheme
The Scheme’s assets are measured at fair value, their obligations are calculated at discounted present value, and any net surplus or deficit is
recognised in the Balance Sheet. Operating and financing costs are charged to the Income Statement, with service costs spread systematically
over employees’ working lives, and financing costs expensed in the period in which they arise. Actuarial gains and losses are recognised in
other comprehensive income within the Statement of Comprehensive Income. Where the actuarial valuation of the scheme demonstrates that
the scheme is in surplus, the recognisable asset is limited to that for which the Group can benefit in the future either through a cash refund or
reduction in future payments is available. Professional actuaries are used in relation to defined benefit schemes and the assumptions made are
outlined in Note 18.
Share-based payments
The cost of granting share options and other share-based remuneration is measured at their fair value at the grant date. The costs are expensed
straight-line over the vesting period in the Income Statement, based on estimates of the shares or options that will eventually vest. Charges are
reversed if it appears that non-market-based performance conditions will not be met.
The fair value excludes the effect of non-market-based vesting conditions.
At each Balance Sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-
market-based vesting conditions. The impact of the revision of the original estimates, if any, is recognised in the Income Statement such that the
cumulative expense reflects the revised estimate, with a corresponding adjustment to equity within the share based payment reserve.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
127
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Share capital
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
When shares recognised as equity are repurchased, the amount of the consideration paid, which includes directly attributable costs, is recognised
as a deduction from equity. Repurchased shares are classified as treasury shares and are presented in the treasury share reserve. When treasury
shares are sold or reissued subsequently, the amount received is recognised as an increase in equity and the resulting surplus or deficit on the
transaction is presented within share premium.
Shares held by Estera Trust (Jersey) Limited and Equiniti Limited to satisfy various Group share schemes are disclosed as own shares held and
deducted from contributed equity.
Income tax
Income tax on the profit for the year comprises current and deferred tax. Current tax is the tax payable on the taxable income for the year and
any adjustment in respect of previous years. Current tax is calculated on the basis of the tax laws enacted or substantively enacted at the end of
the reporting period in the countries where the Company’s subsidiaries and associates operate and generate taxable income.
Deferred tax is provided in full using the Balance Sheet liability method on temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is determined using tax rates that have been
enacted or substantively enacted by the reporting date and are expected to apply when the asset is realised or the liability is settled.
No provision is made for temporary differences (i) arising on the initial recognition of assets or liabilities, other than a business combination,
that affect neither accounting nor taxable profit and (ii) relating to investments in subsidiaries to the extent that they will not reverse in the
foreseeable future.
Deferred tax assets are recognised to the extent that it is probable that suitable taxable profits will be available against which deductible
temporary differences can be utilised.
Critical accounting judgements and key sources of estimation uncertainty
In the application of the Group’s accounting policies, the Directors are required to make judgements, estimates and assumptions about the
carrying amount of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based
on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and
underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate
is revised if the revision affects only that period, or in the period of the revisions and future periods if the revision affects both current and
future periods.
Significant areas of estimation uncertainty
Property valuations
Valuation of property is a central component of the business. In estimating the fair value, the Group engage a third party qualified valuer to
perform the valuation. Information about the valuation techniques and inputs used in determining the fair value of the property portfolio is
disclosed in Note 27 property valuation techniques and related quantitative information.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 128
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Significant areas of judgements in applying the Group’s accounting policies
Accounting for significant property transactions
Property transactions are complex in nature. Management considers each material transaction separately, with an assessment carried out to
determine the most appropriate accounting treatment and judgements applied. The judgements include whether the transaction represents an
asset acquisition or business combination and the cut off for property transactions on recognition of property assets and revenue recognition.
In making its judgement over the cut-off for property transactions, management considers whether the control of ownership of the assets
acquired or disposed of has transferred to or from the Group (this consideration includes the revenue recognition criteria set out in IFRS 15
Revenue for the sale of trading properties). In making its judgement on whether the acquisition of property through the purchase of a corporate
vehicle represents an asset acquisition or business combination, management consider whether the integrated set of assets and activities acquired
contain both input and processes along with the ability to create outputs.
REIT Status
The Company has elected for UK REIT and French SIIC status. To continue to benefit from these tax regimes, the Group is required to comply
with certain conditions as outlined in Note 10. Management intends that the Group should continue as a UK REIT and a French SIIC for the
foreseeable future.
Other less significant judgements and sources of uncertainty relate to estimating the fair value of financial instruments and the judgement applied
in determining the accounting treatment of the pension buy-out costs detailed further in Note 18.
2. ADJUSTED PROFIT
Adjusted profit is a non-GAAP measure and is the Group’s measure of underlying profit, which is used by the Board and senior management to
measure and monitor the Group’s income performance.
It is based on the Best Practices Recommendations Guidelines of European Public Real Estate Association (EPRA), which calculate profit excluding
investment and development property revaluations and gains or losses on disposals. Changes in the fair value of financial instruments and
associated close-out costs and their related taxation, as well as other permitted one-off items, are also excluded. Refer to the Supplementary
Notes for all EPRA adjustments.
The Directors may also exclude from the EPRA profit measure additional items (gains and losses) which are considered by them to be non-
recurring, unusual or significant by virtue of size and nature. In the period to 31 December 2018, £51.8 million of pension buy-out costs
incurred in respect of the SEGRO Pension Scheme following the commitment to buy-out the scheme during the period, were excluded from the
calculation of Adjusted profit, see Note 18 for further details. There is no tax effect of this item in the period to 31 December 2018. No non-EPRA
adjustments to underlying profit were made in 2017.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018 129
2017
£m
272.9
(52.2)
220.7
24.3
(39.7)
47.6
252.9
(58.7)
194.2
60.5
17.0
872.4
(0.4)
–
(0.6)
(145.3)
(21.5)
–
782.1
976.3
(1.2)
(18.8)
(20.0)
956.3
(0.2)
(3.4)
952.7
192.8
759.9
952.7
2018
£m
297.7
(50.1)
247.6
44.9
(44.1)
39.0
287.4
(45.9)
241.5
85.2
56.5
791.4
–
4.7
–
(6.4)
(22.0)
(51.8)
857.6
1,099.1
(4.4)
(28.6)
(33.0)
1,066.1
(0.6)
(2.9)
1,062.6
236.5
826.1
1,062.6
2. ADJUSTED PROFIT CONTINUED
Gross rental income
Property operating expenses
Net rental income
Joint venture fee income
Administration expenses
Share of joint ventures’ Adjusted profit after tax1
Adjusted operating profit before interest and tax
Net finance costs (including adjustments)
Adjusted profit before tax
Adjustments to reconcile to IFRS:
Adjustments to the share of profit from joint ventures after tax1
Profit on sale of investment properties
Valuation surplus on investment properties
Loss on sale of trading properties
Valuation surplus on other investments
Goodwill and other amounts written off on acquisitions and amortisation of intangibles
Cost of early close out of bank debt
Net fair value loss on interest rate swaps and other derivatives
Pension buy-out costs2
Total adjustments
Profit before tax
Tax
On Adjusted profit
In respect of adjustments
Total tax adjustments
Profit after tax before non-controlling interests
Non-controlling interests:
Less: share of adjusted profit attributable to non-controlling interests
: share of adjustments attributable to non-controlling interests
Profit after tax and non-controlling interests
Of which:
Adjusted profit after tax and non-controlling interests
Total adjustments after tax and non-controlling interests
Profit attributable to equity shareholders
1 A detailed breakdown of the adjustments to the share of profit from joint ventures is included in Note 7.
2 Non-EPRA related adjustment referred to in the third paragraph above.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
130
3. SEGMENTAL ANALYSIS
The Group’s reportable segments are the geographical Business Units: Greater London, Thames Valley, National Logistics (UK), Northern Europe
(principally Germany), Southern Europe (principally France) and Central Europe (principally Poland), which are managed and reported to the
Board as separate distinct Business Units.
In 2018, as a result of the growth and the importance of the UK Big Box Logistics Warehouses to SEGRO’s portfolio and the acquisition of the
Roxhill management platform in the period the new distinct Business Unit ‘National Logistics’ has been identified and separately reported to
the Board. This has resulted in the segment reported in the Annual Report and Accounts 2017 ‘Thames Valley and National Logistics’ being
separated into two separate segments ‘Thames Valley’ and ‘National Logistics’.
31 December 2018
Thames Valley
National Logistics
Greater London
Northern Europe
Southern Europe
Central Europe
Other1
Total
31 December 2017
Thames Valley (represented)
National Logistics (represented)
‘Thames Valley and National Logistics’3
Greater London
Northern Europe
Southern Europe
Central Europe
Other1
Total
Gross
rental
income
£m
70.1
31.0
127.4
21.7
39.6
7.9
–
297.7
Gross
rental
income
£m
70.1
29.1
99.2
112.4
24.8
30.6
5.9
–
272.9
Net
rental
income
£m
Share of joint
ventures’
Adjusted
profit
£m
Total directly
owned
property
assets
£m
Adjusted
PBIT
£m
Investments
in joint
ventures
£m
Capital
expenditure2
£m
65.1
29.2
118.7
14.0
30.8
4.8
(15.0)
247.6
Net
rental
income
£m
64.6
27.3
91.9
101.8
15.4
22.0
3.1
(13.5)
220.7
–
(0.2)
–
22.7
20.3
18.8
(22.6)
39.0
Share of joint
ventures’
Adjusted
profit
£m
–
(0.1)
(0.1)
(1.8)
21.5
16.2
17.9
(6.1)
47.6
65.1
29.0
1,638.5
999.0
118.3
3,724.5
41.3
53.3
28.2
(47.8)
287.4
Adjusted
PBIT
£m
64.6
27.1
91.7
108.3
40.6
40.4
24.3
(52.4)
252.9
505.7
837.2
148.2
–
7,853.1
Total directly
owned
property
assets
£m
1,474.5
806.4
2,280.9
3,227.6
409.2
729.9
110.3
–
6,757.9
–
3.7
–
507.2
611.8
397.0
(519.8)
999.9
20.3
170.1
50.4
79.2
348.7
31.2
1.6
701.5
Investments
in joint
ventures
£m
Capital
expenditure2
£m
–
7.5
7.5
–
474.0
386.8
356.5
(432.8)
792.0
103.0
38.5
141.5
1,174.9
55.6
212.9
15.3
2.0
1,602.2
1 Other includes the corporate centre, SELP holding companies and costs relating to the operational business which are not specifically allocated to a geographical business unit. This includes the
bonds held by SELP Finance S.à r.l, a Luxembourg entity.
2 Capital expenditure includes additions and acquisitions of investment and trading properties but does not include tenant incentives, letting fees and rental guarantees. 2017 comparatives includes
the APP asset acquisition. The ‘Other’ category includes non-property related spend, primarily IT.
3 Segment ‘Thames Valley and National Logistics’ as reported in the Annual Report & Accounts 2017.
Revenues from the most significant countries within the Group were UK £236.8 million (2017: £229.6 million), France £31.5 million
(2017: £29.8 million), Germany £25.7 million (2017: £27.0 million) and Poland £16.3 million (2017: £12.0 million).
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018 131
2018
£m
282.8
12.5
1.3
1.1
297.7
18.7
26.2
44.9
25.5
0.9
2017
£m
259.6
11.8
1.1
0.4
272.9
16.8
7.5
24.3
23.8
13.7
369.0
334.7
2018
£m
5.1
8.0
0.3
10.3
23.7
31.0
(4.6)
50.1
2017
£m
7.6
8.4
0.9
10.2
27.1
29.3
(4.2)
52.2
4. REVENUE
Rental income from investment and trading properties
Rent averaging
Management fees
Surrender premiums and dividend income from property related investments
Gross rental income
Joint venture fees – management fees
– performance and other fees1
Joint venture fee income
Service charge income
Proceeds from sale of trading properties
Total revenue
1 Performance and other fees of £26.2 million in 2018 was received from the SELP joint venture (See Note 7(ii) for further details).
5. PROPERTY OPER ATING EXPENSES
Vacant property costs
Letting, marketing, legal and professional fees
Loss allowance and impairment of receivables
Other expenses, net of service charge income1
Property management expenses
Property administration expenses2
Costs capitalised3
Total property operating expenses
1 Total Other expenses were £35.8 million (2017: £34.0 million) and are presented net of service charge income of £25.5 million (2017: £23.8 million) in the table above.
2 Property administration expenses predominantly relate to the employee staff costs of personnel directly involved in managing the property portfolio.
3 Costs capitalised primarily relate to internal employee staff costs directly involved in developing the property portfolio.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
132
6. ADMINISTR ATION EXPENSES
6(i) – Total administration expenses
Directors’ remuneration
Depreciation
Other administration expenses
Total administration expenses
Other administration expenses include the cost of services of the Group’s auditors’, as described below.
6(ii) – Fees in relation to services provided by the Group’s auditors
Audit services:
Parent company
Subsidiary undertakings
Total audit fees
Audit related assurance services
Audit and audited related assurance services
Other fees:
Other1
Total other fees
Total fees in relation to audit and other services
2018
£m
9.0
2.9
32.2
44.1
2018
£m
0.5
0.2
0.7
0.1
0.8
–
–
0.8
1 Other services in 2017 principally relate to the role of reporting accountant for the Rights Issue and bond issue.
In addition to the above the Group’s auditors were paid £630,000 being £477,000 in respect of the audit of SEGRO European Logistics
Partnership (SELP) for the year ended 31 December 2018 (2017: £415,000) and £153,000 of other fees in respect of SELP (2017: £89,000).
6(iii) – Staff costs
The table below presents staff costs of the Group (including Directors) which are recognised in both property operating expenses and
administration expenses in the Income Statement.
Wages and salaries
Social security costs
Pension costs
Share scheme costs
Termination benefits
Total
Average number of Group employees
– Direct property
– Indirect property and administration
2018
£m
34.0
5.5
1.4
11.1
–
52.0
308
195
113
2017
£m
9.1
1.9
28.7
39.7
2017
£m
0.5
0.3
0.8
0.1
0.9
0.4
0.4
1.3
2017
£m
32.4
5.2
1.6
10.0
0.3
49.5
293
184
109
Disclosures required by the Companies Act 2006 on Directors’ remuneration, including salaries, share options, pension contributions and pension
entitlement and those specified by the Listing Rules of the Financial Conduct Authority are included on pages 84 to 99 in the Remuneration
Report and form part of these Financial Statements.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
133
7. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES
7(i) – Profit from joint ventures after tax
The table below presents a summary Income Statement of the Group’s largest joint ventures, all of which are accounted for using the equity
method as set out in Note 1. Roxhill operates in the UK and develops big box logistics assets and SELP is incorporated in Luxembourg and owns
logistics property assets in Continental Europe. The Group holds 50 per cent of the share capital and voting rights in the joint ventures.
Gross rental income
Property operating expenses:
– underlying property operating expenses
– vacant property costs
– property management fees
– performance and other fees
Net rental income
Administration expenses
Net finance costs (including adjustments)
EPRA profit/(loss) before tax
Tax
Adjusted profit/(loss) after tax
Adjustments:
Profit on sale of investment properties
Valuation surplus on investment properties
Cost of early close out of bank debt
Net fair value loss on interest rate swaps and other derivatives
Tax in respect of adjustments
Total adjustments
Profit/(loss) after tax
Other comprehensive income
Total comprehensive income/(loss) for the year
SEGRO
European
Logistics
Partnership
£m
Roxhill
£m
At 100%
2018
£m
150.9
–
150.9
At 100%
20171
£m
147.4
At 50%
2018
£m
75.5
At 50%
2017
£m
73.7
(8.0)
(1.8)
(13.9)
(26.2)
101.0
(2.5)
(15.1)
83.4
(5.0)
78.4
15.2
187.0
–
–
(31.7)
170.5
248.9
–
248.9
(0.1)
–
–
–
(0.1)
(0.1)
(0.2)
(0.4)
–
(0.4)
–
–
–
–
–
–
(0.4)
–
(0.4)
(8.1)
(1.8)
(13.9)
(26.2)
100.9
(2.6)
(15.3)
83.0
(5.0)
78.0
15.2
187.0
–
–
(31.7)
170.5
248.5
–
248.5
(6.1)
(1.9)
(14.0)
(8.5)
116.9
(1.7)
(12.4)
102.8
(7.5)
95.3
1.6
153.7
(3.7)
(6.2)
(24.4)
121.0
216.3
6.2
222.5
(4.1)
(0.9)
(7.0)
(13.1)
50.4
(1.3)
(7.6)
41.5
(2.5)
39.0
7.6
93.5
–
–
(15.9)
85.2
124.2
–
124.2
(3.0)
(0.9)
(7.0)
(4.3)
58.5
(0.9)
(6.2)
51.4
(3.8)
47.6
0.8
76.9
(1.9)
(3.1)
(12.2)
60.5
108.1
3.1
111.2
1 On 9 March 2017 SEGRO acquired the remaining 50 per cent interest in the Airport Property Partnership (APP) joint venture property portfolio it did not already own. Consequently, the APP
share of profit is only included in the table above to 9 March 2017 (the date of acquisition) and no balance sheet in respect of APP is included at 31 December 2017.
Trading properties held by joint ventures were externally valued resulting in no increase in provision (2017: £nil). Based on the fair value
at 31 December 2018, the Group’s share of joint ventures’ trading property portfolio has unrecognised surplus of £0.9 million (2017: £nil).
Other comprehensive income at share of £nil is included in the Group Statement of Comprehensive Income (2017: £3.1 million loss in respect
of fair value of derivatives in effective hedge relationships).
SELP is a SPPICAV in France, and does not pay tax on its French property income or gains on property sales, provided that at least 85 per cent
of the French subsidiaries’ property income is distributed to their immediate shareholder. In addition, SELP has to meet certain conditions such
as ensuring the property rental business of each French subsidiary represents more than 60 per cent of its assets. Any potential or proposed
changes to the SPPICAV legislation are monitored.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
134
7. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES CONTINUED
7(ii) – Summarised Balance Sheet information in respect of the Group’s joint ventures
Investment properties1
Other interests in property
Total non-current assets
Trading properties
Other receivables
Cash and cash equivalents
Total current assets
Total assets
Borrowings
Deferred tax
Other liabilities
Total non-current liabilities
Other liabilities
Total current liabilities
Total liabilities
Net assets
SEGRO
European
Logistics
Partnership
£m
3,133.9
1.3
3,135.2
–
153.3
45.3
198.6
3,333.8
(1,120.4)
(123.5)
–
(1,243.9)
(99.3)
(99.3)
(1,343.2)
1,990.6
Roxhill
£m
Other
£m
–
9.6
9.6
3.7
5.2
2.3
11.2
20.8
–
–
–
–
(13.5)
(13.5)
(13.5)
7.3
–
–
–
1.1
1.4
–
2.5
2.5
–
–
–
–
(0.6)
(0.6)
(0.6)
1.9
At 100%
2018
£m
3,133.9
10.9
At 100%
2017
£m
2,560.4
16.1
At 50%
2018
£m
At 50%
2017
£m
1,566.9
1,280.2
5.4
8.1
3,144.8
2,576.5
1,572.3
1,288.3
4.8
159.9
47.6
212.3
3,357.1
(1,120.4)
(123.5)
–
1.1
82.1
39.9
123.1
2,699.6
(926.9)
(104.2)
(8.5)
2.4
80.0
23.8
106.2
1,678.5
(560.2)
(61.8)
–
(1,243.9)
(1,039.6)
(622.0)
(113.4)
(113.4)
(1,357.3)
1,999.8
(76.1)
(76.1)
(1,115.7)
1,583.9
(56.6)
(56.6)
(678.6)
999.9
0.6
41.1
20.0
61.7
1,350.0
(463.5)
(52.1)
(4.3)
(519.9)
(38.1)
(38.1)
(558.0)
792.0
1 Investment properties held by SELP include assets held for sale of £nil million (at 100%) at 31 December 2018 (2017: £48.0 million).
The external borrowings of the joint ventures are non-recourse to the Group. At 31 December 2018, the fair value of £1,120.4 million
(2017: £926.9 million) of borrowings was £1,104.3 million (2017: £938.6 million). This results in a fair value adjustment increase in EPRA triple net
asset value of £16.1 million (2017: £11.7 million decrease), at share £8.0 million (2017: £5.9 million decrease), see Note 12.
SEGRO provides certain services, including venture advisory and asset management to the SELP joint venture and receives fees for doing so.
Performance fees are payable from SELP to SEGRO based on its IRR subject to certain hurdle rates. The first calculation and payment was on
the fifth anniversary of the inception of SELP, being October 2018, but 50 per cent of this is subject to clawback based on performance over the
period to the tenth anniversary, October 2023. If performance has improved at this point, additional fees might be triggered.
The first fee paid by SELP in October 2018 including the amount subject to clawback, was £52.4 million. Only £26.2 million representing the
50 per cent of the performance fee paid not subject to future claw back has been recognised by SEGRO in the 2018 Income Statement (see
Note 4). The 50 per cent subject to clawback has been recognised as a contract liability within Trade and other payables at 31 December 2018
(see Note 15). SELP has recognised a corresponding performance fee expense of £26.2 million (at share £13.1 million) and deferred expense of
£26.2 million (at share £13.1 million) in other receivables shown in the table above.
The net profit before tax impact on the SEGRO 2018 Group Income Statement of the performance fee is a £13.1 million profit and the net profit
after tax impact is a £12.3 million profit.
A double tax treaty between France and Luxembourg has been signed but the ratification process has not yet completed, and is consequently
not yet substantially enacted. The impact of the treaty has therefore not been recognised in the reported SELP results, however had this been the
case, the deferred tax liability is estimated to increase by around £54.0 million (£27.0 million at share) at 31 December 2018.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018 135
2018
£m
792.0
17.4
99.2
(4.3)
(28.6)
124.2
–
999.9
2017
£m
1,066.2
24.9
51.7
(435.4)
(26.6)
108.1
3.1
792.0
7. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES CONTINUED
7(iii) – Investments by the Group
Cost or valuation at 1 January
Exchange movement
Additions
Disposals and net divestments¹
Dividends received
Share of profit after tax
Items taken to other comprehensive income
Cost or valuation at 31 December
1 Net divestments represents the net movement of loans held with joint ventures.
Dividends received were £28.6 million (2017: £26.6 million), of which £28.6 million (2017: £19.6 million) was from SELP (2017: £7.0 million was
received from APP).
7(iv) – Investments by the Company
Investments
2018
£m
2017
£m
Loans
2018
£m
2017
£m
Total
2018
£m
2017
£m
Cost or valuation of subsidiaries at 1 January
2,349.6
2,403.1
4,323.3
2,988.1
6,672.9
5,391.2
Exchange movement
Additions
Loan movement
Decrease/(increase) in provision for investments in and loans to subsidiaries
–
132.4
–
2.2
–
124.7
–
(178.2)
12.2
–
339.9
28.5
Cost or valuation of subsidiaries at 31 December
2,484.2
2,349.6
4,703.9
30.0
–
1,155.2
150.0
4,323.3
12.2
132.4
339.9
30.7
30.0
124.7
1,155.2
(28.2)
7,188.1
6,672.9
Subsidiary entities are detailed in Note 28.
In measuring expected credit losses (‘ECLs’) of the intercompany loans under IFRS 9 the ability of each subsidiary to repay the loan at the
reporting date if demanded by the Company is assessed. For the purpose of the impairment review the manner for recovering the loan is
assumed to be through the sale of the investment properties held by the subsidiary. Investment properties are held at fair value at each reporting
date and the assumptions and inputs used in determining their fair value are shown in Note 27. Therefore the net asset value of the subsidiary
is considered to be a reasonable approximation of the available assets that could be realised to recover the loan balance and the requirement to
recognise expected credit losses.
The adoption of IFRS 9 did not result in a material change in the loss allowance and the impairments recognised for intercompany loans under
IFRS 9 compared to that held under IAS 39.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
136
8. REALISED AND UNREALISED PROPERTY GAIN
Profit on sale of investment properties
Valuation surplus on investment properties
Loss on sale of trading properties
Valuation surplus on other investments1
Total realised and unrealised property gain
2018
£m
56.5
791.4
–
4.7
852.6
1 On 16 January 2018 SEGRO acquired 19.39 per cent of the share capital of Sofibus Patrimoine (“Sofibus”), an entity listed on the Euronext stock exchange in France. The investment of
£23.6 million is held within Other Investments on the Balance Sheet (2017: £nil). The investment in Sofibus has been fair valued at 31 December 2018 resulting in a valuation surplus of
£4.7 million being recognised in the Income Statement (2017: £nil).
9. NET FINANCE COSTS
Finance income
Interest received on bank deposits and related derivatives
Fair value gain on interest rate swaps and other derivatives
Net interest income on defined benefit asset
Exchange differences
Total finance income
Finance costs
Interest on overdrafts, loans and related derivatives
Cost of early close out of debt
Amortisation of issue costs
Total borrowing costs
Less amounts capitalised on the development of properties
Net borrowing costs
Fair value loss on interest rate swaps and other derivatives
Exchange differences
Total finance costs
Net finance costs
2018
£m
29.9
2.6
0.9
–
33.4
2018
£m
(82.3)
(6.4)
(3.4)
(92.1)
9.2
(82.9)
(24.6)
(0.2)
(107.7)
(74.3)
2017
£m
17.0
872.4
(0.4)
–
889.0
2017
£m
34.7
4.5
1.3
0.1
40.6
2017
£m
(98.8)
(145.3)
(2.6)
(246.7)
6.6
(240.1)
(26.0)
–
(266.1)
(225.5)
Net finance costs (including adjustments) in Adjusted profit (Note 2) are £45.9 million (2017: £58.7 million). This excludes net fair value gains
and losses on interest rate swaps and other derivatives of £22.0 million loss (2017: £21.5 million loss) and the cost of early close out of debt of
£6.4 million (2017: £145.3 million).
The interest capitalisation rates for 2018 ranged from 2.5 per cent to 3.0 per cent (2017: 3.0 per cent to 4.0 per cent). Interest is capitalised gross
of tax relief. Further analysis of exchange differences is given in Note 17 within the foreign exchange and currency swap contracts section.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
137
2017
£m
(1.2)
(18.8)
(20.0)
(1.9)
–
(1.9)
(1.9)
(1.3)
1.0
(18.1)
(18.4)
0.3
(18.1)
(20.0)
2018
£m
(4.4)
(28.6)
(33.0)
(40.5)
(0.6)
(41.1)
(41.1)
(1.6)
20.5
(9.9)
9.0
(0.9)
8.1
(33.0)
10. TAX
10(i) – Tax on profit
Tax:
On Adjusted profit
In respect of adjustments
Total tax charge
Current tax
Overseas
Current tax charge
Adjustments in respect of earlier years
Total current tax charge
Deferred tax
Origination and reversal of temporary differences
Released in respect of property disposals in the year
On valuation movements
Total deferred tax in respect of investment properties
Other deferred tax
Total deferred tax credit/(charge)
Total tax charge on profit on ordinary activities
The tax liability of £40.4 million (2017: £1.3 million) held on the Balance Sheet primarily relates to capital gains tax arising following the disposal
of assets in Italy.
10(ii) – Factors affecting tax charge for the year
The tax charge is lower than (2017: lower than) the standard rate of UK corporation tax. The differences are:
Profit on ordinary activities before tax
Exclude valuation surplus in respect of UK properties not taxable
Multiplied by standard rate of UK corporation tax of 19.0 per cent (2017: 19.25 per cent)
Effects of:
REIT & SIIC exemption on income and gains
Non-deductible items
Joint venture tax adjustment
Higher tax rates on international earnings
Adjustment in respect of prior years
Adjustment in respect of assets not recognised
Total tax charge on profit on ordinary activities
2018
£m
1,099.1
(687.9)
411.2
(78.1)
38.5
(0.1)
23.6
(15.8)
(0.4)
(0.7)
(33.0)
2017
£m
976.3
(742.3)
234.0
(45.0)
18.7
(1.5)
21.6
(17.3)
(0.3)
3.8
(20.0)
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
138
10. TAX CONTINUED
10(iii) – REIT and SIIC regimes and other tax judgements
SEGRO is a Real Estate Investment Trust (REIT) and does not pay tax on its UK property income or gains on property sales, provided that at least
90 per cent of the Group’s UK property income is distributed as a dividend to shareholders, which becomes taxable in their hands. In addition,
the Group has to meet certain conditions such as ensuring its worldwide property rental business represents more than 75 per cent of total
profits and assets. Any potential or proposed changes to the REIT legislation are monitored and discussed with HMRC. It is management’s
intention that the Group will continue as a REIT for the foreseeable future.
SEGRO is also a SIIC in France, and does not pay tax on its French property income or gains on property sales, provided that at least 95 per cent
of the French subsidiaries’ property income is distributed to their immediate shareholder. In addition, the Group has to meet certain conditions
such as ensuring the property rental business of each French subsidiary represents more than 80 per cent of its assets. Any potential or proposed
changes to the SIIC legislation are monitored. It is management’s intention that the Group will continue as a SIIC for the foreseeable future.
The joint venture tax adjustment is required because the profit on ordinary activities before tax includes share of profit from joint ventures after
tax, whereas the total tax balance excludes joint ventures.
The Group believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including
interpretations of tax laws and prior experience.
10(iv) – Deferred tax liabilities
Movement in deferred tax was as follows:
Group – 2018
Valuation surpluses and deficits on properties/accelerated tax allowances
Deferred tax asset on revenue losses
Others
Total deferred tax liabilities
Group – 2017
Valuation surpluses and deficits on properties/accelerated tax allowances
Deferred tax asset on revenue losses
Others
Total deferred tax liabilities
Balance
1 January
£m
Exchange
movement
£m
Acquisitions/
disposals
£m
Recognised
in income
£m
Balance
31 December
£m
33.0
(1.2)
2.8
34.6
0.4
(0.1)
0.1
0.4
(0.1)
0.1
–
–
(8.1)
(0.2)
0.2
(8.1)
25.2
(1.4)
3.1
26.9
Balance
1 January
£m
Exchange
movement
£m
Acquisitions/
disposals
£m
Recognised
in income
£m
Balance
31 December
£m
14.3
(0.3)
2.3
16.3
1.0
–
0.2
1.2
(1.0)
–
–
(1.0)
18.7
(0.9)
0.3
18.1
33.0
(1.2)
2.8
34.6
The Group has recognised revenue tax losses of £1.4 million (2017: £1.2 million) available for offset against future profits. Further unrecognised
tax losses of £790.9 million also exist at 31 December 2018 (2017: £813.0 million) of which £41.3 million (2017: £48.6 million) expires within
nine years. The majority of the unrecognised tax loss balance relates to historic capital losses that arose on property disposals and on losses
generated from debt close-out costs.
For the purposes of measuring deferred tax liabilities or deferred tax assets arising from investment properties that are measured using the fair
value model, the Directors have reviewed the Group’s investment property portfolios and concluded that the Group’s investment properties
are not held under a business model whose objective is to consume substantially all of the economic benefits embodied in the investment
properties over time, rather than through sale. Therefore, in determining the Group’s deferred taxation on investment properties, the Directors
have determined that the presumption that the carrying amounts of investment properties measured using the fair value model are recovered
entirely through sale is not rebutted. As a result, the Group has recognised deferred taxes on changes in fair value of investment properties for
all jurisdictions, with the exception of the UK and France, where the Group is not subject to any corporate income taxes on the fair value changes
of the investment properties on disposal.
10(v) – Factors that may affect future tax charges
No deferred tax is recognised on the unremitted earnings of international subsidiaries and joint ventures. In the event of their remittance
to the UK, no net UK tax is expected to be payable.
The standard rate of UK corporation tax is due to fall to 17 per cent by 2020. This is unlikely to significantly impact the Group’s tax charge.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018 139
2018
£m
56.1
113.8
–
–
169.9
2017
£m
–
–
52.7
93.0
145.7
11. DIVIDENDS
Ordinary dividends paid
Interim dividend for 2018 @ 5.55 pence per share
Final dividend for 2017 @ 11.35 pence per share
Interim dividend for 2017 @ 5.25 pence per share
Final dividend for 2016 @ 10.70 pence per share1
Total dividends
1 After applying a bonus adjustment of 1.046 following a rights issue in March 2017.
The Board recommends a final dividend for 2018 of 13.25 pence which is estimated to result in a distribution of up to £134.3 million. The total
dividend paid and proposed per share in respect of the year ended 31 December 2018 is 18.8 pence (2017: 16.6 pence). For details on scrip
dividends see Note 19 and 20.
12. EARNINGS AND NET ASSETS PER SHARE
The earnings per share calculations use the weighted average number of shares in issue during the year and the net assets per share calculations
use the number of shares in issue at year end. Earnings per share calculations exclude 0.7 million shares (2017: 1.2 million) being the average
number of shares held on trust for employee share schemes and net assets per share calculations exclude 0.7 million shares (2017: 0.9 million)
being the actual number of shares held on trust for employee share schemes at year end.
12(i) – Earnings per ordinary share (EPS)
Basic EPS
Dilution adjustments:
Share and save as you earn schemes
Diluted EPS
Basic EPS
Adjustments to profit before tax1
Tax in respect of Adjustments
Non-controlling interest on adjustments
Adjusted EPS2
1 Details of adjustments are included in Note 2.
2 Based on basic number of shares.
2018
2017
Earnings
£m
Shares
million
Pence
per share
1,062.6
1,008.6
105.4
Earnings
£m
952.7
5.8
1,014.4
1,008.6
–
1,062.6
1,062.6
(857.6)
28.6
2.9
236.5
1,008.6
(0.6)
104.8
105.4
(85.0)
2.8
0.2
23.4
–
952.7
952.7
(782.1)
18.8
3.4
192.8
Shares
million
967.3
5.5
972.8
967.3
967.3
Pence
per share
98.5
(0.6)
97.9
98.5
(80.9)
1.9
0.4
19.9
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
140
12. EARNINGS AND NET ASSETS PER SHARE CONTINUED
12(ii) – Net assets per share (NAV)
Basic NAV
Dilution adjustments:
Share and save as you earn schemes
Diluted NAV
2018
2017
Equity
attributable
to ordinary
shareholders
£m
Shares
million
Pence
per share
Equity
attributable
to ordinary
shareholders
£m
Shares
million
Pence
per share
6,564.0
1,012.8
648
5,585.4
1,002.0
–
5.9
6,564.0
1,018.7
Fair value adjustment in respect of interest rate derivatives – Group
Fair value adjustment in respect of trading properties – Group
Fair value adjustment in respect of trading properties – Joint ventures
Deferred tax in respect of depreciation and valuation surpluses – Group
Deferred tax in respect of depreciation and valuation surpluses – Joint ventures
(35.0)
2.2
0.9
26.4
61.8
EPRA NAV
6,620.3
1,018.7
650
Fair value adjustment in respect of debt – Group
Fair value adjustment in respect of debt – Joint ventures
Fair value adjustment in respect of interest rate swap derivatives – Group
Deferred tax in respect of depreciation and valuation surpluses – Group
Deferred tax in respect of depreciation and valuation surpluses – Joint ventures
(17.4)
8.0
35.0
(26.4)
(61.8)
(1)
1
3
(3)
(6)
(4)
644
(3)
–
–
3
6
–
5.7
5,585.4
1,007.7
(60.7)
–
–
30.7
52.3
5,607.7
(163.5)
(5.9)
60.7
(30.7)
(52.3)
1,007.7
EPRA triple net NAV (NNNAV)
6,557.7
1,018.7
644
5,416.0
1,007.7
537
557
(3)
554
(6)
–
–
3
5
556
(16)
(1)
6
(3)
(5)
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
141
Completed
£m
Development
£m
4,045.2
25.3
1,130.0
19.7
(393.5)
306.2
759.2
5,892.1
74.8
5,966.9
597.7
10.1
82.2
367.8
(86.3)
(306.2)
113.2
778.5
–
778.5
Completed
£m
Development
£m
5,892.1
20.0
73.5
23.9
(385.7)
506.6
–
697.4
6,827.8
84.9
6,912.7
778.5
5.9
120.2
461.8
(45.8)
(506.6)
(19.3)
94.0
888.7
–
888.7
Total
£m
4,642.9
35.4
1,212.2
387.5
(479.8)
–
872.4
6,670.6
74.8
6,745.4
Total
£m
6,670.6
25.9
193.7
485.7
(431.5)
–
(19.3)
791.4
7,716.5
84.9
7,801.4
13. PROPERTIES
13(i) – Investment properties
At 1 January 2017
Exchange movement
Property acquisitions
Additions to existing investment properties
Disposals
Transfers on completion of development
Revaluation surplus during the year
At 31 December 2017
Add tenant lease incentives, letting fees and rental guarantees
Total investment properties
At 1 January 2018
Exchange movement
Property acquisitions
Additions to existing investment properties
Disposals
Transfers on completion of development
Transfer to trading properties
Revaluation surplus during the year
At 31 December 2018
Add tenant lease incentives, letting fees and rental guarantees
Total investment properties
Investment properties are stated at fair value as at 31 December 2018 based on external valuations performed by professionally qualified valuers.
The Group’s wholly-owned and joint venture property portfolio is valued by CBRE Ltd on a half yearly basis (apart from one asset valued by
Knight Frank). The valuations conform to International Valuation Standards and were arrived at by reference to market evidence of the transaction
prices paid for similar properties. In estimating the fair value of the properties, the valuers consider the highest and best use of the properties.
There has been no change to the valuation technique during the year.
Fees payable to CBRE Ltd for the valuation of the Group’s wholly-owned properties are based on a fixed percentage of the property portfolio’s
valuation. CBRE Ltd also undertakes some professional and agency work on behalf of the Group, although this is limited relative to the activities
provided to the Group as a whole. The firm advises us that the total fees paid by the Group represent less than 5 per cent of its total revenue in
any year.
Completed properties include buildings that are occupied or are available for occupation. Development properties include land available for
development (land bank), land under development and construction in progress.
During 2018 a plot of land with a carrying value of £19.3 million was transferred to trading properties following the agreement in the year to
develop and sell the asset on completion (2017: £nil). No trading properties were transferred to investment properties during 2018 (2017: £nil).
Long-term leasehold values within investment properties amount to £120.3 million (2017: £60.8 million). All other properties are freehold.
The 2017 property acquisitions include £1,112.6 million in respect of the APP property portfolio acquisition.
Further details on property valuation techniques and related quantitative information is set out in Note 27.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
142
13. PROPERTIES CONTINUED
13(ii) – Trading properties
At 1 January 2017
Exchange movement
Additions
Disposals
At 31 December 2017
Add tenant lease incentives, letting fees and rental guarantees
Total trading properties
At 1 January 2018
Exchange movement
Additions
Disposals
Transfer from investment properties
At 31 December 2018
Add tenant lease incentives, lettings fees and rental guarantees
Total trading properties
Completed
£m
Development
£m
15.1
0.3
–
(11.7)
3.7
–
3.7
9.9
0.4
0.5
(2.0)
8.8
–
8.8
Completed
£m
Development
£m
3.7
–
–
–
–
3.7
–
3.7
8.8
0.3
20.5
(0.9)
19.3
48.0
–
48.0
Trading properties were externally valued, as detailed in Note 13(i), resulting in no increase in the provision for impairment (2017: £nil).
Based on the fair value at 31 December 2018, the portfolio has unrecognised surplus of £2.2 million (2017: £nil). Further information
on valuation techniques and related quantitative information is given in Note 27.
14. TR ADE AND OTHER RECEIVABLES
Current
Trade receivables
Other receivables¹
Prepayments
Amounts due from related parties
Total current trade and other receivables
Non-current
Other receivables²
Total non-current other receivables
Group
2018
£m
25.6
75.8
12.5
14.8
128.7
26.8
26.8
2017
£m
26.7
92.1
8.8
14.2
141.8
–
–
Company
2018
£m
–
5.0
0.2
–
5.2
–
–
1 Group other current receivables mainly includes VAT recoverable and tenant deposits. Also included is tax recoverable of £0.3 million (2017: £0.3 million).
2 Group non-current other receivables relates to an advance payment for the future acquisition of land.
Total
£m
25.0
0.7
0.5
(13.7)
12.5
–
12.5
Total
£m
12.5
0.3
20.5
(0.9)
19.3
51.7
–
51.7
2017
£m
–
5.5
0.8
–
6.3
–
–
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
143
Group
2018
£m
2.0
47.9
59.7
94.5
57.8
–
261.9
26.2
–
26.2
Group
2018
£m
3.2
3.2
–
250.0
79.3
39.1
81.7
346.4
198.5
394.8
2017
£m
8.1
48.6
64.8
70.2
55.8
–
247.5
Company
2018
£m
–
2.2
23.9
–
–
–
26.1
2017
£m
–
1.0
23.2
–
–
27.1
51.3
–
–
–
–
1,688.6
1,688.6
–
1,442.4
1,442.4
2017
£m
3.6
3.6
101.0
249.1
79.3
39.1
81.6
346.0
198.4
394.5
Company
2018
£m
–
–
–
250.0
79.3
39.1
81.7
346.4
198.5
394.8
2017
£m
–
–
102.7
249.1
79.3
39.1
81.6
346.0
198.4
394.5
1,389.8
1,489.0
1,389.8
1,490.7
359.6
89.7
134.9
89.9
179.4
853.5
(3.0)
2,240.3
2,243.5
(66.5)
2,177.0
353.2
–
132.4
88.3
–
573.9
(3.0)
2,059.9
2,063.5
(109.3)
1,954.2
359.6
89.7
134.9
89.9
179.4
853.5
(3.0)
2,240.3
2,240.3
(32.3)
2,208.0
353.2
–
132.4
88.3
–
573.9
(3.0)
2,061.6
2,061.6
(76.4)
1,985.2
15. TR ADE AND OTHER PAYABLES
Due within one year
Trade payables
Other payables
Non-capital accruals1
Capital creditors and capital accruals
Rent in advance
Loans due to subsidiaries2
Total trade and other payables due within one year
Due after one year
Contract liabilities³
Loans due to subsidiaries2
Total other payables due after one year
1 Includes accrued interest payable on borrowings for Group and Company of £21.0 million (2017: £20.9 million).
2 Loans due to subsidiaries are unsecured and incur interest at market rates.
3 Contract liabilities relate to amounts received in respect of the performance fee from SELP (see Note 7 for further details).
16. NET BORROWINGS
16(i) – Net borrowings by type
Secured borrowings:
Euro mortgages
Total secured (on land, buildings and other assets)
Unsecured borrowings:
Bonds
6.0% bonds 2019
5.625% bonds 2020
6.75% bonds 2021
7.0% bonds 2022
6.75% bonds 2024
2.375% bonds 2029
5.75% bonds 2035
2.875% bonds 2037
Private placement notes
1.77% notes 2027
1.82% notes 2028
2.00% notes 2029
2.27% notes 2032
2.37% notes 2033
Bank loans and overdrafts
Total unsecured
Total borrowings
Cash and cash equivalents
Net borrowings
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
144
16. NET BORROWINGS CONTINUED
The maturity profile of borrowings is as follows:
Maturity profile of borrowings
In one year or less
In more than one year but less than two
In more than two years but less than five
In more than five years but less than ten
In more than ten years
In more than one year
Total borrowings
Cash and cash equivalents
Net borrowings
Group
Company
2018
£m
–
250.0
115.9
533.8
1,343.8
2,243.5
2,243.5
(66.5)
2,177.0
2017
£m
–
104.6
364.5
434.8
1,159.6
2,063.5
2,063.5
(109.3)
1,954.2
2018
£m
–
250.0
115.4
531.1
1,343.8
2,240.3
2,240.3
(32.3)
2,208.0
2017
£m
–
102.7
364.5
434.8
1,159.6
2,061.6
2,061.6
(76.4)
1,985.2
Cash and cash equivalents comprise cash balances, call deposits held with banks and highly liquid short-term investments that are readily
convertible to known amounts of cash within three months from acquisition and subject to an insignificant risk of changes in value.
There are no early settlement or call options on any of the borrowings. Financial covenants relating to the borrowings include maximum limits to
the Group’s gearing ratio and minimum limits to permitted interest cover. Financial covenants are discussed in more detail in the ‘Gearing and
financial covenants’ section in the Financial Review on page 32.
Bank loans and overdrafts include capitalised finance costs on committed facilities which were undrawn at the year end.
During the year the Group undertook a debt refinancing exercise including issuing €300 million of US Private Placement notes and repurchasing
£102 million of shorter dated sterling bonds all stated at face value. The debt refinancing is discussed in more detail in the Finance Review on
page 31.
Maturity profile of undrawn borrowing facilities
In one year or less
In more than one year but less than two
In more than two years but less than five
Total available undrawn borrowing facilities
Group
Company
2018
£m
14.0
–
1,097.3
1,111.3
2017
£m
5.0
–
1,077.9
1,082.9
2018
£m
9.0
–
1,097.3
1,106.3
2017
£m
–
–
1,077.9
1,077.9
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
145
16. NET BORROWINGS CONTINUED
16(ii) – Net borrowings by interest rates
The weighted average interest rate profile of Group and Company net borrowings after derivative instruments is as follows:
Interest rate profile – Group
Borrowings
Sterling
Euros
Total borrowings
Cash and cash equivalents
Sterling
Euros
US dollars
Total cash and cash equivalents
Net borrowings
Interest rate profile – Group
Borrowings
Sterling
Euros
US dollars
Total borrowings
Cash and cash equivalents
Sterling
Euros
US dollars
Total cash and cash equivalents
Net borrowings
Fixed
rate
%
4.72
1.91
3.02
Fixed
rate
%
5.01
1.90
–
3.32
Fixed
period
years
Fixed
debt
£m
2018
Capped
strike
%
Capped
debt
£m
Variable
debt/cash
£m
Total
£m
Weighted average after derivative instruments
35.3
10.2
20.1
380.9
583.2
964.1
2.00
1.00
1.40
150.0
225.2
375.2
228.7
675.5
904.2
759.6
1,483.9
2,243.5
964.1
375.2
(59.4)
(6.6)
(0.5)
(66.5)
837.7
Fixed
period
years
Fixed
debt
£m
2017
Capped
strike
%
Capped
debt
£m
Variable
debt/cash
£m
Weighted average after derivative instruments
29.2
11.2
–
19.4
480.0
573.9
–
1,053.9
2.00
1.00
–
1.41
150.0
221.2
–
371.2
125.3
517.8
(4.7)
638.4
(59.4)
(6.6)
(0.5)
(66.5)
2,177.0
Total
£m
755.3
1,312.9
(4.7)
2,063.5
1,053.9
371.2
(102.2)
(102.2)
(6.9)
(0.2)
(109.3)
529.1
(6.9)
(0.2)
(109.3)
1,954.2
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
146
16. NET BORROWINGS CONTINUED
Interest rate profile – Company
Borrowings
Sterling
Euros
Total borrowings
Cash and cash equivalents
Sterling
Total cash and cash equivalents
Net borrowings
Interest rate profile – Company
Borrowings
Sterling
Euros
US dollars
Total borrowings
Cash and cash equivalents
Sterling
Euros
Total cash and cash equivalents
Net borrowings
Fixed
rate
%
4.72
1.91
3.02
Fixed
rate
%
5.00
1.90
–
3.31
Fixed
period
years
Fixed
debt
£m
2018
Capped
strike
%
Capped
debt
£m
Variable
debt/cash
£m
Weighted average after derivative instruments
35.3
10.2
20.1
380.9
583.2
964.1
2.00
1.00
1.40
150.0
225.2
375.2
228.7
672.3
901.0
(32.3)
(32.3)
Total
£m
759.6
1,480.7
2,240.3
(32.3)
(32.3)
964.1
375.2
868.7
2,208.0
Fixed
period
years
Fixed
debt
£m
2017
Capped
strike
%
Capped
debt
£m
Variable
debt/cash
£m
Weighted average after derivative instruments
29.1
11.2
–
19.4
481.7
573.9
–
1,055.6
2.00
1.00
–
1.41
150.0
221.2
–
371.2
125.3
514.2
(4.7)
634.8
(75.4)
(1.0)
(76.4)
Total
£m
757.0
1,309.3
(4.7)
2,061.6
(75.4)
(1.0)
(76.4)
1,055.6
371.2
558.4
1,985.2
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
147
2017
£m
–
2.6
–
2.6
58.2
2.5
60.7
2017
£m
4.0
–
4.0
–
–
17. FINANCIAL INSTRUMENTS AND FAIR VALUES
17(i) Derivative instruments
The Group and Company holds the following derivative instruments:
Derivative assets
Current
Fair value of interest rate swaps – non-hedge
Fair value of forward foreign exchange contracts and currency swap contracts – non-hedge
Fair value of forward foreign exchange and currency swap contracts – hedge
Total current derivative assets
Non-current
Fair value of interest rate swaps – non-hedge
Fair value of interest rate caps – non-hedge
Total non-current derivative assets
Derivative liabilities
Current
Fair value of forward foreign exchange and currency swap contracts – non-hedge
Fair value of forward foreign exchange and currency swap contracts – hedge
Total current derivative liabilities
Non-current
Fair value of forward foreign exchange and currency swap contracts – non-hedge
Total non-current derivative liabilities
Group
2018
£m
9.3
2.0
0.4
11.7
24.5
1.2
25.7
Group
2018
£m
2.2
0.6
2.8
2.9
2.9
2017
£m
–
0.9
1.7
2.6
58.2
2.5
60.7
2017
£m
3.4
0.6
4.0
–
–
Company
2018
£m
9.3
2.4
–
11.7
24.5
1.2
25.7
Company
2018
£m
2.8
–
2.8
2.9
2.9
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
148
17. FINANCIAL INSTRUMENTS AND FAIR VALUES CONTINUED
17(ii) Carrying amount and fair values of financial assets and liabilities
The Group and Company holds the following financial instruments:
Financial assets
Financial assets at amortised cost
Loans due from subsidiaries
Trade receivables
Other current receivables¹
Other non-current receivables
Cash and cash equivalents
Financial assets at fair value through profit or loss (FVPL)
Other investments
Derivative financial instruments
Used for hedging at FVOCI
Non-hedge at FVPL
Financial liabilities
Liabilities at amortised cost
Trade and other payables¹
Borrowings
Derivative financial instruments
Used for hedging at FVOCI
Non-hedge at FVPL
Group
2018
£m
2017
£m
Company
2018
£m
2017
£m
Notes
7
14
14
14
16
8
17
17
15
16
17
17
–
25.6
57.2
26.8
66.5
23.6
0.4
37.0
237.1
–
26.7
55.8
–
109.3
–
1.7
61.6
255.1
4,703.9
4,323.3
–
5.0
–
32.3
–
–
–
5.5
–
76.4
–
–
37.4
4,778.6
63.3
4,468.5
230.3
2,243.5
191.7
2,063.5
1,714.7
2,240.3
1,493.7
2,061.6
0.6
5.1
0.6
3.4
–
5.7
–
4.0
2,479.5
2,259.2
3,960.7
3,559.3
1 Group excludes non-financial assets of £45.9 million (2017: £59.3 million) included within total other receivables per Note 14 and non-financial liabilities of £57.8 million (2017: £55.8 million)
included within total other payables per Note 15.
The carrying values of these financial assets and liabilities approximate their fair value, with the exception of unsecured bond issues and
unsecured US Private Placement notes classified as borrowings. At 31 December 2018, the fair value of £1,389.8 million of unsecured bonds
issued was £1,463.0 million (2017: £1,489.0 million compared with £1,680.4 million fair value). At 31 December 2018, the fair value of
£853.5 million of unsecured US Private Placement notes was £797.7 million (2017: £573.9 million compared with £546.0 million fair value).
The fair values of financial assets and financial liabilities are determined as follows:
• Forward foreign exchange contracts are measured using quoted exchange rates and yield curves derived from quoted interest rates with
maturities matching the contracts.
• Interest rate swaps, currency swap contracts and interest rate caps are measured at the present value of future cash flows estimated and
discounted based on the applicable yield curves derived from quoted interest rates and the appropriate exchange rate at the Balance
Sheet date.
• The fair value of non-derivative financial assets and financial liabilities traded on active liquid markets is determined with reference to the quoted
market prices.
• Financial guarantees are issued by the Company to support bank borrowings of 100 per cent owned subsidiary companies domiciled overseas.
Fair value measurements recognised in the Balance Sheet
The Group and Company financial instruments that are measured subsequent to initial recognition at fair value are listed equity investments,
forward exchange and currency swap contracts, interest rate swaps and interest rate caps as detailed above. Investments in equity securities
traded in active liquid markets are classified as level 1. All other financial instruments would be classified as level 2 fair value measurements, as
defined by IFRS 13, being those derived from inputs other than quoted prices (included within level 1) that are observable for the asset or liability,
either directly (i.e. as prices) or indirectly (i.e. derived from prices). There were no transfers between categories in the current or prior year.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
149
17. FINANCIAL INSTRUMENTS AND FAIR VALUES CONTINUED
17(iii) Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern and as such it aims to maintain a
prudent mix between debt and equity financing in keeping with our long-term mid-cycle LTV target of 40 per cent. The current capital structure
of the Group consists of a mix of equity and debt. Equity comprises issued capital, reserves and retained earnings as disclosed in the statement of
changes in equity and Notes 19 to 21. Debt primarily comprises long-term debt issues and drawings against medium-term committed revolving
credit facilities from banks as disclosed in Note 16.
The Group is not subject to externally imposed capital requirements.
17(iv) Foreign currency risk management
The Group’s transactional foreign exchange exposures mainly arise as a result of treasury financing and hedging activities. These activities are
carried out in SEGRO plc on behalf of the Group and the resulting exposures to euro or US dollar are not routinely hedged. The Group does
not have any regular transactional foreign currency exposures resulting from cross border flows. The business does however have operations
in Continental Europe which transact business denominated mostly in euros, hence there is currency exposure caused by translating the local
trading performance and local net assets into sterling for each financial period and at each Balance Sheet date.
The Group’s approach to managing Balance Sheet translation exposure is described in the Foreign Currency Translation Risk section in the
Financial Review on page 33.
The Group’s and Company’s Balance Sheet translation exposure (including the impact of derivative financial instruments) is summarised below:
Group
Gross currency assets
Gross currency liabilities
Net exposure
Company
Gross currency assets
Gross currency liabilities
Net exposure
2018
2017
Euros
£m
US Dollars
£m
Total
£m
Euros
£m
US Dollars
£m
Total
£m
2,770.2
(1,850.6)
919.6
1,197.1
(1,879.9)
(682.8)
0.5
–
0.5
–
–
–
2,770.7
(1,850.6)
920.1
1,197.1
(1,879.9)
(682.8)
2,242.6
(1,547.2)
695.4
1,182.5
(1,683.4)
(500.9)
35.7
(21.2)
14.5
25.9
(47.1)
(21.2)
2,278.3
(1,568.4)
709.9
1,208.4
(1,730.5)
(522.1)
2018 Group gross currency liabilities include €758.0 million (£682.9 million) designated as net investment hedges.
2017 Group gross currency liabilities include €567.2 million (£502.0 million) and USD 28.6 million (£21.3 million) designated as net
investment hedges.
The remaining gross currency liabilities of the Group shown in the table above that are not designated as net investment hedges are either held
directly in a euro or US dollar functional currency entity or passed down to such an entity from a sterling functional currency company through
inter-company funding arrangements.
Foreign currency sensitivity analysis
The Group’s main currency exposure is the euro. The sensitivity of the net assets of the Group to a 10 per cent change in the value of sterling
against the relevant currencies is £83.6 million (2017: £64.5 million), with a sensitivity of £83.6 million against the euro (2017: £63.2 million) and
£nil against the US dollar (2017: £1.3 million).
The 10 per cent sensitivity rate is used when reporting foreign currency risk internally to management and represents management’s assessment
of the reasonably possible change in foreign exchange rates. The sensitivity analysis adjusts the translation of net assets (after taking account
of external loans, currency swap contracts and forward foreign exchange contracts) at the period end for a 10 per cent change in the value of
sterling against the relevant currencies.
For the Company, the sensitivity of the net assets to a 10 per cent change in the value of sterling against the relevant currencies is £62.1 million
(2017: £47.4 million) with a sensitivity of £62.1 million against the euro (2017: £45.5 million) and £nil million against the US dollar
(2017: £1.9 million).
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
150
17. FINANCIAL INSTRUMENTS AND FAIR VALUES CONTINUED
Forward foreign exchange and currency swap contracts
Some of the forward foreign exchange and currency swap contracts held by the Group are designated as net investment hedges of euro and US
dollar denominated subsidiaries, where exchange differences are booked in reserves and recognised in the Income Statement when the operation
is sold. The remaining foreign exchange and currency swap contracts are effectively economic cash flow hedges, for example using surplus cash
in one currency to provide (typically through intercompany debt funding arrangements with overseas subsidiaries) funds to repay debt, or to
fund development expenditure or acquisitions in another currency. These instruments have not been designated as hedges. As a consequence
exchange movements in respect of these instruments are taken through the Income Statement. Offsetting these movements are £11.7 million
exchange gains (2017: £30.0 million gain) arising on intercompany debt funding arrangements discussed above resulting in a loss on exchange
differences of £0.2 million (2017: £0.1 million gain) within net finance costs in Note 9.
The Group’s translation exposure risk management policy is that between 29 and 100 per cent of assets denominated in a foreign currency
should be hedged by liabilities in the same currency. During the year the foreign currency denominated liabilities of the Group were
predominantly the currency leg of foreign exchange and currency swap contracts (both those designated as net investment hedges and those
which are effectively cash flow hedges) and the application of this policy is the main economic purpose of these instruments.
Further details are provided within the Foreign Currency Translation Risk section of the Financial Review on page 33.
The following table details the forward foreign exchange and currency swap contracts outstanding as at the year end:
Average exchange rates
2018
2017
Currency contract
(local currency)
Contract value
2018
m
2017
m
2018
£m
2017
£m
Fair value
2018
£m
2017
£m
Group
Economic cash flow
hedges
Sell euros (buy sterling)
Buy euros (sell sterling)
Buy US dollars (sell sterling)
Net investment hedges
Sell euros (buy sterling)
Sell US dollars (buy sterling)
Total
Company
Economic cash flow
hedges
Sell euros (buy sterling)
Buy euros (sell sterling)
Buy US dollars (sell sterling)
Sell US dollars (buy sterling)
Total
1.12
1.12
–
1.11
–
1.12
1.12
–
–
1.13
1.13
1.30
1.13
1.35
1.13
1.13
1.30
1.35
638.4
215.9
–
273.7
–
912.1
215.9
–
–
525.1
120.4
35.0
426.3
28.6
951.4
120.4
35.0
28.6
571.1
193.3
–
246.4
–
817.4
193.3
–
–
463.6
106.8
26.9
377.8
21.3
841.4
106.8
26.9
21.3
(4.3)
1.2
–
(0.2)
–
(3.3)
(4.5)
1.2
–
–
(3.3)
(1.3)
(0.1)
(1.1)
0.9
0.2
(1.4)
(0.4)
(0.1)
(1.1)
0.2
(1.4)
Effects of net investment hedge accounting on financial position and performance
The effects of the foreign currency related hedging instruments on the Group’s financial position and performance is detailed below.
Forward foreign exchange contracts
The Group designated US dollar and euro denominated forward foreign exchange contracts as net investment hedges during 2018, but no
contracts were outstanding at the Balance Sheet date.
There was no ineffectiveness to be recorded from net investments in foreign entity hedges in 2018 and 2017 where the hedging instrument was
forward foreign exchange contracts. This is because the critical terms of both the net investment in foreign entity and the hedging instrument
match, and at each Balance Sheet date both are revalued to the closing spot rate. Any forward points in the foreign exchange contract are taken
to the Income Statement.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
151
Group
2018
£m
–
–
–
–
(5.5)
5.5
1.13
Group
2018
£m
–
–
–
–
(1.0)
1.0
1.33
2017
£m
–
–
–
–
–
–
–
2017
£m
0.2
21.3
Jun 2018
1:1
2.1
(2.1)
1.29
17. FINANCIAL INSTRUMENTS AND FAIR VALUES CONTINUED
Euro forward foreign exchange
Carrying amount – asset
Notional amount
Maturity date
Hedge ratio
Change in discounted spot value of hedging instruments since 1 January – (loss)
Change in value of hedged item used to determine hedge effectiveness – gain
Weighted average hedged rate for the year (including forward points)
US dollar forward foreign exchange
Carrying amount – asset
Notional amount
Maturity date
Hedge ratio
Change in discounted spot value of hedging instruments since 1 January – (loss)/gain
Change in value of hedged item used to determine hedge effectiveness – gain/(loss)
Weighted average hedged rate for the year (including forward points)
Currency swap contracts
The Group uses cross currency swaps with two floating legs as designated net investment hedges. Although these instruments are expected to
have a high degree of effectiveness, some ineffectiveness may arise due to the hedging instrument having periodic interest payments, which net
investment does not. The ineffectiveness recorded from net investments in foreign entity hedges in 2018 and 2017 from currency swap contracts
is shown in the table below.
Euro currency swaps
Carrying amount – (liability)/asset
Notional amount
Maturity date
Hedge ratio
Change in discounted spot value of hedging instruments since 1 January – (loss)
Change in value of hedged item used to determine hedge effectiveness – gain
Weighted average hedged rate for the year (including forward points)
Group
2018
£m
(0.2)
246.4
2017
£m
0.9
377.8
Jan and Jun
2019
May and
Jun 2018
1:1
(2.4)
2.4
1.13
1:1
(8.5)
8.5
1.15
US private placement notes
There was no ineffectiveness to be recorded from net investments in foreign entity hedges in 2018 and 2017 where the hedging instrument was
US private placement notes. This is because the critical terms of both the net investment in foreign entity and the hedging instrument match, and
at each balance sheet date both are revalued to the closing spot rate.
Private placement notes
Carrying amount of Private placement notes (Note 16)
Carrying amount of Private placement notes designated as net investment hedging instruments
Hedge ratio
Change in carrying amount of USPP notes as a result of foreign currency movement since 1 January, recognised in OCI – (loss)
Change in value of hedged item used to determine hedge effectiveness – gain
Weighted average hedged rate for the year (including forward points)
Group
2018
£m
853.5
436.5
1:1
(3.7)
3.7
1.12
2017
£m
573.9
124.2
1:1
–
–
1.13
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 152
17. FINANCIAL INSTRUMENTS AND FAIR VALUES CONTINUED
17(v) Interest rate risk management
The Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates. The risk is managed
by maintaining an appropriate mix between fixed and floating rate borrowings. The current Group policy states that 50 to 100 per cent of net
borrowings should be at fixed rate provided by long-term debt issues attracting a fixed coupon or from floating rate bank borrowings converted
into fixed rate or hedged via interest rate swaps, forwards, caps, collars or floors or options on these products. Hedging activities require approval
and are evaluated and reported on regularly to ensure that the policy is being adhered to. The Board reviews the policy on interest rate exposure
annually with a view to establishing that it is still relevant in the prevailing and forecast economic environment.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates for both derivative and non-derivative instruments at
the Balance Sheet date. For floating rate liabilities, the analysis is prepared assuming that the amount of liability outstanding at the Balance Sheet
date was outstanding for the whole year. A 1 per cent increase or decrease is used when reporting interest rate risk internally to key management
personnel and represents management’s assessment of the reasonably possible change in interest rates.
If interest rates had been 1 per cent higher/lower and all other variables were held constant, the Group’s profit for the year ended 31 December
2018 would decrease/increase by £10.7 million (2017: decrease/increase by £5.8 million). This is attributable to the Group’s exposure to interest
rates on its variable rate borrowings and cash deposits. Fixed rate debt issues are held at amortised cost and are not re-valued in the Balance
Sheet to reflect interest rate movements.
Interest rate swap contracts
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on
agreed notional principal amounts. Such contracts enable the Group to manage the interest rate risk of the Group’s borrowings. The fair value
of interest rate swaps at the reporting date is determined by discounting the future cash flows using the yield curves at the reporting date and
the credit risk inherent in the contract, and is disclosed below. The average interest rate is based on the outstanding balances at the end of the
financial year.
The following tables detail the notional principal amounts and remaining terms of interest rate swap contracts, based on their contractual
maturities, outstanding as at the reporting date:
Average contract – fixed
interest rate
Notional principal amount
Fair value
2018
%
2017
%
2018
£m
2017
£m
2018
£m
2017
£m
Receive fixed, pay floating contracts:
Group
In one year or less
In more than one year but less than two
In more than two years but less than five
In more than five years
Total
Company
In one year or less
In more than one year but less than two
In more than two years but less than five
In more than five years
Total
6.41
5.63
2.61
2.19
6.41
5.63
2.61
2.19
–
6.41
3.52
–
–
6.41
3.52
–
181.0
250.0
578.0
270.3
–
181.0
828.0
–
1,279.3
1,009.0
181.0
250.0
578.0
270.3
–
181.0
828.0
–
1,279.3
1,009.0
9.3
3.5
18.8
2.2
33.8
9.3
3.5
18.8
2.2
33.8
–
16.6
41.6
–
58.2
–
16.6
41.6
–
58.2
The above are effective economic hedges although the Group has not elected to adopt hedge accounting for them, hence their change in fair
value is taken direct to the Income Statement.
The interest rate swaps settle on either a three-month or six-month basis with the floating rate side based on the EURIBOR or sterling LIBOR rate
for the relevant period. The Group will settle or receive the difference between the fixed and floating interest rate on a net basis.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
153
17. FINANCIAL INSTRUMENTS AND FAIR VALUES CONTINUED
Interest rate cap contracts
Under interest rate caps, the Group agrees to receive floating rate interest amounts calculated on agreed notional principal amounts, should
prevailing market rates rise above a specified strike rate.
Such contracts enable the Group to manage the interest rate risk of the Group’s floating rate borrowings. The fair value of interest rate caps at the
reporting date is determined by discounting the future cash flows using the yield curves at the reporting date and the credit risk inherent in the
contract, and is disclosed below. The average interest rate is based on the outstanding balances at the end of the financial year.
The following tables detail the notional principal amounts and remaining terms of interest rate cap contracts, based on their contractual maturities,
outstanding as at the reporting date:
Average strike price
Notional principal amount
Fair value
Group
In one year or less
In more than one year but less than two
In more than two years but less than five
In more than five years
Total
Company
In one year or less
In more than one year but less than two
In more than two years but less than five
In more than five years
Total
2018
%
–
–
1.40
–
–
–
1.40
–
2017
%
–
–
1.40
–
–
–
1.40
–
2018
£m
2017
£m
2018
£m
2017
£m
–
–
375.2
–
375.2
–
–
375.2
–
375.2
–
–
371.2
–
371.2
–
–
371.2
–
371.2
–
–
1.2
–
1.2
–
–
1.2
–
1.2
–
–
2.5
–
2.5
–
–
2.5
–
2.5
The above are effective economic hedges although the Group has not elected to adopt hedge accounting for them, hence their change in fair
value is taken direct to the Income Statement.
The interest rate caps settle on either a three-month or six-month basis based on the EURIBOR or sterling LIBOR rate for the relevant period.
The Group will receive the difference between the floating rate and the specified strike rate.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
154
17. FINANCIAL INSTRUMENTS AND FAIR VALUES CONTINUED
17(vi) Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
Potential customers are evaluated for creditworthiness and where necessary collateral is secured. There is no concentration of credit risk within
the lease portfolio to either business sector or individual company as the Group has a diverse customer base with no one customer accounting
for more than 5 per cent of rental income. Trade receivables were less than 1 per cent of total assets at 31 December 2018 and at 31 December
2017. The Directors are of the opinion that the credit risk associated with unpaid rent is low. In excess of 95 per cent of rent due is generally
collected within 21 days of the due date.
Ageing of past due trade but not impaired receivables were as follows:
0–30 days
30–60 days
60–90 days
90–180 days
>180 days
Past due
Not due
Total trade receivables
2018
£m
1.5
0.8
0.5
0.8
0.4
4.0
21.6
25.6
2017
£m
2.1
1.0
0.1
1.0
0.7
4.9
21.8
26.7
The Group applies the IFRS 9 simplified approach to measuring expected credit losses (‘ECLs’) which uses a lifetime expected loss allowance for
all trade receivables (IAS 39 was applied at 31 December 2017). To measure ECLs trade receivables have been grouped by geographic Business
Unit to reflect the shared credit risk characteristics. Expected loss rates are based on the historic credit loss experienced for each Business Unit
and adjusted for current and forward information affecting the ability of the individual customers to settle receivables. The adoption of IFRS
9 did not result in a material change in the loss allowance and impairments recognised under IFRS 9 compared to that held under IAS 39.
Trade receivables are written off when there is no reasonable expectation of recovery.
The Group held a loss allowances for trade receivables as at 31 December 2018 of £2.5 million (2017: £3.7 million). Loss allowances, amounts
written off and recoveries of amounts previously written off are accounted in property operating expenses within operating profit, these amounts
were not material in 2018 and 2017 (see Note 5).
No other financial assets were considered impaired or overdue.
Investment in financial instruments is restricted to banks and short-term liquidity funds with a good credit rating. Derivative financial instruments
are transacted via International Swaps and Derivatives Association (ISDA) agreements with counterparties with a good investment grade credit
rating. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions
concluded is spread among approved counterparties.
17(vii) Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board, which has built an appropriate liquidity risk management framework for
the management of the Group’s short, medium and long-term funding and liquidity management requirements. The Group manages liquidity
risk by requiring that adequate cash and committed bank facilities are available to cover and match all debt maturities, development spend, trade
related and corporate cash flows over a rolling 18-month period. This is achieved by continuously monitoring forecast and actual cash flows and
matching the maturity profiles of financial assets and liabilities. Liquidity risk management is discussed in more detail in the Financial Review on
page 31.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
155
17. FINANCIAL INSTRUMENTS AND FAIR VALUES CONTINUED
Liquidity and interest risk tables
The following tables detail the Group’s and Company’s remaining contractual maturity profile for its financial instruments. The tables have been
drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group and the Company can be
required to pay. The tables include both interest and principal cash flows.
2018
2017
Weighted
average
interest
rate
%
Under
1 year
£m
1–2
years
£m
2–5
years
£m
Over
5 years
£m
Total
£m
Weighted
average
interest
rate
%
Under
1 year
£m
1–2
years
£m
2–5
years
£m
Over
5 years
£m
Total
£m
Group
Non-derivative
financial liabilities:
Trade and other payables¹
183.1
–
26.2
–
209.3
Fixed rate debt instruments
3.4
76.1
325.2
288.9
1,975.5 2,665.7
3.6
170.8
76.2
–
–
–
170.8
180.2
541.1
2,049.5
2,847.0
Derivative financial
instruments:
Gross settled foreign exchange
– Forward and currency swap
contracts
– Inflowing
– Outflowing
Total
Company
Non-derivative
financial liabilities:
(536.6)
542.8
265.4
–
–
–
–
–
–
(536.6)
542.8
325.2
315.1
1,975.5 2,881.2
(589.2)
592.0
249.8
–
–
–
–
–
–
(589.2)
592.0
180.2
541.1
2,049.5
3,020.6
2018
2017
Weighted
average
interest
rate
%
Under
1 year
£m
1–2
years
£m
2–5
years
£m
Over
5 years
£m
Total
£m
Weighted
average
interest
rate
%
Under
1 year
£m
1–2
years
£m
2–5
years
£m
Over
5 years
£m
Total
£m
Trade and other payables¹
5.1 1,688.6
–
– 1,693.7
Fixed rate debt instruments
3.4
76.1
325.1
288.2 1,972.5
2,661.9
3.7
30.4
76.1
1,442.4
–
–
1,472.8
176.5
541.1
2,049.5
2,843.2
Derivative financial
instruments:
Gross settled foreign exchange
– Forward and currency swap
contracts
– Inflowing
– Outflowing
Total
(536.6)
542.8
–
–
–
–
–
–
(536.6)
542.8
87.4 2,013.7
288.2 1,972.5 4,361.8
(589.2)
592.0
109.3
–
–
–
–
–
–
(589.2)
592.0
1,618.9
541.1
2,049.5
4,318.8
1 Trade and other payables disclosed as financial liabilities in Note 17(ii) includes accrued interest of £21.0 million (2017: £20.9 million). Accrued interest is shown in fixed rate debt instruments in
the table above.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
156
18. RETIREMENT BENEFIT SCHEMES
Background
The Group has one defined benefit pension scheme, the SEGRO Pension Scheme (“the Scheme”), a trust-based scheme. This arrangement is now
closed to new entrants and to future accrual of benefits. In this arrangement, the assets of the Scheme are invested separately from those of the
Group and the Scheme is run by an independent Trustee Board. The Trustee Board of the pension scheme is required by law to act in the best
interests of the fund and its members and also takes into consideration the interests of the employer. There is a requirement for the Trustee Board
to have member representation, with the other Trustees being Company appointed.
The Trustee Board is responsible for the investment policy in respect of the assets of the relevant fund, although the Company must be consulted
on this and typically has some input into the investment decisions. Other than market and demographic risks, which are common to most
retirement benefit schemes, there are no specific risks in the Scheme which the Group considers to be significant or unusual.
During 2018, and following approval from the SEGRO plc Board, the Trustees of the Scheme contracted to buy-out the Scheme. The Trustees
decided to insure members’ benefits with a third party specialist insurance company, and the terms and conditions of the buy-out were agreed
on 6 December 2018 subject to true-up following a data verification exercise expected to be completed during 2019. At this point the final
settlement of the Scheme will be triggered, the buy-out complete and the Scheme, ultimately, wound-up. The transaction, which has been funded
from the assets of the Scheme, will de-risk this scheme and reduce the administrative burden of managing it. In 2018, pension buy-out costs of
£51.8 million (2017: £nil) have been recognised in the Income Statement in conjunction with this process, as shown in Note 2.
Cash contributions payable to the Scheme are reviewed at least every three years as part of an actuarial valuation. Following each actuarial
valuation the Company agrees a deficit recovery plan with the Trustee Board if necessary. SEGRO and the Trustee Board are required to agree
prudent assumptions for the actuarial valuation, which differs to the corporate bond yield based discount rate and best estimate assumptions
required to measure the Scheme’s obligations under IAS 19 for the purpose of our Company financial statements. This is the main reason why
the IAS 19 position disclosed in recent financial statements, prior to the buy-out process, is a surplus, whereas the Scheme’s most recent actuarial
valuation at 31 March 2016 revealed a deficit of £17.7 million. Historically, to meet this deficit, SEGRO agreed to pay annual contributions of
£7.24 million, payable in monthly instalments over the period up to February 2018 which, together with a prudent allowance for investment
returns, was expected to remove the deficit. As a result, the Company paid contributions of £1.2 million in 2018 (2017: £7.9 million). In 2018, in
addition to the pension buy-out costs discussed above, costs of £0.4 million were recognised within administration expenses (2017: £0.5 million).
The Scheme’s funding position and cash contributions will be reviewed as part of the next actuarial valuation due to take place as at
31 March 2019.
The IAS 19 valuation of the Scheme has been based on the most recent actuarial valuation at 31 March 2016 and updated by the independent
actuary to 31 December 2018.
The Scheme’s insured pensions are valued by an actuary and the asset value is equal to the corresponding benefit obligation. All other asset fair
values were provided by the relevant fund managers. As, prior to the transaction discussed above, the Scheme mostly invested in pooled funds,
the asset fair values reflected the fund managers’ valuations, rather than quoted prices in active markets. However, the fund values were all based
on the prices of the underlying investments within each fund. The Schemes assets do not include any financial instruments or property owned by
the Group.
By undertaking a buy-out process to fully insure member benefits, the Company has sought to mitigate the requirement to make additional
contributions to recover any deficit that arises.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018 157
2018
%
2.8
2017
%
2.4
3.4/2.3
3.4/2.3
4.3
3.2
2.1
Analysis
of assets
2018
£m
–
–
–
–
–
–
–
–
–
235.6
235.6
2017
Male
24.7
26.9
4.3
3.2
2.1
Analysis
of assets
2017
£m
1.2
11.1
3.0
1.8
2.2
140.2
99.8
23.2
1.5
21.8
305.8
Female
25.8
28.1
18. RETIREMENT BENEFIT SCHEMES CONTINUED
The major assumptions used were as follows:
Discount rate for scheme liabilities
Rate of inflation (RPI/CPI)
Rate of increase to pensions in payment in excess of Guaranteed Minimum Pension (GMP):
Before April 2003
From April 2003 to October 2005
After October 2005
Composition of schemes’ assets
EQUITIES
UK
US
Europe
Japan
Other
LIABILITY DRIVEN INVESTMENT PORTFOLIO
Gilts, leveraged gilt funds and swaps
Corporate bonds
OTHER ASSETS
Diversified Growth Funds
Cash
Insured Pensions
TOTAL
The life expectancies at age 65 are as follows:
Current pensioners
Future pensioners (in 20 years’ time)
2018
Male
24.8
27.0
Female
25.9
28.2
Both life expectancy estimates use the standard S2PA (2017: S2PA) base tables with a scaling factor of 80 per cent for males and 90 per cent for
females (2017: 80 per cent and 90 per cent respectively). Future improvements to the life expectancy are in line with CMI 2014 projections with
an assumed long-term rate of improvement of one and a half per cent p.a. (2017: one and a half per cent p.a.).
(Charges)/credits on the basis of the assumptions were:
(Charge)/credit to Group Income Statement
Operating profit: Current service cost
Past service costs
Buy-out costs of insurance contract
Net finance costs: Net interest income
Net (charge)/credit to the Group Income Statement
Credit/(charge) to Group Statement of Comprehensive Income
2018
£m
–
–
(51.8)
0.9
(50.9)
11.0
2017
£m
–
–
–
1.3
1.3
(16.2)
All actuarial gains and losses are recognised immediately and relate to continuing operations. The cumulative recognised actuarial losses are
£19.3 million (2017: £30.3 million).
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
158
18. RETIREMENT BENEFIT SCHEMES CONTINUED
Fair value of the assets and liabilities of the schemes
The amount included in the Balance Sheet arising from the Group’s assets in respect of its defined benefit retirement schemes is as follows:
Movement in assets
1 January
Interest on scheme assets
Actuarial gains
Employer cash contributions
Benefits paid
Buy-out of the SEGRO Scheme
Settlement of Bilton scheme
31 December
Movement in liabilities
1 January
Interest cost
Actuarial (gains)/losses • changes in demographic assumptions
• changes in financial assumptions
• changes due to liability experience
Benefits paid
Settlement of Bilton scheme
31 December
Analysis of net assets:
Market value of schemes’ assets
Present value of funded schemes’ liabilities
Retirement benefit asset recognised in Pension assets in the Balance Sheet
The actual return on the Scheme assets in the period was a gain of £nil (2017: £35.6 million).
2018
£m
305.8
7.1
(7.1)
1.2
(19.6)
(51.8)
–
235.6
267.1
6.2
–
(17.0)
(1.1)
(19.6)
–
235.6
235.6
235.6
–
2017
£m
309.2
7.4
28.2
7.9
(20.9)
–
(26.0)
305.8
263.5
6.1
6.0
17.5
20.9
(20.9)
(26.0)
267.1
305.8
267.1
38.7
The average duration of the benefit obligations at the end of the reporting period is 18 years (2017: 21 years) for the Scheme. As the Scheme
has closed to future benefit accrual, there are no active members within the Scheme. The liabilities are split 32 per cent (2017: 42 per cent) to
deferred and 68 per cent (2017: 58 per cent) to retired members.
The expected employer’s contributions to be paid in the year ending 31 December 2019 are £nil (2018: £1.2 million).
The Group also has a number of defined contribution schemes for which £1.4 million has been recognised as an expense (2017: £1.6 million).
Sensitivities
These sensitivities have been calculated to show the movement in the defined benefit obligation in isolation and assuming no other changes
in market conditions at the accounting date. By undertaking the buy-out process, the value of the assets held by the Scheme will move by the
same amount.
Assumption
Change in assumption
Impact on SEGRO scheme liabilities
Discount rate
Life expectancy
Rate of inflation (CPI and RPI)
Increase/decrease by 0.5%
Increase/decrease by 1 year
Increase/decrease by 0.5%
(Decrease)/increase by (£18.4m)/£21.0m
Increase/(decrease) by £10.0m/(£10.0m)
Increase/(decrease) by £8.3m/(£7.8m)
No separate sensitivity has been provided for the pensions in payment assumptions as these are not distinct assumptions in their own right, but
dependent on market changes to inflation. This sensitivity is included within the overall inflation assumption sensitivity shown, which allows for the
corresponding change in pension increases that would be caused by a change in inflation.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
159
Number
of shares
million
1,002.9
8.2
2.4
1,013.5
Par value
of shares
£m
100.3
0.8
0.2
101.3
19. SHARE CAPITAL AND SHARE-BASED PAYMENTS
Share capital
GROUP AND COMPANY
Issued and fully paid
Ordinary shares of 10p each at 1 January 2018
Issue of shares – scrip dividend
Issue of shares – other
Ordinary shares of 10p each at 31 December 2018
Share-based payments
The Group operates the share-based payments schemes set out below.
19(i) – Deferred Share Bonus Plan (DSBP)
The DSBP is for Executive Directors and the Leadership team. A percentage of any payment made under the Bonus Scheme is deferred to shares
and held in trust for three years. The percentage subject to deferral for Executive Directors is 50 per cent of the Bonus payment. This scheme is
detailed in the Remuneration Report on page 95. If a participant ceases to be employed by the Group, the award will lapse unless the participant
is deemed to be a Good Leaver, in which case the award will be released on the vesting date.
At 1 January
Shares granted DSBP
Adjustment – 2017 Rights Issue
Shares vested
Shares lapsed
At 31 December
2018
number
1,169,064
478,295
–
(324,592)
(24,974)
2017
number
942,254
628,415
56,024
(457,629)
–
1,297,793
1,169,064
The 2017 DSBP grant was made on 28 June 2018, based on a 27 June 2018 closing mid-market share price of 664.0 pence.
19(ii) – Long Term Incentive Plan (LTIP)
The LTIP is a discretionary employee share scheme for Executive Directors and senior managers. Vesting of awards is subject to three or four-
year performance conditions and is at the discretion of the Remuneration Committee. The performance conditions of the LTIP are detailed in
the Remuneration Report on pages 96 to 97. If a participant ceases to be employed by the Group, the award will lapse, unless the participant
is deemed to be a Good Leaver, in which case the award will be reduced pro-rata on length of employment in relation to the award date.
From 2017 onwards, a mandatory two-year holding period after vesting was introduced for the Executive Directors.
At 1 January
Shares granted LTIP
Adjustment – 2017 Rights Issue
Shares vested
Shares expired/lapsed
At 31 December
2018
number
7,860,391
1,382,474
–
2017
number
7,516,984
2,145,438
342,245
(2,190,430)
(1,763,884)
(340,752)
6,711,683
(380,392)
7,860,391
The 2018 LTIP award was made on 26 April 2018. The calculation of the award was based on a share price of 628.8 pence, the closing mid-
market share price on 25 April 2018. No consideration was paid for the grant of any award.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
160
19. SHARE CAPITAL AND SHARE-BASED PAYMENTS CONTINUED
The Black-Scholes model has been used to fair value the shares granted currently under award, apart from the TSR elements of the award which
uses the Monte Carlo model. The assumptions used are as follows:
Date of grant
Market price used for award
Risk-free interest rate
Dividend yield
Volatility
Term
Fair value per share
9 Apr 2014
22 May 2015
7 April 2016
28 April 2017
26 April 2018
339.5p
1.3%
4.4%
24.0%
4 years
285.1p
422.5p
1.0%
3.6%
20.0%
4 years
366.1p
420.7p
0.5%
3.7%
19.0%
4 years
362.6p
493.0p
0.1%
3.3%
21.5%
3 years
446.1p
628.8p
0.9%
2.6%
20.6%
3 years
580.8p
19(iii) – Share Incentive Plan (SIP)
The SIP is an HMRC approved all-employee share plan. UK employees, who have been employed by the Group since 1 October of the
preceding year, may be awarded shares in relation to the Company’s prior year PBT performance. In 2018, as the PBT performance target was
achieved in full participating employees were each awarded shares to the value of £3,000. If a participant ceases to be employed by the Group
within three years from the date of award the shares will be forfeited, unless the employee is deemed to be a Good Leaver, in which case the
shares will be transferred out of the trust to the participant.
At 1 January
Shares granted
Adjustment – 2017 Rights Issue
Shares released
Shares forfeited
At 31 December
2018
number
474,360
69,732
–
(63,277)
(12,705)
468,110
2017
number
484,145
84,180
7,513
(84,317)
(17,161)
474,360
As at 31 December 2018, 472,175 shares (2017: 486,289 shares) are held in the SIP trust. 246,801 of these shares have been held by the SIP
Trust on behalf of employees for over three years.
19(iv) – Global Share Incentive Plan (GSIP)
The GSIP was launched in 2008 as an all-employee share scheme for non-UK based employees. It is not HMRC approved but the eligibility and
performance conditions of the award are designed to replicate the SIP. Employees are granted awards which are released by the Trustees at the
conclusion of a three-year holding period. If a participant ceases to be employed by the Group during the three-year period then the award will
lapse unless the participant is deemed to be a Good Leaver. Shares in respect of the GSIP are held in the SEGRO plc Employees Benefit Trust.
At 1 January
Shares granted
Adjustment – 2017 Rights Issue
Shares released
Shares forfeited
At 31 December
2018
number
167,295
50,076
–
(45,817)
(20,422)
151,132
2017
number
154,924
70,150
6,851
(38,142)
(26,488)
167,295
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
161
19. SHARE CAPITAL AND SHARE-BASED PAYMENTS CONTINUED
19(v) – Sharesave
The Group operates an HMRC approved all-employee savings related share option plan for UK-based employees. For 2018, a three-year period
was offered to employees and if they remain in employment, employees can purchase shares in the Company at a price which is fixed at the start
of the saving period. The price is usually set at a 20 per cent discount to the market price. If a participant ceases to be employed by the Group,
in certain circumstances the participant may be able to exercise their options within a fixed period from the date of leaving. During 2018, the
movements in Sharesave options were as follows:
At 1 January
Options granted
Adjustment – 2017 Rights Issue
Options exercised
Options expired/lapsed
At 31 December
2018
2017
Number of
options
306,908
110,617
–
(103,383)
(10,378)
303,764
Weighted
average
exercise price
339.1p
497.8p
–
320.8p
355.2p
398.9p
Number of
options
319,589
137,420
14,461
(144,047)
(20,515)
306,908
Weighted
average
exercise price1
293.9p
366.2p
293.7p
295.6p
207.0p
339.1p
1 Weighted average exercise price for shares under option on 28 March 2017 were adjusted for by a factor of 1.046 to reflect the dilutive effects of the 2017 Rights Issue.
The consideration received by the Company from options exercised during the year was £331,694 (2017: £377,185). The grants have been fair
valued using the Black-Scholes model. The assumptions are as follows:
Date of grant
1 May 20161
2 May 2017
18 April 2018
Total
Number of options
outstanding
Market price
Exercise price
Risk-free interest
rate
Dividend yield
Volatility
Exercisable
65,561
128,923
109,280
303,764
411.9p
457.8p
622.2p
315.0p
366.2p
497.8p
0.5%
0.09%
0.9%
3.8%
4.0%
2.7%
19.0%
21.5%
20.6%
2019
2020
2021
Fair value per
share
70p
79p
128p
1 Exercise prices were adjusted for by a factor of 1.046 to reflect the dilutive effects of the 2017 Rights Issue.
A total of 303,764 (2017: 306,908) options exist at 31 December 2018 in relation to the Sharesave with a weighted average remaining
contractual life of 2.17 years (2017: 2.04 years).
20. SHARE PREMIUM AND OTHER RESERVES
GROUP AND COMPANY
Balance at 1 January
Premium arising on the issue of shares – scrip dividend
Premium arising on the issue of shares – equity placing
Premium arising on the issue of shares – other
Balance at 31 December
2018
£m
2017
£m
1,998.6
1,431.1
48.7
–
0.4
27.0
539.9
0.6
2,047.7
1,998.6
The capital redemption reserve of £113.9 million arose in 2009 where shares were reclassified, cancelled and consolidated in connection with
a Rights Issue.
The merger reserve of £169.1 million also arose in 2009 in connection with the acquisition of Brixton plc where the Group acquired 100 per cent
of the voting equity of Brixton plc in a share for share exchange.
The translation, hedging and other reserve comprises all foreign exchange differences arising from the translation of the Financial Statements
of foreign operations, as well as from the translation of liabilities that hedge the Group’s net investment in foreign denominated subsidiaries.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
162
21. OWN SHARES HELD
Balance at 1 January
Shares purchased
Disposed of on exercise of options
Balance at 31 December
Group
Company
2018
£m
3.3
1.1
(2.4)
2.0
2017
£m
5.5
6.7
(8.9)
3.3
2018
£m
3.3
1.1
(2.4)
2.0
2017
£m
5.5
6.7
(8.9)
3.3
These represent the cost of shares in SEGRO plc bought in the open market and held by Estera Trust (Jersey) Limited (formerly Appleby Trust
(Jersey) Limited) and Equiniti Limited, to satisfy various Group share schemes.
22. COMMITMENTS
Contractual obligations to purchase, construct, develop, repair, maintain or enhance assets are as follows:
GROUP
Properties
2018
£m
189.1
2017
£m
200.1
In addition, commitments in the Group’s joint ventures at 31 December 2018 (at share) amounted to £36.6 million (2017: £50.2 million).
The Group also has a £7.8 million commitment to a property related investment fund at 31 December 2018 (2017: £nil).
23. CONTINGENT LIABILITIES
The Group has given performance guarantees to third parties amounting to £32.2 million (2017: £47.4 million) in respect of development
contracts of subsidiary undertakings. It is unlikely that these contingencies will crystallise.
The Company has guaranteed loans and bank overdrafts of subsidiary undertakings and has indicated its intention to provide the necessary
support required by its subsidiaries.
The Group has provided certain guarantees, representations and warranties in relation to developments and disposals which are usual for
transactions of this nature, including representations and warranties relating to financial, regulatory and tax matters. Adequate amounts have been
accrued for 31 December 2018 in relation to the representations and warranties provided.
24. OPER ATING LEASES
The Group as a lessor
Future aggregate minimum rentals receivable under non-cancellable operating leases are:
Not later than one year
Later than one year but not later than five years
Later than five years
Balance at 31 December
There are no significant levels of contingent rent in the current or prior year.
The Group as lessee
Future aggregate minimum lease payments on non-cancellable operating leases are:
Not later than one year
Later than one year but not later than five years
Total
Group
£m
260.5
773.9
1,140.7
2,175.1
Joint ventures
at share
£m
73.2
217.9
127.5
418.6
2018
£m
333.7
991.8
1,268.2
2,593.7
2017
£m
305.1
858.0
1,154.7
2,317.8
2018
£m
2.5
2.4
4.9
2017
£m
2.1
3.0
5.1
The expense in respect of lessee charges was £2.4 million (2017: £2.3 million).
The above table excludes ground lease payments which are directly recovered from the tenant. These amounts do not materially impact the
Income Statement in 2018 and 2017.
The ground rent charge was £3.4 million (2017: £2.3 million) and the expiry of the leases are between 11 to 47 years.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
163
25. RELATED PARTY TR ANSACTIONS
Group
Transactions during the year between the Group and its joint ventures are disclosed below:
Dividends received
Assets sold to joint ventures¹
Management and performance fee income
2018
£m
28.6
242.0
44.9
2017
£m
26.6
52.9
24.3
1 During the year investment properties with a carrying value of £242.0 million was sold to SELP. Total proceeds received for the sale was £251.6 million.
Amounts due from Joint Ventures are disclosed in Note 14.
Transactions between the Company and its subsidiaries eliminate on consolidation and are not disclosed in this note.
Transactions between the Group and the pension scheme are set out in Note 18.
Company
Amounts due from subsidiaries are disclosed in Note 7 and amounts due to subsidiaries are disclosed in Note 15.
None of the above Group or Company balances are secured.
Remuneration of key management personnel
Key management personnel comprise Executive and Non-Executive Directors, as outlined in the Governance Report on pages 62 to 76.
Key management personnel compensation is shown in the table below:
Salaries and short-term benefits
Post-employment benefits
Share-based payments
Total remuneration
2018
£m
5.2
0.4
3.4
9.0
2017
£m
5.3
0.4
3.4
9.1
More detailed information concerning Directors’ remuneration, shareholdings, pension entitlements, share options and other long-term incentive
plans, as required by the Companies Act 2006, is shown in the Remuneration Report on pages 84 to 99.
26. NOTES TO THE CASH FLOW STATEMENTS
26(i) – Reconciliation of cash generated from operations
Operating profit
Adjustments for:
Depreciation of property, plant and equipment
Share of profit from joint ventures after tax
Profit on sale of investment properties
Goodwill and other amounts written off on acquisitions and amortisation of intangibles
Revaluation surplus on investment properties
Valuation gain on other investments
Dividends and other income
Pension buy-out costs (see Note 18)
Other provisions
(Decrease)/increase in impairment of subsidiaries
Changes in working capital:
(Increase)/decrease in trading properties
(Increase)/decrease in debtors and tenant incentives
Increase/(decrease) in creditors
Net cash inflow/(outflow) generated from operations
Group
2018
£m
2017
£m
1,173.4
1,201.8
2.9
(124.2)
(56.5)
–
(791.4)
(4.7)
–
51.8
6.1
–
1.9
(108.1)
(17.0)
0.6
(872.4)
–
–
–
2.1
–
257.4
208.9
(19.5)
(13.7)
10.9
235.1
13.6
(16.5)
(16.1)
189.9
Company
2018
£m
107.3
2017
£m
622.4
1.4
0.2
–
–
–
–
–
–
–
–
–
–
(145.8)
(678.0)
51.8
3.0
(30.7)
(13.0)
–
5.1
2.1
(5.8)
–
(3.3)
28.2
(30.5)
–
(1.8)
1.5
(30.8)
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
164
26. NOTES TO THE CASH FLOW STATEMENTS CONTINUED
26(ii) – Deposits
Term deposits for a period of three months or less are included within cash and cash equivalents.
26(iii) – Analysis of net debt
Management define net debt as total borrowing less cash and cash equivalents.
Cash movements
Non-cash movements
At 1 January
2018
£m
2,081.4
(17.9)
2,063.5
(109.3)
Cash
inflow2
£m
264.1
–
264.1
–
1,954.2
264.1
2,078.4
(16.8)
2,061.6
(76.4)
264.1
–
264.1
–
1,985.2
264.1
Cash
outflow3
£m
(107.7)
(2.4)
(110.1)
43.0
(67.1)
(107.7)
(2.4)
(110.1)
44.2
(65.9)
Exchange
movement
£m
Fair value
changes
£m
Cost of
early close
out of debt
£m
Other
non-cash
adjustments1
£m
At
31 December
2018
£m
16.2
–
16.2
(0.2)
16.0
16.2
–
16.2
(0.1)
16.1
–
–
–
–
–
–
–
–
–
–
5.7
0.7
6.4
–
6.4
5.7
–
5.7
–
5.7
–
3.4
3.4
–
3.4
–
2.8
2.8
–
2.8
2,259.7
(16.2)
2,243.5
(66.5)
2,177.0
2,256.7
(16.4)
2,240.3
(32.3)
2,208.0
Group
Bank loans and loan capital
Capitalised finance costs
Total borrowings
Cash in hand and at bank
Net debt
Company
Bank loans and loan capital
Capitalised finance costs
Total borrowings
Cash in hand and at bank
Net debt
1 The other non-cash adjustment relates to the amortisation of issue costs. See Note 9.
2 Proceeds from borrowings of £264.1 million.
3 Group and Company cash outflow of £110.1 million, comprises the repayment of borrowings of £102.0 million, cash settlement for early repayment of debt of £5.7 million and capitalised issue
costs of £2.4 million.
26(iv) – Analysis of financial liabilities and assets arising from financing activities
For the year ended 31 December 2018
Cash movements
Non-cash movements
Group
Total borrowings (Note 16)
Derivatives: (Net) Fair value of forward
foreign exchange and currency swap
contracts (Note 17)
Total net financial liabilities arising
from financing activities
At 1 January
2018
£m
2,063.5
Cash
inflow
£m
264.1
Cash
outflow
£m
(110.1)
Exchange
Movement1
£m
16.2
1.4
–
(6.4)
2,064.9
264.1
(116.5)
8.3
24.5
Fair value
changes2
£m
Cost of
early close
out of debt
£m
Other
non-cash
adjustments
£m
At
31 December
2018
£m
–
–
–
6.4
–
6.4
3.4
2,243.5
–
3.3
3.4
2,246.8
1 Exchange movement of £24.5 million from borrowings and forward foreign exchange and currency swap contracts consists of: foreign exchange losses on effective hedge relationships recognised
in OCI of £12.6 million and foreign exchange losses recognised within the Income Statement of £11.9 million. See Note 17.
2 Total net fair value loss of £22.0 million arising from derivatives per Note 9 also includes fair value losses from interest rate swaps and caps of £22.0 million.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
165
26. NOTES TO THE CASH FLOW STATEMENTS CONTINUED
For the year ended 31 December 2017
Group
At 1 January
2017
£m
Acquired
£m
Cash
Inflow3
£m
Cash
Outflow4
£m
Exchange
Movement5
£m
Total borrowings (Note 16)
1,630.4
390.4
1,342.1
(1,427.9)
(19.4)
Fair value
changes6
£m
–
Cost of early
close out
of debt
£m
Other
non-cash
adjustments
£m
At
31 December
2017
£m
145.3
2.6
2,063.5
Cash movements
Non-cash movements
Derivatives: (Net) Fair value of forward
foreign exchange and currency swap
contracts (Note 17)
Total net financial liabilities arising
from financing activities
3 Proceeds from borrowings of £1,342.1 million.
9.6
–
–
(63.4)
1,640.0
390.4
1,342.1
(1,491.3)
55.7
36.3
(0.5)
–
–
1.4
(0.5)
145.3
2.6
2,064.9
4 Cash outlflow of £1,427.9 million arising from borrowings comprises the repayment of borrowings of £1,274.5 million, cash settlement for early repayment of debt of £140.4 million and capitalised
finance costs of £13.0 million.
5 Exchange movement of £36.3 million from borrowing and forward foreign exchange and currency swap contracts consists of: foreign exchange losses on effective hedge relationships recognised
in OCI of £6.4 million and foreign exchange losses recognised within the Income Statement of £29.9 million. See Note 17.
6 Total net fair value loss of £21.5 million arising from derivatives per Note 9 also includes fair value losses from interest rate swaps and caps of £22.0 million.
Company
The Company’s financial liabilities and assets arising from financing activities are materially the same as those shown for the Group for the year
ended 31 December 2018.
For the year ended 31 December 2017 the repayment of borrowings shown in the Company cash flow statement of £883.8 million differs from
the Group equivalent primarily because it excludes the repayment of the APP loan acquired for £390.4 million.
27. PROPERTY VALUATION TECHNIQUES AND RELATED QUANTITATIVE INFORMATION
All of the Group’s properties are level 3, as defined by IFRS 13, in the fair value hierarchy as at 31 December 2018 and there were no transfers
between levels during the year. Level 3 inputs used in valuing the properties are those which are unobservable, as opposed to level 1 (inputs
from quoted prices) and level 2 (observable inputs either directly, i.e. as prices, or indirectly, i.e. derived from prices).
Based on different approaches for different properties, the following valuation techniques can be used for the same class of assets:
The yield methodology valuation technique is used when valuing the Group’s assets which uses market rental values capitalised with a market
capitalisation rate. The resulting valuations are cross-checked against the initial yields and the fair market values per square metre derived from
actual market transactions for similar assets.
For properties under construction and the majority of land held for development, properties are valued using a residual method valuation.
Under this methodology, the valuer assesses the investment value (using the above mentioned methodology for completed buildings).
Deductions are then made for the total estimated costs to complete, including notional finance costs and developer’s profit, to take into account
the hypothetical purchaser’s management of the remaining development process and their perception of risk with regard to construction and the
property market (e.g. as regards potential cost overruns and letting risk). Land values are cross-checked against the rate per hectare derived from
actual market transactions. Other land is also valued on this comparative basis, the ranges for which are (per hectare) £0.1 million – £2.6 million
(2017: £0.1 million – £3.6 million) for the UK and £0.1 million – £4.1 million (2017: £0.1 million – £2.6 million) for Continental Europe.
An increase/decrease to ERV will increase/decrease valuations, while an increase/decrease to yield will decrease/increase valuations. A sensitivity
analysis showing the impact on valuations of changes in yields and ERV on the property portfolio (including joint ventures at share) is
shown below.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 166
27. PROPERTY VALUATION TECHNIQUES AND RELATED QUANTITATIVE INFORMATION CONTINUED
Sensitivity analysis
2018
2017
Impact on valuation of 25bp change
in nominal equivalent yield
Impact on valuation of 5% change
in estimated rental value (ERV)
Group total completed property portfolio
£m
8,349.4
7,160.4
Increase
£m
(394.4)
(346.1)
Decrease
£m
393.6
383.3
Increase
£m
314.4
272.1
Decrease
£m
(312.0)
(266.0)
There are interrelationships between all these inputs as they are determined by market conditions. The existence of an increase in more than one
input would be to magnify the impact on the valuation. The impact on the valuation will be mitigated by the interrelationship of two inputs in
opposite directions, e.g. an increase in rent may be offset by an increase in yield. The below table includes the Group’s wholly-owned and joint
venture assets at share in order to include the entire portfolio. The equivalent analysis for the range of inputs on a wholly-owned basis would not
be significantly different.
The Group portfolio by asset type classification has been revised in 2018 compared to that disclosed in Annual Report and Accounts 2017
and shown in the 2017 comparatives. This classification change is to better highlight SEGRO's differentiated portfolio of big box and urban
warehouses. To provide comparison the second table below shows the 2018 Group portfolio split by asset type as reported in the Annual Report
and Accounts 2017 and comparatives.
Valuation
Inputs
2018 By asset type
Big box warehouses > 35,000 sq m
Big box warehouses < 35,000 sq m
Urban warehouses > 3,500 sq m
Urban warehouses < 3,500 sq m
High value and other uses of industrial land4
By ownership
Wholly-owned5
Joint ventures
Group Total
Completed
£m
Land &
development¹
£m
1,075.0
1,528.3
3,173.1
2,352.8
220.2
Combined
property
portfolio
£m
1,075.0
1,528.3
3,173.1
2,352.8
220.2
ERV²
£ per
sq m
48.7
51.8
ERV range²
£ per
sq m
32.4–147.5
32.4–127.1
103.9
27.0–280.2
155.0
54.0–279.9
117.2
36.5–226.0
8,349.4
1,073.0
9,422.4
74.4
27.0–280.2
6,916.4
1,433.0
8,349.4
936.7
136.3
1,073.0
7,853.1
1,569.3
9,422.4
108.2
27.0–280.2
45.6
74.4
32.4–97.3
27.0–280.2
Net true
equivalent
yield³
%
Net true
equivalent
yield range
%
5.3
5.4
5.0
4.5
6.2
5.1
5.0
5.6
5.1
4.1–6.9
4.3–7.1
3.9–10.6
3.9–8.3
4.6–9.9
3.9–10.6
3.9–10.6
4.4–7.1
3.9–10.6
1 Land and development valuations by asset type are not available as land sites are not categorised by asset type. Combined property portfolio column will not cast down but row does cast across.
2 On a fully occupied basis.
3 In relation to the completed properties only.
4 High value and other uses of industrial land includes offices and retail uses, such as trade counters, car showrooms and self-storage facilities.
5 Included in the completed portfolio, the wholly owned assets are: Big box > 35,000 sq m £481.8 million; big box < 35,000 sq m £729.6 million; urban warehouses > 3,500 sq m
£3,132.0 million; urban warehouses < 3,500 sq m £2,352.8 million; and other uses £220.2 million.
The table below shows the 2018 split by asset type as shown in the year ended 31 December 2017 comparatives.
2018 By asset type
Big box warehouses > 10,000 sq m
Urban warehouses and light industrial buildings
Urban warehouses used as data centres
Higher value uses4
Group Total
Valuation
Inputs
Completed
£m
Land &
development¹
£m
3,374.6
4,191.9
434.1
348.8
Combined
property
portfolio
£m
3,374.6
4,191.9
434.1
348.8
ERV²
£ per
sq m
ERV range²
£ per
sq m
54.6
32.4–272.1
115.8
27.0–280.2
193.4 104.9–236.8
159.7
54.1–247.8
8,349.4
1,073.0
9,422.4
74.4
27.0–280.2
Net true
equivalent
yield³
%
5.2
4.8
4.9
5.8
5.1
Net true
equivalent
yield range
%
3.9–10.6
3.9–9.4
4.0–4.9
3.9–9.9
3.9–10.6
1 Land and development valuations by asset type are not available as land sites are not categorised by asset type. Combined property portfolio column will not cast down but row does cast across.
2 On a fully occupied basis.
3 In relation to the completed properties only.
4 Higher value includes offices and retail uses, such as trade counters, car showrooms and self-storage facilities.
5 Included in the completed portfolio, the wholly owned assets are: Big box £1,999.8 million (2017: £1,791.8 million); light industrial £4,133.9 million (2017: £3,514.7 million); data centres
£434.1 million (2017: £371.8 million); and higher value uses £348.6 million (2017: £292.3 million including offices).
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
167
27. PROPERTY VALUATION TECHNIQUES AND RELATED QUANTITATIVE INFORMATION CONTINUED
2018 By geography
Greater London
Thames Valley
National Logistics
Northern Europe
Germany/Austria
Belgium/Netherlands
Southern Europe
France
Italy/Spain
Central Europe
Poland
Other
Group Total
Investment properties – Group (Note 13(i))
Investment properties – Joint ventures (Note 7(ii))
Trading properties – Group (Note 13(ii))
Trading properties – Joint ventures (Note 7(ii))
1 On a fully occupied basis.
2 In relation to the completed properties only.
2017 By asset type
Big box warehouses > 10,000 sq m
Urban warehouses and light industrial buildings
Urban warehouses used as data centres
Higher value uses4
By ownership
Wholly-owned
Joint ventures
Group Total
Valuation
Inputs
Completed
£m
Land &
development
£m
3,585.5
1,526.2
662.1
799.4
101.8
812.7
322.0
472.2
67.5
139.0
112.3
338.7
140.7
18.7
32.9
256.0
23.1
11.6
Combined
property
portfolio
£m
3,724.5
1,638.5
1,000.8
940.1
120.5
845.6
578.0
495.3
79.1
ERV¹
£ per
sq m
ERV range¹
£ per
sq m
150.6 45.8–280.2
143.5 61.9–236.8
72.4 57.6–127.1
56.6 32.4–137.7
52.9 36.5–90.7
55.6 33.1–119.8
45.2
27.0–72.1
41.9 32.4–140.2
50.5
45.1–91.9
8,349.4
1,073.0
9,422.4
74.4 27.0–280.2
Net true
equivalent
yield2
%
Net true
equivalent
yield range
%
4.6
5.0
5.2
5.3
5.9
5.5
5.7
6.7
6.0
5.1
3.9–9.4
4.5–6.6
4.8–6.0
4.3–8.3
5.0–10.6
4.5–9.5
4.6–9.9
6.2–7.0
5.6–6.2
3.9–10.6
7,801.4
1,566.9
51.7
2.4
9,422.4
Valuation
Inputs
Completed
£m
Land &
Development1
£m
Combined
property
portfolio
£m
2,928.3
3,565.5
371.8
294.8
ERV²
£ per
sq m
ERV range²
£ per
sq m
51.3
22.6–251.1
111.4 26.5–280.2
185.4
99.0–231.7
159.6
53.1–236.8
Net true
equivalent
yield³
%
5.5
5.1
5.1
5.9
Net true
equivalent
yield range
%
4.3–10.4
4.1–9.5
4.5–5.1
4.3–8.3
878.3
8,038.7
70.5 22.6-280.2
5.3
4.1-10.4
787.3
91.0
878.3
6,757.9
1,280.8
8,038.7
99.3 22.6–280.2
43.7
31.9–112.4
70.5 22.6–280.2
5.1
6.0
5.3
4.1–10.4
4.6–7.3
4.1–10.4
2,928.3
3,565.5
371.8
294.8
7,160.4
5,970.6
1,189.8
7,160.4
1 Land and development valuations by asset type are not available as land sites are not categorised by asset type. Combined property portfolio column will not cast down but row does cast across.
2 On a fully occupied basis.
3 In relation to the completed properties only.
4 Higher value includes offices and retail uses, such as trade counters, car showrooms and self-storage facilities.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
168
27. PROPERTY VALUATION TECHNIQUES AND RELATED QUANTITATIVE INFORMATION CONTINUED
Valuation
Inputs
2017 By geography
Greater London
Thames Valley
National Logistics
Northern Europe
Germany/Austria
Belgium/Netherlands
Southern Europe
France
Italy/Spain
Central Europe
Poland
Czech Republic/Hungary
Group Total
Investment properties – Group (Note 13(i))
Investment properties – Joint ventures (Note 7(ii))
Trading properties – Group (Note 13(ii))
Trading properties – Joint ventures (Note 7(ii))
1 On a fully occupied basis.
2 In relation to the completed properties only.
ERV¹
£ per
sq m
ERV range¹
£ per
sq m
141.3 45.8–280.2
137.4
61.8–236.8
72.3
56.5–127.1
51.3
48.4
31.9–138.1
35.6–91.0
51.7
38.4
32.5–115.0
22.6–70.8
40.3
48.1
31.9–127.4
42.3–90.3
70.5 22.6–280.2
Net true
equivalent
yield²
%
4.8
5.2
5.3
5.4
6.4
6.1
5.9
6.9
6.4
5.3
Net true
equivalent
yield range
%
4.1–8.2
4.8–6.6
4.9–6.2
4.5–6.9
5.3–10.4
4.9–9.5
5.1–9.4
6.2–7.3
6.2–6.6
4.1–10.4
Completed
£m
Land &
development
£m
3,022.5
1,374.5
661.7
651.4
109.2
558.0
332.4
401.0
49.7
7,160.4
Combined
property
portfolio
£m
3,227.6
1,474.5
808.2
797.2
130.8
666.4
443.2
427.4
63.4
205.1
100.0
146.5
145.8
21.6
108.4
110.8
26.4
13.7
878.3
8,038.7
6,745.4
1,280.2
12.5
0.6
8,038.7
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
169
28. RELATED UNDERTAKINGS
A list of the Group’s related undertakings as at 31 December 2018 is detailed below. Except where the Group’s percentage effective holding is
disclosed below, the entire share capital of the subsidiary undertaking is held by the Group. Unless otherwise stated, the Group’s holding in the
subsidiary undertaking comprises ordinary shares. Where subsidiaries have different classes of shares, the percentage effective holding shown
represents both the Group’s voting rights and equity holding. All subsidiaries are consolidated in the Group’s Financial Statements. The Group’s
related undertakings also include its joint ventures primarily SELP and Roxhill.
Audit exemption taken for subsidiaries
Certain UK subsidiaries are exempt from the requirement of the Companies Act 2006 (the Act) relating to the audit of individual accounts by
virtue of Section 479A of the Act. These subsidiaries are depicted by ** in the table below.
Company Name
Airport Property GP (No. 2) Limited**
Airport Property H1 Limited**
Airport Property Partnership
Allnatt London Properties PLC2**
Amdale Holdings Limited NV
Beira Investments Sp. z.o.o.
Big Box GP Limited5
Bilton Homes Limited
Bilton p.l.c.
Bonsol S.R.L.
Brixton (Axis Park) Limited
Brixton (Fairways Units 7-11) 1 Limited**
Brixton (Great Western, Southall) Limited**
Brixton (Hatton Cross) 1 Limited
Brixton (Heathrow Estate) Limited
Brixton (Metropolitan Park) 1 Limited
Brixton (Origin) Limited
Brixton Asset Management UK Limited**
Brixton Equiton Limited5
Brixton Greenford Park Limited
Brixton Limited
Brixton Nominee 26 (Jersey) Limited
Brixton Nominee 27 (Jersey) Limited
Brixton Nominee 38 (Jersey) Limited
Brixton Nominee 39 (Jersey) Limited
Brixton Nominee 40 (Jersey) Limited
Brixton Nominee 41 (Jersey) Limited
Brixton Nominee 8 (Jersey) Limited
Brixton Nominee 9 (Jersey) Limited
Brixton Nominee Axis Park 1 Limited
Brixton Nominee Axis Park 2 Limited
Brixton Nominee Polar Park 1 Limited
Brixton Nominee Polar Park 2 Limited
Brixton Nominee Premier Park 1 Limited
Brixton Nominee Premier Park 2 Limited
Brixton Northfields (Wembley 1) Limited**
Brixton Northfields (Wembley) Holdings Limited**
Brixton Northfields (Wembley) Limited**
Brixton Northfields 1 Limited**
Brixton Northfields 2 Limited**
Brixton Northfields 3 Limited**
Brixton Northfields 4 Limited**
Brixton Northfields 5 Limited**
Jurisdiction
England & Wales
England & Wales
England & Wales
England & Wales
Belgium
Poland
England & Wales
England & Wales
England & Wales
Italy
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
% effective
holding if
not 100%
90
Direct/
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Registered Office
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Louizalaan 331 – 333, 1050 Elsene, Belgium
Pl. Andersa 3, 61-894 Poznan´, Poland
55 Baker Street, London W1U 7EU
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
55 Baker Street, London W1U 7EU
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 170
28. RELATED UNDERTAKINGS CONTINUED
Company Name
Brixton Northfields 6 Limited**
Brixton Premier Park Limited
Brixton Properties Limited
Brixton Sub-Holdings Limited**
Brixton Woodside Limited5
B-Serv Limited**
CHR Holdings LLC
CHR Holdings II LLC
De Hoek-Noord S-Park B.V.
Devon Nominees (No. 1) Limited
Devon Nominees (No. 2) Limited
Devon Nominees (No. 3) Limited
Europa Magnesium S.R.L.
Granby Investments Sp. z.o.o.
GrontFour s.r.o.
Helios Northern Limited1**
HelioSlough Limited**
HEREF Disribution Limited
Holbury Investments Sp. z.o.o.
Howbury GP Limited
% effective
holding if
not 100%
Jurisdiction
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Delaware
Delaware
Netherlands
England & Wales
England & Wales
England & Wales
Italy
Poland
Czech Republic
England & Wales
England & Wales
Jersey
Poland
England & Wales 50
Direct/
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Howbury SPV Limited
England & Wales 50
Indirect
IFP S.R.L.
IMPIANTI FTV S.R.L.
Karnal Investments Sp. z.o.o.
LIACOM-A Ingatlanforgalmazó Felelösségü Társaság
Lynford Investments Sp. z.o.o.
M0M4 Üzleti Park Ingatlanfejlesztö Korlátolt
Felelösségü Társaság
Nivindus NV
Novara Logistics Park SARL
Özarow Biznes Park Sp. z.o.o.
Premier Greenford GP Limited1
Roxhill (Coventry M6 J2) Limited
Italy
Italy
Poland
Hungary
Poland
Hungary
Belgium
Italy
Poland
90
90
50
90
England & Wales
England & Wales 50
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Roxhill (Coventry) Limited
England & Wales 50
Indirect
Roxhill (Junction 15) Limited
England & Wales 50
Indirect
Roxhill (Maidstone) Limited
England & Wales 50
Indirect
Roxhill Management Rugby Limited
Roxhill Warth 3 Limited
England & Wales
England & Wales 50
Indirect
Indirect
Roxhill-SEGRO (Rugby Gateway) LLP1
England & Wales 50
Indirect
SEGRO (225 Bath Road) Limited
SEGRO (Acton Park) Limited
SEGRO (BA World Cargo) Limited
SEGRO (Barking) Limited
England & Wales
England & Wales
England & Wales
England & Wales
Indirect
Indirect
Indirect
Indirect
Registered Office
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
55 Baker Street, London W1U 7EU
Cunard House, 15 Regent Street, London SW1Y 4LR
2711, 400 Centerville Road, Wilmington, New Castle, Delaware,
19808 United States
1209 Orange Street, Wilmington, United States
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Pl. Andersa 3, 61-894 Poznan´, Poland
Praha 1, Na Prˇ ı˘kope˘ 9/392 a 11/393, PSCˇ 110 00,
Czech Republic
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
3rd Floor, One The Esplanade, St Helier, JE2 3QA, Jersey
Pl. Andersa 3, 61-894 Poznan´, Poland
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Zielna 37, 00-108 Warszawa Mazowieckie, Poland
1024 Budapest, Löv˝oház u. 39, Hungary
Zielna 37, 00-108 Warszawa Mazowieckie, Poland
1024 Budapest, Löv˝oház u. 39, Hungary
Louizalaan 331 – 333, 1050 Elsene, Belgium
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Pl. Andersa 3, 61-894 Poznan´, Poland
Cunard House, 15 Regent Street, London SW1Y 4LR
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ
Cunard House, 15 Regent Street, London SW1Y 4LR
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London, SW1Y 4LR
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018 171
28. RELATED UNDERTAKINGS CONTINUED
Company Name
SEGRO (Barking 1) Limited
SEGRO (Barking 2) Limited
SEGRO (Barking 3) Limited
SEGRO (Blanc Mesnil) SARL
SEGRO (Bonded Stores) Limited
SEGRO (Brackmills) Limited
SEGRO (Bracknell) Limited**
SEGRO (Burton upon Trent) Limited
SEGRO (Colnbrook) Limited
SEGRO (Crick) Limited
SEGRO (Den Bosch) B.V.
SEGRO (Deptford Trading Estate) Limited
SEGRO (D-Link House) Limited
SEGRO (East Plus) Limited
SEGRO (East Plus) Trading Limited
SEGRO (EMG Management Company) Limited3
SEGRO (EMG Unit 1) Limited
SEGRO (EMG Unit 2) Limited
SEGRO (EMG Unit 4) Limited
SEGRO (EMG) Limited
SEGRO (Faggs Road) Limited
SEGRO (Fairways Industrial Estate) Limited
SEGRO (Gatwick) Limited
SEGRO (Grange Park) Limited
SEGRO (Great Cambridge Industrial Estate) Limited
SEGRO (Hatton Farm Site A) Limited**
SEGRO (Hatton Farm Site B) Limited**
SEGRO (Hatton Farm Site C) Limited**
SEGRO (Hayes) Limited
SEGRO (Heathrow Cargo Area) Limited
SEGRO (Heathrow International) Limited
SEGRO (Heathrow Park) Limited
SEGRO (Howbury) Limited
SEGRO (Kettering) Limited
SEGRO (Lee Park Distribution) Limited
SEGRO (Loop) Limited**
SEGRO (Lutterworth) Limited
SEGRO (Nelson Trade Park) Limited**
SEGRO (New Cross Business Centre) Limited**
SEGRO (Newport Pagnell) Limited**
SEGRO (NFTE & Mercury) Limited
SEGRO (Parc des Damiers) SAS
SEGRO (Poyle 14) Limited
SEGRO (Purfleet) Limited
SEGRO (Rainham 1) Limited
SEGRO (Rainham 2) Limited
SEGRO (Rainham, Enterprise 1) Limited
SEGRO (Rainham, Enterprise 2) Limited**
SEGRO (Reading) Limited2
SEGRO (Rockware Avenue) Limited
SEGRO (Rugby Gateway 1) Limited
Jurisdiction
England & Wales
England & Wales
England & Wales
France
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Netherlands
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
France
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
% effective
holding if
not 100%
Direct/
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Registered Office
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
20, rue Brunel, 75017 Paris, France
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
20, rue Brunel, 75017 Paris, France
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 172
28. RELATED UNDERTAKINGS CONTINUED
Company Name
SEGRO (Rugby Gateway 2) Limited
SEGRO (Rugby Gateway 3) Limited
SEGRO (Rugby Gateway 4) Limited
SEGRO (Rugby Gateway 5) Limited
SEGRO (Rushden) Limited
SEGRO (Skyline) Limited
SEGRO (Spaceway Park) Limited
SEGRO (Stansted Cargo) Limited
SEGRO (Stansted Fedex) Limited
SEGRO (Stockley Close) Limited**
SEGRO (The Portal) Limited
SEGRO (Tilbury 2) Limited
SEGRO (Trilogy) Management Company Limited
SEGRO (Tudor) Limited
SEGRO (UK Logistics) Limited
SEGRO (Victoria Industrial Estate) Limited
SEGRO (Watchmoor) Limited**
SEGRO (Welham Green) Limited
SEGRO (West Zaan) B.V.
SEGRO (Westway Estate) Limited
SEGRO Achte Grundbesitz GmbH
SEGRO Achtzehnte Grundbesitz GmbH
SEGRO Administration Limited
SEGRO APP 1 Limited**
SEGRO APP 2 Limited**
SEGRO APP 3 Limited**
SEGRO APP 4 Limited**
SEGRO APP Management Limited**
SEGRO Asset Management Limited**
SEGRO B.V.
SEGRO Belgium NV
SEGRO Benelux B.V.4
SEGRO CHUSA Limited
SEGRO Communities Limited
SEGRO Czech Republic s.r.o.
SEGRO De Hoek B.V.
SEGRO Drancy (SCI)
SEGRO Dreiundzwanzigste Grundbesitz GmbH
SEGRO Dreizehnte Grundbesitz GmbH
SEGRO Dritte Grundbesitz GmbH
SEGRO Einundzwanzigste Grundbesitz GmbH
SEGRO Elfte Grundbesitz GmbH
SEGRO Erste Grundbesitz GmbH
SEGRO Europe Limited**
SEGRO European Logistics Partnership S.á r.l.
SEGRO Finance plc
SEGRO France SA
SEGRO Fünfte Grundbesitz GmbH
Jurisdiction
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Netherlands
England & Wales
Germany
Germany
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Netherlands
Belgium
Netherlands
England & Wales
England & Wales
Czech Republic
Netherlands
France
Germany
Germany
Germany
Germany
Germany
Germany
England & Wales
Luxembourg
England & Wales
France
Germany
% effective
holding if
not 100%
94
50
Direct/
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Registered Office
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
Cunard House, 15 Regent Street, London SW1Y 4LR
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
Louizalaan 331 – 333, 1050 Elsene, Belgium
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Praha 1, Na Prˇ ı˘kope˘ 9/392 a 11/393, PSCˇ 110 00,
Czech Republic
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
20, rue Brunel, 75017 Paris, France
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Cunard House, 15 Regent Street, London SW1Y 4LR
35-37 avenue de la Liberté, L-1931 Luxembourg
Cunard House, 15 Regent Street, London SW1Y 4LR
20, rue Brunel, 75017 Paris, France
Fichentraße 33, Düsseldorf 40233, Germany
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018 173
% effective
holding if
not 100%
28. RELATED UNDERTAKINGS CONTINUED
Company Name
SEGRO Fünfundzwanzigste Grundbesitz GmbH
SEGRO Fünfzehnte Grundbesitz GmbH
SEGRO Gennevilliers (SCI)
SEGRO Germany GmbH
SEGRO Glinde B.V.
SEGRO Holdings France SAS
SEGRO Industrial Estates Limited
SEGRO Industrial Nederlands B.V.
Jurisdiction
Germany
Germany
France
Germany
Netherlands
France
England & Wales
Netherlands
SEGRO Insurance Limited
Isle of Man
SEGRO Investment Limited**
SEGRO Investments Spain, SL
SEGRO Italy S.R.L.
SEGRO Logistics Park Aulnay SCI
SEGRO Luge S.á r.l.
SEGRO Luxembourg S.á r.l.
SEGRO Lyon 1 SCI
SEGRO Lyon 2 SCI
SEGRO Lyon Holdings SCI
SEGRO Management Limited**
SEGRO Management NV
SEGRO Netherlands B.V.
England & Wales
Spain
Italy
France
Luxembourg
Luxembourg
France
France
France
England & Wales
Belgium
Netherlands
SEGRO Netherlands Holdings B.V.
Netherlands
SEGRO Neunte Grundbesitz GmbH
SEGRO Neunzehnte Grundbesitz GmbH
SEGRO Overseas Holdings Limited
SEGRO Pension Scheme Trustees Limited
SEGRO plc French Branch
SEGRO Plessis (SCI)
SEGRO Poland Sp. z.o.o.
SEGRO Properties Limited
SEGRO Properties Spain, SL
SEGRO Reisholz GmbH
SEGRO Sechste Grundbesitz GmbH
SEGRO Sechzehnte Grundbesitz GmbH
SEGRO Siebte Grundbesitz GmbH
SEGRO Siebzehnte Grundbesitz GmbH
SEGRO Spain Management, SL
SEGRO Spain Spare 1 S.L.U.
SEGRO Spain Spare 2 S.L.U.
SEGRO Spain Spare 3 S.L.U.
SEGRO Trading (France) SNC
SEGRO Vierte Grundbesitz GmbH
SEGRO Vierundzwansigste Grundbesitz GmbH
SEGRO Vierzehnte Grundbesitz GmbH
SEGRO Wissous (SCI)
SEGRO Zehnte Grundbesitz GmbH
SEGRO Zwanzigste Grundbesitz GmbH
SEGRO Zweite Grundbesitz GmbH
Germany
Germany
England & Wales
England & Wales
France
France
Poland
England & Wales
Spain
Germany
Germany
Germany
Germany
Germany
Spain
Spain
Spain
Spain
France
Germany
Germany
Germany
France
Germany
Germany
Germany
Direct/
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Direct
Indirect
Indirect
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Registered Office
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
20, rue Brunel, 75017 Paris, France
Fichentraße 33, Düsseldorf 40233, Germany
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
20, rue Brunel, 75017 Paris, France
Cunard House, 15 Regent Street, London SW1Y 4LR
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
Third Floor, St George's Court, Upper Church Street, Douglas,
IM1 1EE, Isle of Man
Cunard House, 15 Regent Street, London SW1Y 4LR
Avenida Diagonal, 467, 6°2°, 08036 Barcelona, Spain
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
20, rue Brunel, 75017 Paris, France
5 rue Guillaume Kroll, L-1822 Luxembourg
35-37 avenue de la Liberté, L-1931 Luxembourg
20, rue Brunel, 75017 Paris, France
20, rue Brunel, 75017 Paris, France
20, rue Brunel, 75017 Paris, France
Cunard House, 15 Regent Street, London SW1Y 4LR
Louizalaan 331 – 333, 1050 Elsene, Belgium
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
20, rue Brunel, 75017 Paris, France
20, rue Brunel, 75017 Paris, France
Pl. Andersa 3, 61-894 Poznan´, Poland
Cunard House, 15 Regent Street, London SW1Y 4LR
Avenida Diagonal, 467, 6°2°, 08036 Barcelona, Spain
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Avenida Diagonal, 467, 6°2°, 08036 Barcelona, Spain
Avenida Diagonal, 467, 6°2°, 08036 Barcelona, Spain
Avenida Diagonal, 467, 6°2°, 08036 Barcelona, Spain
Avenida Diagonal, 467, 6°2°, 08036 Barcelona, Spain
20, rue Brunel, 75017 Paris, France
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
20, rue Brunel, 75017 Paris, France
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 174
28. RELATED UNDERTAKINGS CONTINUED
Company Name
SEGRO Zweiundzwanzigste Grundbesitz GmbH
SEGRO Zwölfte Grundbesitz GmbH
Sell Invest Italy S.R.L.5
SELP (Alpha JV) S.á r.l.
SELP Finance S.á r.l.
SELP Investments S.á r.l.
SELP Management Limited
SG Austria Brunnerstrasse GmbH
% effective
holding if
not 100%
50
50
50
Jurisdiction
Germany
Germany
Italy
Luxembourg
Luxembourg
Luxembourg
England & Wales
Austria
Slough Trading Estate Limited
Tenedor S.R.L.
The Howbury Park Limited Partnership
England & Wales
Italy
England & Wales 50
The UK Logistics (Nominee 1) Limited
The UK Logistics (Nominee 2) Limited
The UK Logistics General Partner Limited**
The UK Logistics Limited Partnership
Trafford Park Estates Limited**
UK Logistics Fund Unit Trust
UK Logistics Properties No 1 Unit Trust
UK Logistics Properties No 2 Unit Trust
Unitair General Partner Limited**
Unitair Limited Partnership**
Vailog Bonneuil SARL
Vailog Collecteno S.R.L.
Vailog Energy 1 S.R.L.
Vailog Energy 2 S.R.L.
Vailog Energy 3 S.R.L.
Vailog Holding France
Vailog S.R.L.
Valipar B.V.
Warth Park (No. 1) Limited
Woodside GP Limited
Wroclaw Industrial Park Sp. z.o.o.
ZINC FIVE S.R.L.
ZINC FOUR S.R.L.
ZINC ONE S.R.L.
ZINC SEVEN S.R.L.
ZINC SIX S.R.L.
ZINC THREE S.R.L.
ZINC TWO S.R.L.
England & Wales
England & Wales
England & Wales
England & Wales
England & Wales
Jersey
Jersey
Jersey
England & Wales
England & Wales
France
Italy
Italy
Italy
Italy
France
Italy
Netherlands
England & Wales
England & Wales
Poland
Italy
Italy
Italy
Italy
Italy
Italy
Italy
90
90
90
90
90
90
90
90
1 Ownership held in class A and B shares
2 Ownership held in class of ordinary and deferred shares
3 Ownership held in class of A shares
4 Ownership held in class of G shares, K shares, S shares and preference shares
5 Company in liquidation
Direct/
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Registered Office
Fichentraße 33, Düsseldorf 40233, Germany
Fichentraße 33, Düsseldorf 40233, Germany
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
35-37 avenue de la Liberté, L-1931 Luxembourg
35-37 avenue de la Liberté, L-1931 Luxembourg
35-37 avenue de la Liberté, L-1931 Luxembourg
Cunard House, 15 Regent Street, London SW1Y 4LR
c/o ECOVIS Austrail Wirtschaftsprüfungs, und
Steuerberatungsgesellschaft m.b.H., 1060 Wien,
Schmalzhofgasse 4, Austria
Cunard House, 15 Regent Street, London SW1Y 4LR
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Ogier House, The Esplanade, St Helier, JE4 9WG, Jersey
Ogier House, The Esplanade, St Helier, JE4 9WG, Jersey
Ogier House, The Esplanade, St Helier, JE4 9WG, Jersey
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
47 rue de Ponthieu, 75008 Paris, France
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
47 rue de Ponthieu, 75008 Paris, France
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Herengracht 289d, 1016 BL Amsterdam, Netherlands
Cunard House, 15 Regent Street, London SW1Y 4LR
Cunard House, 15 Regent Street, London SW1Y 4LR
Pl. Andersa 3, 61-894 Poznan´, Poland
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
Strada 3 Palazzo B3, 20090 Assago (Milano) Italy
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018 175
Pence per
share
19.9
556
537
4.3%
4.8%
4.0%
24.6%
22.1%
Total
£m
346.6
(56.1)
290.5
13.0
(40.6)
262.9
(64.9)
198.0
(5.0)
193.0
(0.2)
192.8
967.3
19.9
972.8
19.8
192.8
–
192.8
967.3
19.9
972.8
19.8
SUPPLEMENTARY NOTES NOT PART OF AUDITED FINANCIAL STATEMENTS
Table 1: EPRA performance measures summary
EPRA Earnings
EPRA NAV
EPRA NNNAV
EPRA net initial yield
EPRA topped-up net initial yield
EPRA vacancy rate
EPRA cost ratio (including vacant property costs)
EPRA cost ratio (excluding vacant property costs)
Table 2: Income Statement, proportionally consolidated
Gross rental income
Property operating expenses
Net rental income
Joint venture fee income1
Administration expenses
Adjusted operating profit before interest and tax
Net finance costs (including adjustments)
Adjusted profit before tax
Tax on adjusted profit
Adjusted earnings
Non-controlling interest on adjusted profit
Adjusted earnings after tax and non-controlling interests (A)
Number of shares
Adjusted EPS, pence per share
Number of shares
Adjusted EPS, pence per share – diluted
EPRA earnings
2018
2017
£m
184.7
6,620.3
6,557.7
Notes
Table 4
Table 3
12
Table 5
Table 5
Table 6
Table 7
Table 7
Pence per
share
18.3
650
644
3.9%
4.3%
5.2%
36.9%
35.3%
£m
192.8
5,607.7
5,416.0
2018
Joint
ventures
£m
75.5
(5.0)
70.5
(20.1)
(1.3)
49.1
(7.6)
41.5
(2.5)
39.0
–
39.0
Group
£m
297.7
(50.1)
247.6
44.9
(44.1)
248.4
(45.9)
202.5
(4.4)
198.1
(0.6)
197.5
Notes
2,7
2,7
2
2,7
2,7
2,7
2,7
12
12
12
2017
Joint
ventures
£m
73.7
(3.9)
69.8
(11.3)
(0.9)
57.6
(6.2)
51.4
(3.8)
47.6
–
47.6
Group
£m
272.9
(52.2)
220.7
24.3
(39.7)
205.3
(58.7)
146.6
(1.2)
145.4
(0.2)
145.2
145.2
–
145.2
47.6
–
47.6
Total
£m
373.2
(55.1)
318.1
24.8
(45.4)
297.5
(53.5)
244.0
(6.9)
237.1
(0.6)
236.5
1,008.6
23.4
1,014.4
23.3
236.5
(51.8)
184.7
1,008.6
18.3
1,014.4
18.2
Adjusted earnings after tax and non-controlling interests (A)
Pension buy-out costs
EPRA earnings after tax and non-controlling interests
2,18
197.5
(51.8)
145.7
39.0
–
39.0
Number of shares
EPRA EPS, pence per share
Number of shares
EPRA EPS, pence per share – diluted
1 Joint venture fee income includes the cost of such fees borne by the joint ventures which are shown in Note 7 within net rental income.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
176
SUPPLEMENTARY NOTES NOT PART OF AUDITED FINANCIAL STATEMENTS CONTINUED
Table 3: Balance Sheet, proportionally consolidated
Investment properties
Trading properties
Total properties
Investment in joint ventures
Other net liabilities
Net borrowings
Total shareholders’ equity1
EPRA adjustments
EPRA NAV
Number of shares, million
EPRA NAV, pence per share
1 After non-controlling interests.
Notes
13,7
13,7
7
2018
Joint
ventures
£m
Group
£m
Total
£m
Group
£m
2017
Joint
ventures
£m
Total
£m
7,801.4
1,566.9
9,368.3
6,745.4
1,280.2
8,025.6
51.7
2.4
54.1
12.5
0.6
13.1
7,853.1
1,569.3
9,422.4
6,757.9
1,280.8
8,038.7
999.9
(112.0)
(999.9)
(33.0)
–
(145.0)
16,7
(2,177.0)
(536.4)
(2,713.4)
6,564.0
–
6,564.0
12
12
12
12
56.3
6,620.3
1,018.7
650
792.0
(10.3)
(1,954.2)
5,585.4
(792.0)
(45.3)
(443.5)
–
–
(55.6)
(2,397.7)
5,585.4
22.3
5,607.7
1,007.7
556
Note: Loan to value of 28.8 per cent is calculated as net borrowings of £2,713.4 million divided by total properties £9,422.4 million (2017: 29.8
per cent; £2,397.7 million net borrowings; £8,038.7 million total properties).
Table 4: EPRA Earnings
Earnings per IFRS income statement
Adjustments to calculate EPRA Earnings, exclude:
Valuation surplus on investment properties
Profit on sale of investment properties
Loss on sale of trading properties
Valuation surplus on other investments
Tax on profits on disposals1
Goodwill and other amounts written off on acquisitions and amortisation of intangibles
Cost of early close out of bank debt
Net fair value loss on interest rate swaps and other derivatives
Deferred tax in respect of EPRA adjustments1
Adjustments to the share of profit from joint ventures after tax
Non-controlling interests in respect of the above
EPRA earnings
Basic number of shares
EPRA Earnings per Share (EPS)
Company specific adjustments:
Pension buy-out costs
Adjusted earnings
Adjusted EPS
Notes
8
8
8
8
2
9
9
2
7
2
2018
Group
£m
1,062.6
(791.4)
(56.5)
–
(4.7)
36.8
–
6.4
22.0
(8.2)
(85.2)
2.9
184.7
12
1,008.6
18
18.3
51.8
236.5
23.4
2017
Group
£m
952.7
(872.4)
(17.0)
0.4
–
0.3
0.6
145.3
21.5
18.5
(60.5)
3.4
192.8
967.3
19.9
–
192.8
19.9
1 Total tax charge in respect of adjustments per Note 2 of £28.6 million (2017: £18.8 million charge) comprises tax charge on profits on disposals of £36.8 million (2017: £0.3 million charge) and
deferred tax credit of £8.2 million (2017: £18.5 million charge).
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
177
SUPPLEMENTARY NOTES NOT PART OF AUDITED FINANCIAL STATEMENTS CONTINUED
Table 5: EPRA net initial yield and topped-up net initial yield
Combined property portfolio including joint ventures at share – 2018
Total properties per financial statements
Add valuation surplus not recognised on trading properties1
Combined property portfolio per external valuers’ reports
Less development properties (investment, trading and joint ventures)
Net valuation of completed properties
Add notional purchasers’ costs
Gross valuation of completed properties including notional purchasers’ costs
Income
Gross passing rent2
Less irrecoverable property costs
Net passing rent
Adjustment for notional rent in respect of rent frees
Topped up net rent
Including fixed/minimum uplifts4
Total topped up net rent
Yields – 2018
EPRA net initial yield3
EPRA topped-up net initial yield3
Net true equivalent yield
UK
£m
Continental
Europe
£m
Total
£m
6,363.8
3,058.6
9,422.4
Notes
Table 3
2.2
6,366.0
(592.2)
5,773.8
390.6
6,164.4
0.9
3,059.5
(483.9)
2,575.6
141.0
2,716.6
3.1
9,425.5
(1,076.1)
8,349.4
531.6
8,881.0
£m
£m
£m
224.4
(2.9)
221.5
11.8
233.3
9.7
243.0
UK
%
3.6
3.8
4.8
131.0
(6.5)
124.5
24.4
148.9
1.0
149.9
Continental
Europe
%
4.6
5.5
5.9
355.4
(9.4)
346.0
36.2
382.2
10.7
392.9
Total
%
3.9
4.3
5.1
A
B
C
B/A
C/A
1 Trading properties are recorded in the Financial Statements at the lower of cost and net realisable value, therefore valuations above cost have not been recognised.
2 Gross passing rent excludes short-term lettings and licences.
3 In accordance with the Best Practices Recommendations of EPRA.
4 Certain leases contain clauses which guarantee future rental increases, whereas most leases contain five yearly, upwards only rent review clauses (UK) or indexation clauses (Continental Europe).
Table 6: EPRA vacancy rate
Annualised potential rental value of vacant premises
Annualised potential rental value for the completed property portfolio
EPRA vacancy rate
2018
£m
23.1
441.3
5.2%
2017
£m
16.0
401.2
4.0%
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
178
SUPPLEMENTARY NOTES NOT PART OF AUDITED FINANCIAL STATEMENTS CONTINUED
Table 7: Total cost ratio/EPRA cost ratio
Total cost ratio
Costs
Property operating expenses1
Administration expenses
Share of joint venture property operating and administration expenses2
Less:
Joint venture property management fee income, management fees and other costs recovered through
rents but not separately invoiced3
Total costs (A)
Gross rental income
Gross rental income
Share of joint venture property gross rental income
Less:
Management fees and other costs recovered through rents but not separately invoiced³
Total gross rental income (B)
Total cost ratio (A)/(B)
Total costs (A)
Share based payments
Total costs after share based payments (C)
Total cost ratio after share based payments (C)/(B)
EPRA cost ratio
Total costs (A)
Pension buy-out costs
EPRA total costs including vacant property costs (D)
Group vacant property costs
Share of joint venture vacant property costs
EPRA total costs excluding vacant property costs (E)
Total gross rental income (B)
Total EPRA cost ratio (including vacant property costs) (D)/(B)
Total EPRA cost ratio (excluding vacant property costs) (E)/(B)
Notes
5
6
7
4
7
6
18
5
7
2018
£m
50.1
44.1
13.3
(23.0)
84.5
297.7
75.5
(4.3)
368.9
22.9%
84.5
(11.1)
73.4
19.9%
84.5
51.8
136.3
(5.1)
(0.9)
130.3
368.9
36.9%
35.3%
2017
£m
52.2
39.7
11.8
(19.1)
84.6
272.9
73.7
(2.3)
344.3
24.6%
84.6
(10.0)
74.6
21.7%
84.6
–
84.6
(7.6)
(0.9)
76.1
344.3
24.6%
22.1%
1 Property operating expenses are net of costs capitalised in accordance with IFRS of £4.6 million (2017: £4.2 million) (see Note 5 for further detail on the nature of costs capitalised).
2 Share of joint venture property operating and administration expenses after deducting costs related to performance and other fees.
3 Includes joint venture management fees income of £18.7 million (2017: £16.8 million) and management fees and other costs recovered through rents but not separately invoiced, including joint
ventures, of £4.3 million (2017: £2.3 million). These items have been represented as an offset against costs rather than a component of income in accordance with EPRA BPR Guidelines as they are
reimbursing the Group for costs incurred.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018 179
SUPPLEMENTARY NOTES NOT PART OF AUDITED FINANCIAL STATEMENTS CONTINUED
Table 8: EPRA capital expenditure analysis
Acquisitions
Development4
Completed properties
Other5
Total
Wholly
owned
£m
193.7¹
482.3²
23.9³
16.6
2018
Joint
ventures
£m
162.0
65.9
6.4
6.2
716.5
240.5
Total
£m
355.7
548.2
30.3
22.8
957.0
Wholly
owned
£m
1,212.2
368.3
19.7
16.7
2017
Joint
ventures
£m
82.2
45.8
4.6
4.7
Total
£m
1,294.4
414.1
24.3
21.4
1,616.9
137.3
1,754.2
1 Being £193.7 million investment property and £nil trading property (2017: £1,212.2 million and (including £1,112.6 million in respect of the APP property portfolio) £nil respectively) see Note 13.
2 Being £461.8 million investment property and £20.5 million trading property (2017: £367.8 million and £0.5 million respectively) see Note 13.
3 Being £23.9 million investment property and £nil million trading property (2017: £19.7 million and £nil respectively) see Note 13.
4 Includes wholly-owned capitalised interest of £9.2 million (2017: £6.6 million) as further analysed in Note 9 and share of joint venture capitalised interest of £0.8 million (2017: £0.8 million).
5 Tenant incentives, letting fees and rental guarantees.
Table 9: Like-for-like net rental income
(including JVs at share)
UK
Continental Europe
Like-for-like net rental income
Other1
Like-for-like net rental income (after other)
Development lettings
Properties taken back for development
Like-for-like net rental income plus developments
Properties acquired
Properties sold
Net rental income before surrenders, dilapidations and exchange
Lease surrender premiums and dilapidation income
Other items and rent lost from lease surrenders
Impact of exchange rate difference between periods
Net rental income (including joint ventures at share)
SEGRO share of joint venture management fees
SEGRO share of joint venture performance fees
Net rental income after SEGRO share of joint venture fees
Change
%
4.1
1.0
3.1
2.8
2018
£m
171.3
78.4
249.7
(5.7)
244.0
28.4
0.1
272.5
30.4
7.3
310.2
1.2
6.7
–
318.1
(7.0)
(13.1)
298.0
2017
£m
164.5
77.6
242.1
(4.8)
237.3
8.3
1.0
246.6
17.2
22.8
286.6
1.3
3.4
(0.8)
290.5
(7.0)
(4.3)
279.2
1 Other includes the corporate centre and other costs relating to the operational business which are not specifically allocated to a geographical business unit.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 180
SUPPLEMENTARY NOTES NOT PART OF AUDITED FINANCIAL STATEMENTS CONTINUED
Table 10: Top 10 estates as at 31 December 2018 (by value, including joint ventures at share)
Ownership
Location
Lettable area
(100%) sq m
Headline
rent
£m
Vacancy by
ERV %
WAULT
years1
Asset
type
UK
Slough Trading Estate
Shoreham Rd Cargo Area
SLP East Midlands Gateway
Premier Park
Greenford Park
North Feltham Trading Estate
Axis Park
Metropolitan Park
Rugby Gateway
BA World Cargo Centre
Continental Europe
100
100
100
100
100
100
100
100
100
100
Slough
Heathrow
Midlands
Park Royal
Park Royal
Heathrow
Heathrow
Park Royal
Midlands
Heathrow
510,818
86,035
n/a
78,428
79,509
65,980
61,753
69,975
113,413
67.8
10.8
n/a
10.8
10.0
7.9
8.1
7.1
8.5
n/a
Conf.²
VAILOG CSG Logistics Park
SEGRO Logistics Park Krefeld-Süd
50/100
Italy
50
Germany
217,298
191,644
SEGRO Airport Park Berlin
SEGRO Park Düsseldorf-Sud
SEGRO Park Gennevilliers
SEGRO Logistics Park Stryków
SEGRO Logistics Park Aulnay
SEGRO Logistics Park Prague
SEGRO Business Park Gliwice
Verona DC1
50/100
Germany
107,085
100
100
50
100
50
50
100
Germany
France
Poland
France
Czech
Republic
Poland
Italy
79,921
75,232
282,818
37,704
169,287
237,847
n/a
5.3
4.9
4.1
5.2
5.5
5.2
3.5
4.0
4.8
n/a
1 Weighted average unexpired lease term to earlier of break of expiry.
2 Confidential.
2.3
0.0
n/a
0.0
2.0
11.9
0.0
6.2
0.0
0.0
0.3
0.0
10.6
0.0
0.0
3.7
0.0
3.2
8.5
n/a
8.7
4.5
n/a
4.6
6.2
4.7
9.1
2.8
9.9
Multi-let urban warehouse estate
Multi-let cargo facility
Development site
Multi-let urban warehouse estate
Multi-let urban warehouse estate
Multi-let urban warehouse estate
Multi-let urban warehouse estate
Multi-let urban warehouse estate
Big box warehouse park
32.3
Single-let cargo facility
8.0
5.9
5.9
7.0
7.6
4.5
9.5
4.0
4.5
n/a
Big box warehouse park
Big box warehouse park
Multi-let urban warehouse estate
and big box estate
Multi-let urban warehouse estate
Multi-let urban warehouse estate
Big box warehouse park
Big box warehouse park
Big box warehouse park
Big box warehouse park
Development site
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FINANCIAL STATEMENTSNOTES TO THE FINANCIAL STATEMENTS CONTINUEDFOR THE YEAR ENDED 31 DECEMBER 2018
181
FIVE-YEAR FINANCIAL RESULTS
Group Income Statement
Net rental income
Joint venture fee income
Administration expenses
Share of joint ventures’ Adjusted profit after tax
Net finance costs (including adjustments)
Adjusted profit before tax1
Adjustments to the share of profit from joint ventures after tax
Profit on sale of investment properties
Valuation surplus on investment and owner occupied properties
(Loss)/profit on sale of trading properties
Increase in provision for impairment of trading properties
Other investment income
Goodwill and other amounts written off on acquisitions and amortisation of intangibles
Net fair value (loss)/gain on interest rate swaps and other derivatives
Net loss on early close out of debt
Pension buy-out costs
Profit before tax
Group Balance Sheet
Investment properties (including assets held for sale)
Trading properties
Total directly owned properties
Plant and equipment
Investments in joint ventures
Other assets
Cash and cash equivalents
Total assets
Borrowings
Deferred tax provision
Other liabilities and non-controlling interests
Total equity attributable to owners of the parent
Total movement in equity attributable to owners of the parent
Profit attributable to equity shareholders
Other equity movements
Data per ordinary share (pence)
Earnings per share
Basic earnings per share2
Adjusted earnings per share – basic2
Net assets per share basic
Basic net assets per share2
EPRA NAV per share – diluted2
Dividend per share2
2018
£m
2017
£m
2016
£m
2015
£m
2014
£m
247.6
44.9
(44.1)
39.0
(45.9)
241.5
85.2
56.5
791.4
–
–
4.7
–
(22.0)
(6.4)
(51.8)
1,099.1
7,801.4
51.7
7,853.1
13.3
999.9
235.8
66.5
220.7
24.3
(39.7)
47.6
(58.7)
194.2
60.5
17.0
872.4
(0.4)
–
–
(0.6)
(21.5)
(145.3)
–
976.3
6,745.4
12.5
6,757.9
14.7
792.0
261.2
109.3
9,168.6
7,935.1
(2,243.5)
(2,063.5)
(26.9)
(334.2)
(34.6)
(251.6)
180.6
18.6
(31.4)
55.4
(68.7)
154.5
29.7
16.4
231.3
0.3
(2.0)
–
(0.2)
(2.6)
(1.0)
–
426.4
4,714.4
25.4
4,739.8
16.1
1,066.2
254.6
32.0
6,108.7
(1,630.4)
(16.3)
(279.9)
173.0
17.0
(28.5)
44.4
(67.3)
138.6
112.1
23.0
439.8
(0.1)
(1.2)
6.6
(3.8)
(23.7)
–
(4.8)
686.5
4,424.0
37.6
4,461.6
16.4
867.3
202.8
16.4
5,564.5
(1,822.9)
(12.6)
(239.1)
174.6
11.8
(28.3)
46.3
(74.7)
129.7
105.1
25.0
385.6
(0.3)
(1.7)
1.9
(0.2)
10.9
(1.6)
–
654.4
3,477.0
77.8
3,554.8
6.6
855.5
372.9
23.8
4,813.6
(1,703.0)
(10.3)
(211.5)
6,564.0
5,585.4
4,182.1
3,489.9
2,888.8
1,062.6
(84.0)
978.6
952.7
450.6
1,403.3
105.4
23.4
648
650
18.8
98.5
19.9
557
556
16.6
417.7
274.5
692.2
51.6
18.8
483
478
15.7
682.5
(81.4)
601.1
682.0
(137.9)
544.1
87.7
17.6
447
443
14.9
88.0
16.4
373
367
14.4
1 There are no differences between the Adjusted profit before tax and the previously reported EPRA profit before tax for the years 2014, 2016 and 2017.
2 Earnings per share and net assets per share for 2016 and earlier have been re-presented for a bonus factor of 1.046.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS
182
FURTHER INFORMATION
FINANCIAL INFORMATION
FINANCIAL CALENDAR AND SHAREHOLDER INFORMATION
FEBRUARY 2019
Announcement of year end results:
Payment:
MARCH 2019
Payment:
Ex-dividend date for final dividend:
Record date:
APRIL 2019
Final date for SCRIP election:
Annual General Meeting:
MAY 2019
Payment:
Payment:
JUNE 2019
Payment:
JULY 2019
Announcement of Half year results:
AUGUST 2019
Payment:
SEPTEMBER 2019
Payment:
OCTOBER 2019
Payment:
Payment:
Payment:
NOVEMBER 2019
Payment:
DECEMBER 2019
Payment:
ANALYSIS OF SHAREHOLDERS – 31 DECEMBER 2018
Shareholder analysis
Range
1–1,000
1,001–10,000
10,001–100,000
100,001–1,000,000
1,000,001+
Totals
Category analysis
Category
Individual (certificated)
Individual (uncertificated)
Nominee and Institutional Investors
Totals
6¾ per cent bonds 2024 interest
7 per cent bonds 2022 interest
Property Income Distribution
Property Income Distribution
Property Income Distribution
Property Income Distribution
6¾ per cent 2021 interest
5¾ per cent bonds 2035 interest
6¾ per cent bonds 2024 interest
7 per cent bonds 2022 interest
Property Income Distribution and/or Dividend
23/8 per cent bonds 2029 interest
27/8 per cent bonds 2037 interest
6¾ per cent bonds 2021 interest
55/8 per cent bonds 2020 interest
15 February
25 February
14 March
21 March
22 March
9 April
18 April
2 May
23 May
20 June
23 July
23 August
16 September
October
11 October
11 October
25 November
9 December
Holders
4,147
1,871
558
343
155
7,074
Holders
5,135
93
1,846
7,074
%
of holders
58.62
26.45
7.89
4.85
2.19
Shares
985,431
6,078,937
20,525,490
120,645,512
865,267,392
100.00
1,013,502,762
%
of holders
72.59
1.31
Shares
9,996,758
400,166
26.10
1,003,105,838
100.00
1,013,502,762
%
of shares
0.10
0.60
2.03
11.90
85.37
100.00
%
of shares
0.99
0.04
98.97
100.00
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FURTHER INFORMATIONFINANCIAL INFORMATION
183
SHAREHOLDER INFORMATION
Share history of the Company
£ On 20 August 2007, the ordinary share capital was consolidated
on the basis of 12 new ordinary shares of 271/12 pence for every
13 ordinary shares of 25 pence held on the 17 August 2007.
A special dividend of 53 pence per share was paid in connection
with the consolidation on 31 August 2007.
£ On 4 March 2009, a rights issue was announced on the basis of
12 new ordinary shares for every existing share held on 17 March
2009 at a subscription price of 10 pence per share. Each 271/12
pence ordinary share in issue was sub-divided and re-classified into
one ordinary share of one pence each and one deferred share of
261/12 pence each. The deferred shares were created for technical
reasons in order to maintain the aggregate nominal value of the
Company’s share capital upon sub-division of its ordinary shares.
The very limited rights attached to the deferred shares rendered
them effectively valueless and they were cancelled on 8 May 2009.
£ In relation to the acquisition of Brixton plc, on 24 August 2009,
SEGRO plc undertook a share consolidation, open offer and private
placing. On 31 July 2009, every 10 ordinary shares of one pence
each were consolidated into one ordinary share of 10 pence each
and, 0.10484 open offer shares of 10 pence each were offered to
every shareholder of SEGRO plc who, on 13 July 2009, held 10
ordinary shares of one pence each. The acquisition of Brixton was
conducted by a scheme of arrangement. Brixton shareholders were
offered 0.175 consideration shares of 10 pence each in SEGRO plc
for each Brixton share held.
£ On 2 September 2016, the Company placed 74,770,950 new
ordinary shares at a price of 435 pence by way of an equity placing.
The shares were issued and admitted to the Official List of the
Financial Conduct Authority and to trading on the main market for
listed securities of the London Stock Exchange plc on 6 September
2016. Total gross proceeds of approximately £325 million were
raised from the placing.
£ On 10 March 2017, a Rights Issue was announced on the basis
of one new share for every five shares held on 8 March 2017 at
a subscription price of 345 pence per share. 166,033,133 new
ordinary shares were issued and admitted to the Official List of the
Financial Conduct Authority and to trading on the main market for
listed securities of the London Stock Exchange plc on 28 March
2017. Total gross proceedings of approximately £573 million were
raised from the Rights Issue.
Shareholder enquiries
If you have any questions about your shareholding or if you require
further guidance (e.g. to notify a change of address) please contact our
Registrar, Equiniti Limited, Aspect House, Spencer Road, Lancing, West
Sussex BN99 6DA, telephone +44 (0)371 384 2186. Alternatively,
you can check your shareholding and access dividend information by
registering at www.shareview.co.uk, or you can securely send queries
via the website by visiting https://help.shareview.co.uk.
Electronic communications
Shareholders have the opportunity to elect to receive shareholder
communications electronically, e.g. Annual Reports, Notice of the
Annual General Meeting and Proxy Forms. You can elect to receive
email notifications of shareholder communications by registering at
www.shareview.co.uk where you can also set up a bank mandate to
receive dividends directly to your bank account and to submit proxy votes
for shareholder meetings. Receiving the Company’s communications
electronically allows the Company to communicate with its shareholders
in a more environmentally friendly, cost effective and timely manner.
AGM
The 2019 AGM will be held on 18 April 2019 at RSA House,
8 John Adam Street, London WC2N 6EZ.
ShareGift
ShareGift is a charity (registered under the name The Orr Mackintosh
Foundation, registered charity number 1052686) which specialises in
accepting donations of small numbers of shares which are uneconomic
to sell on their own. Shares which have been donated to ShareGift are
aggregated and sold when practicable, with the proceeds passed on to a
wide range of UK charities. ShareGift can also help with larger donations
of shares. Further details about ShareGift can be obtained from its
website at www.sharegift.org or by writing to ShareGift at 17 Carlton
House Terrace, London, SW1Y 5AH, telephone: +44 (0)207 930 3737.
Dividends
A requirement of the REIT regime is that a REIT must distribute to
shareholders by way of dividend at least 90 per cent of its profits from
its tax-exempt UK property rental business (calculated under UK tax
principles after the deduction of interest and capital allowances and
excluding chargeable gains). Such distributions are referred to as
Property Income Distributions, or PIDs. Any further distributions may
be paid as ordinary dividends, which are derived from profits earned
by its UK, non-REIT taxable business, as well as its overseas operations.
Withholding tax – PIDs
SEGRO is required to withhold tax at source from its PIDs at the basic
tax rate (20 per cent). UK shareholders need take no immediate action
(unless they qualify for exemption as described below) and will receive
with each dividend payment a tax deduction certificate stating the
amount of tax deducted.
UK shareholders who fall into one of the classes of shareholder
able to claim an exemption from withholding tax may be able to
receive a gross PID payment if they have submitted a valid relevant
Exemption Declaration form, either as a beneficial owner of the
shares, or as an intermediary if the shares are not registered in the
name of the beneficial owner, to Equiniti. The Exemption Declaration
form is available at www.SEGRO.com under Investors/Shareholder
Information/REIT. A valid declaration form, once submitted, will
continue to apply to future payments of PIDs until rescinded, and so it
is a shareholder’s responsibility to notify SEGRO if their circumstances
change and they are no longer able to claim an exemption from
withholding tax.
Shareholders resident outside the UK may be able to claim a full or
partial refund of withholding tax (either as an individual or as a company)
from HMRC, subject to the terms of a double tax treaty, if any, between
the UK and the country in which the shareholder is resident.
Ordinary dividends
Ordinary, non-PID dividends will be treated in exactly the same way by
shareholders as ordinary dividends paid before the Company became
a REIT. From 6 April 2016 the notional 10 per cent tax credit has been
abolished and replaced with a tax free dividend allowance, which will
apply to the ordinary, non-PID dividends received by UK resident
shareholders who are subject to UK income tax. This allowance does
not apply to the PID element of dividends. Further information is
available from HMRC at https://www.gov.uk/government/publications/
income-tax-dividend-allowance-reduction.
SCRIP Dividend
Shareholders approved the re-introduction of a scrip dividend option
(SCRIP) in respect of cash dividends (including those treated as
Property Income Distributions) at the 2018 AGM.
Subject to the Board deciding to offer a SCRIP, the SCRIP runs for
three years ending on the earlier of 18 April 2021 and the 2021 AGM.
It allows shareholders who elect to receive the SCRIP, to take their final
and interim dividends in shares rather than cash. Details of the SCRIP
together with information on how shareholders can elect to receive it
are available on the Company's website www.SEGRO.com.
OVERVIEWSTRATEGIC REPORTGOVERNANCEFINANCIAL STATEMENTS 184
GLOSSARY OF TERMS
APP: Airport Property Partnership, formerly a 50-50 joint venture
between SEGRO and Aviva Investors, which was dissolved in 2017
when SEGRO acquired Aviva’s 50 per cent interest in the portfolio.
Completed portfolio: The completed investment properties and the
Group’s share of joint ventures’ completed investment properties.
Includes properties held throughout the period, completed
developments and properties acquired during the period.
Development pipeline: The Group’s current programme of
developments authorised or in the course of construction at the
Balance Sheet date (Current Pipeline), together with potential schemes
not yet commenced on land owned or controlled by the Group
(Future Pipeline).
EPRA: The European Public Real Estate Association, a real estate
industry body, which has issued Best Practices Recommendations in
order to provide consistency and transparency in real estate reporting
across Europe.
Estimated cost to completion: Costs still to be expended on a
development or redevelopment to practical completion, including
attributable interest.
Estimated rental value (ERV): The estimated annual market rental value
of lettable space as determined biannually by the Group’s valuers.
This will normally be different from the rent being paid.
Gearing: Net borrowings divided by total shareholders’ equity
excluding intangible assets and deferred tax provisions.
Gross rental income: Contracted rental income recognised in the
period in the Income Statement, including surrender premiums.
Lease incentives, initial costs and any contracted future rental increases
are amortised on a straight-line basis over the lease term.
Headline rent: The annual rental income currently receivable on a
property as at the Balance Sheet date (which may be more or less than
the ERV) ignoring any rent-free period.
Hectares (Ha): The area of land measurement used in this analysis.
The conversion factor used, where appropriate, is 1 hectare = 2.471 acres.
IFRS: International Financial Reporting Standards, the standards under
which SEGRO reports its financial accounts.
Investment property: Completed land and buildings held for rental
income return and/or capital appreciation.
Joint venture: An entity in which the Group holds an interest and
which is jointly controlled by the Group and one or more partners
under a contractual arrangement whereby decisions on financial and
operating policies essential to the operation, performance and financial
position of the venture require each partner’s consent.
Loan to value (LTV): Net borrowings divided by the carrying value of
total property assets (investment, owner occupied, trading properties
and, if appropriate, assets held for sale on the balance sheet). This is
reported on a ‘look-through’ basis (including joint ventures at share).
MSCI: MSCI Real Estate calculates the IPD indices of real estate
performance around the world.
Net initial yield: Passing rent less non-recoverable property expenses
such as empty rates, divided by the property valuation plus
notional purchasers’ costs. This is in accordance with EPRA’s Best
Practices Recommendations.
Net rental income: Gross rental income less ground rents paid, net
service charge expenses and property operating expenses.
Net true equivalent yield: The internal rate of return from an
investment property, based on the value of the property assuming
the current passing rent reverts to ERV and assuming the property
becomes fully occupied over time. It assumes that rent is received
quarterly in advance.
Passing rent: The annual rental income currently receivable on a
property as at the Balance Sheet date (which may be more or less
than the ERV). Excludes rental income where a rent free period is in
operation. Excludes service charge income (which is netted off against
service charge expenses).
Pre-let: A lease signed with an occupier prior to commencing
construction of a building.
REIT: A qualifying entity which has elected to be treated as a Real
Estate Investment Trust for tax purposes. In the UK, such entities must
be listed on a recognised stock exchange, must be predominantly
engaged in property investment activities and must meet certain
ongoing qualifications. SEGRO plc and its UK subsidiaries achieved
REIT status with effect from 1 January 2007.
Rent-free period: An incentive provided usually at commencement of a
lease during which a customer pays no rent. The amount of rent free is
the difference between passing rent and headline rent.
Rent roll: See Passing Rent.
SELP: SEGRO European Logistics Partnership, a 50-50 joint venture
between SEGRO and the Public Sector Pension Investment Board
(PSP Investments) established in 2013 to own big box warehouses in
Continental Europe.
SIIC: Sociétés d’investissements Immobiliers Cotées are the French
equivalent of UK Real Estate Investment Trusts (see REIT).
Speculative development: Where a development has commenced prior
to a lease agreement being signed in relation to that development.
SPPICAV: Société de Placement à Prépondérance Immobilière à Capital
Variable is a French equivalent of UK Real Estate Investment Trusts
(see REIT).
Square metres (sq m): The area of buildings measurements used in this
analysis. The conversion factor used, where appropriate, is one square
metre = 10.7639 square feet.
Takeback: Rental income lost due to lease expiry, exercise of break
option, surrender or insolvency.
Topped up net initial yield: Net initial yield adjusted to include notional
rent in respect of let properties which are subject to a rent free
period at the valuation date. This is in accordance with EPRA’s Best
Practices Recommendations.
Total property return (TPR): A measure of the ungeared return for
the portfolio and is calculated as the change in capital value, less
any capital expenditure incurred, plus net income, expressed as
a percentage of capital employed over the period concerned, as
calculated by MSCI Real Estate and excluding land.
Total shareholder return (TSR): A measure of return based upon
share price movement over the period and assuming reinvestment
of dividends.
Trading property: Property being developed for sale or one which is
being held for sale after development is complete.
Yield on cost: The expected gross yield based on the estimated
current market rental value (ERV) of the developments when fully
let, divided by the book value of the developments at the earlier of
commencement of the development or the balance sheet date plus
future development costs and estimated finance costs to completion.
Yield on new money: The yield on cost excluding the book value of
land if the land is owned by the Group in the reporting period prior to
commencement of the development.
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2018FURTHER INFORMATION GO ONLINE
To keep up to date with SEGRO, you can source facts and figures about the Group through
the various sections on our website and sign up for email alerts for fast communication
of breaking news.
Financial reports, shareholder information and property analysis are frequently updated and our
current share price is always displayed on the Home Page.
As well as featuring detailed information about available property throughout the portfolio,
www.SEGRO.com now also includes a dedicated property search function making it easy for
potential customers, or their agents, to find business space that fits their requirement exactly.
SEGRO’s performance in areas such as sustainability and customer care are also featured on the
site, www.SEGRO.com.
OTHER PUBLICATIONS
Additional disclosures on our property portfolio can be found in the 2018 Property Analysis
Report at www.SEGRO.com.
Our CSR policies, reporting guidelines, assurance statements and further case studies can be
found at www.SEGRO.com/csr.
REGISTERED OFFICE
S EG RO PLC
CUNARD HOUSE
15 REGENT STREET
LONDON SW1Y 4LR
REGISTERED IN ENGLAND AND WALES
REGISTERED NUMBER 167591
The printer and paper mill are both accredited
with ISO14001 Environmental Management
System and are both Forest Stewardship
Council® certified.
CPI Colour is a Carbon Neutral
printing company.
Designed and produced by www.ry.com
FORWARD-LOOKING STATEMENTS
The Annual Report contains certain forward-looking statements
with respect to SEGRO’s expectations and plans, strategy,
management objectives, future developments and performances,
costs, revenues and other trend information. These statements
are subject to assumptions, risks and uncertainties. Many of these
assumptions, risks and uncertainties relate to factors that are
beyond SEGRO’s ability to control or estimate precisely and which
could cause actual results or developments to differ materially
from those expressed or implied by these forward-looking
statements. Certain statements have been made with reference
to forecast process changes, economic conditions and the current
regulatory environment. Any forward-looking statements made
by or on behalf of SEGRO are based upon the knowledge and
information available to Directors on the date of this Annual
Report. Accordingly, no assurance can be given that any particular
expectation will be met and SEGRO’s shareholders are cautioned
not to place undue reliance on the forward-looking statements.
Additionally, forward-looking statements regarding past trends or
activities should not be taken as a representation that such trends
or activities will continue in the future. Other than in accordance
with its legal or regulatory obligations (including under the UK
Listing Rules and the Disclosure Guidance and Transparency Rules
of the Financial Conduct Authority), SEGRO does not undertake to
update forward-looking statements to reflect any changes in events,
conditions or circumstances on which any such statement is based.
Past share performance cannot be relied on as a guide to future
performance. Nothing in this Annual Report should be construed
as a profit forecast. The information in this Annual Report does
not constitute an offer to sell or an invitation to buy securities in
SEGRO plc or an invitation or inducement to engage in any other
investment activities.
S EG RO PLC
CUNARD HOUSE
15 REGENT STREET
LONDON SW1Y 4LR
T +44(0)20 7451 9100
F +44(0)20 7451 9150
WWW.SEGRO.COM/INVESTORS