S EG RO PLC
ANNUAL REPORT
& ACCOUNTS 2019
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
CONTENTS
SEGRO is a UK Real Estate Investment Trust
(REIT), and a leading owner, asset manager
and developer of modern warehousing and
industrial property.
MARKET OVERVIEW
SEE PAGES 16–19
CHIEF EXECUTIVE’S STATEMENT
SEE PAGES 12–15
REGIONAL REVIEWS
SEE PAGES 30–33
OUR STR ATEGY
SEE PAGES 22–33
OUR
GOAL
DISCIPLINED
CAPITAL
ALLOCATION
OPERATIONAL
EXCELLENCE
EFFICIENT CAPITAL AND
CORPORATE STRUCTURE
02 – 11
OVERVIEW
WHAT WE DO
WHERE WE DO IT
12 – 72
STR ATEGIC REPORT
CHIEF EXECUTIVE’S STATEMENT
MARKET OVERVIEW
OUR BUSINESS MODEL
OUR STR ATEGY
SECTION 172 STATEMENT
REGIONAL REVIEW
FINANCE REVIEW
KEY PERFORMANCE INDICATORS
RESPONSIBLE SEGRO
PRINCIPAL RISKS
FOR MORE INFORMATION ON SEGRO’S ACTIVITIES
AND PERFORMANCE, PLE ASE VISIT OUR WEBSITE:
W W W.SEGRO.COM/INVESTORS
RESPONSIBLE SEGRO
SEE PAGES 42–64
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The Directors present the Annual Report for the year ended
31 December 2019 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 12 to 72 inclusive, comprise
the Strategic Report, pages 124 to 125 inclusive comprise the
Directors’ Report and pages 97 to 117 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.
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HEALTH & S A F
DERS
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30
34
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42
65
73 – 126
GOVERNANCE
BOARD OF DIRECTORS
CHAIR’S INTRODUCTION
BOARD LEADERSHIP AND
COMPANY PURPOSE
DIVISION OF RESPONSIBILITIES
COMPOSITION, SUCCESSION
AND EVALUATION
AUDIT, RISK AND INTERNAL CONTROLS
DIRECTORS’ REMUNER ATION REPORT
DIRECTORS’ REMUNER ATION POLICY
DIRECTORS’ REPORT
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
127 – 199
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
74
76
78
84
88
92
97
118
124
126
128
135
135
136
137
139
NOTES TO THE FINANCIAL STATEMENTS
140
FIVE-YEAR FINANCIAL RESULTS
199
200 – 202
FURTHER INFORMATION
FINANCIAL INFORMATION
SHAREHOLDER INFORMATION
GLOSSARY OF TERMS
200
201
202
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
01
OUR RICH HISTORY
We have included a number of
interesting stories throughout this
report that have helped shape
SEGRO over the years.
FOR MORE INFORMATION, PLE ASE VISIT:
W W W.SEGRO.COM/ABOUT-US/2020
INVESTING in high quality,
sustainable buildings in prime
locations since 1920.
ENABLING extraordinary things
to happen by supporting the
needs of our customers.
INNOVATING by anticipating
trends and constantly adapting
our business and the design of
our buildings.
CARING about our people,
communities, environment
and stakeholders.
RE AD MORE ABOUT WHAT’S
BEHIND OUR STR ATEGY ON
PAGES 22–23
02
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
CREATING EXTR AORDINARY SPACE
The Slough Trading Estate is
now the second largest hub
of data centres in the world.”
PAUL LEWIS
REGIONAL DIRECTOR, THAMES VALLEY
& DATA CENTRES
ENABLING
1932
THE MARS COMPANY
The common understanding of a warehouse,
‘a large building for storing things before they
are sold, used or sent out to shops’1, is far
from an accurate description of what really
happens inside our buildings.
on the edges of cities) combined with the
automation of internal processes, has made
it possible for items ordered online to be
delivered the following day or in some cases
within hours.
In 1932 Frank Mars gave his son Forrest
the money to set up his own chocolate
business in the UK. Forrest ended up in
Slough and rented a unit on the Slough
Trading Estate, where he invented the
Mars Bar.
Almost 90 years later Mars Bars are still
being produced on the estate, with more
than 2.5 million bars being made each day
and distributed across Europe.
It’s also now home to a research and
development facility, designing the
chocolate bars of the future.
FOR MORE INFORMATION, PLE ASE VISIT:
W W W.SEGRO.COM/ABOUT-US/2020
The expansion of the cloud and the ability
to access information on-the-go has been
facilitated by the growth of data centres - huge
warehouses full of hard drives that store this
information. The Slough Trading Estate is now
home to 27 data centres and is the second
largest hub in the world.
Our warehouses are also home to businesses
from the food and beverage industry. In Paris,
Agricool grow strawberries using a method
that requires 90 per cent less water and
nutrients in a building within SEGRO Park La
Courneuve and lots of the food consumed
in London’s hotels, restaurants and high
street food chains was either produced
in or travelled through our Park Royal
estates. Navigation Park, one of our North
London estates, is even home to Camden
Town Brewery.
Warehouses come in lots of different sizes
and hiding behind the deceptively simple
exterior, is a fascinating array of businesses
that use our space to assemble, design, create,
research, distribute, construct and undertake
a wide variety of other activities, as well as
the more traditional functions of storage
and manufacturing.
Warehouses are very adaptable spaces and
our customers fit them out with mezzanine
levels, workshops, increasingly high-tech
production and distribution lines, showrooms,
kitchens and even research laboratories.
Essentially, if something doesn’t happen in an
office building or outside it probably happens
inside a warehouse.
More than half of our rent comes from
businesses linked to e-commerce (including
third party logistics operators and parcel
delivery companies). The development of hub
and spoke networks (large central warehouses,
complemented by smaller distribution centres
1 Cambridge dictionary definition
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
03
AGRICOOL – A NEW WAY TO GROW FOOD
Two French farmers sons spent time researching and
developing a new way to grow food. In their new
space at SEGRO Business Park La Courneuve in Paris,
they are growing food more productively, using 90%
less water and nutrients, consuming only renewable
energy and produced 100% locally.
INCREASE IN FOOD
GROWING PRODUCTIVITY
120x
REDUCTION IN WATER AND
NUTRIENT CONSUMPTION
-90%
2020
RESEARCH & DEVELOPMENT
A number of our warehouses are used for
cutting edge research and development, the
findings of which could have a meaningful
impact on our future. In one of our
warehouses close to Schiphol airport, Kite
Pharma have installed scientific laboratories in
which they are working on immunotherapy
treatment. Their technology takes a cancer
patient’s blood and genetically modifies
some of the cells before reintroducing it
back into the bloodstream where it will
identify and attack cancerous cells, hopefully
curing the patient of the disease without the
need for chemotherapy and other chemical
based treatments.
General manufacturing is also still regularly
carried out in our buildings. Brompton have
their headquarters, a manufacturing facility
and their flagship store in our Greenford
estate, exporting their iconic folding bikes
from London to all over the world. And in
Germany, LUSH manufacture their handmade
sustainable cosmetics in SEGRO Park
Düsseldorf Süd.
Beyond this our warehouses are homes to
businesses involved in film and media, yacht
design and construction, leisure activities
(such as climbing walls and trampoline parks)
and a huge number of other industries.
When brilliant businesses find outstanding
spaces, extraordinary things happen.
04
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
CREATING EXTR AORDINARY SPACE
SEGRO PARK R AINHAM PHASE 2
This new development will feature some of the most
cutting-edge innovations in warehouse design.
INNOVATING
COMMUNAL
GREEN SPACE
GREEN/LIVING
WALL
TESLA
BATTERIES
Providing seating and a
place to unwind.
Improving air quality and
energy levels.
Storing generated
electricity for use during
off-peak hours.
1920-25
THE SLOUGH TR ADING COMPANY LTD
The Slough Trading Estate was formed
after WW1 when our founders purchased
a repair depot for former British military
vehicles. They rehired the original War
Department staff and began to adapt
the vehicles for civilian use before selling
them on. By 1925 they had repaired the
last of them and were left with the empty
warehouse space that had formerly been
workshops and storage. They began to
rent out the space to local businesses and
became a property company. The Slough
Trading Estate was born.
FOR MORE INFORMATION, PLE ASE VISIT:
W W W.SEGRO.COM/ABOUT-US/2020
The world around us is fast changing, from the
industrial revolution of the early 1900’s to the
technological revolution that we are currently
experiencing, and successful businesses
constantly innovate so that they stay relevant
to their customers.
SEGRO has undergone various
transformations since it was founded in the
1920s but a focus on industrial property has
remained at its core. And whilst our business
has had to periodically reshape itself, evolving
customer requirements have also led to
changes in the design of our warehouses.
The recent technological revolution has
resulted in increased automation, with many
of our customers now using robotics in their
production and distribution lines.
This has resulted in warehouses becoming
much taller, often with mezzanine levels, as
businesses seek to intensify their use of the
space. Power has also become more important
and access to it is now a key factor when
deciding where to develop new estates.
E-commerce has been another output of the
technological revolution that has changed the
requirements for warehouse space as retailers
adapt their supply chains for an omni-channel
delivery model. The need for fast and efficient
throughput of parcels has resulted in the
creation of cross-dock warehouses with a large
number of loading doors and bigger yards for
the movement of both HGVs and smaller local
delivery vehicles.
Environmental sustainability has been the
most recent focus of innovation as we
work to reduce the carbon footprint of our
buildings. This means looking not just at the
development process but also the entire life
cycle of a warehouse, including the use of
resources when occupied by our customers.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
05
MAXIMISING
SPACE
MODERN
INTERIORS
SUSTAINABILITY
FEATURES
SMART
BUILDINGS
BIODIVERSE
ENVIRONMENT
WELLBEING
FOCUS
6m under-croft heights
to increase warehouse
capacity without
increasing floor space.
Contemporary
interior finishes for
offices, facilities and
entrance foyers.
Targeting BREEAM
‘Excellent’ rating, carbon
neutrality/EPC ‘A+’ and
incorporating photovoltaic
& translucent panels and
LED lighting.
All buildings will
feature smart building
technology and ‘plug
& play’ connections
for batteries that store
generated electricity.
Native flora will enhance
the environment, whilst
boosting the natural
habitat and improving
wellbeing for customers.
An outside communal
seating area, plenty of
natural light and a green/
living wall in Unit 10 will
help all buildings achieve
‘WELL Certification’.
One of our newest London developments,
SEGRO Park Rainham Phase 2, will push the
boundaries of innovation and sustainability
even further. Its features include transparent
ceiling panels to provide more natural
daylight, LED lighting, electric car charging
points, photovoltaic panels on all roofs
and some walls, the use of smart building
technology and ‘plug and play’ connections
for Tesla batteries that can store power during
off-peak hours.
We are constantly monitoring emerging
trends to ensure that our buildings are fit
for the future. Our investment in a fund
managed by Fifth Wall, the world’s largest
venture capital firm focused on technology
for global real estate, helps us to remain at the
cutting edge of new advancements. We also
announced in January 2020 the creation of
a Strategy, Innovation and Investment team
which aims to ensure that we take a clear and
consistent approach and continue to navigate
and benefit from the structural trends at play
in our sector.
2020
INTENSIFYING LAND USE
As urbanisation continues and the population
of cities such as London and Paris grow, they
need not only more housing but also more
warehouse space in order to respond to the
increased demand for goods and services.
But land supply in cities is limited and this is
likely to result in innovations to intensify the
use of the land. This may involve multi-level
warehouses such as those seen in Asia and
the introduction of mixed use schemes that
combine underground logistics with office or
residential space on the upper levels.
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SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
CREATING EXTR AORDINARY SPACE
CARING
1947
SLOUGH INDUSTRIAL HEALTH SERVICE
In 1947, a year before the creation of the
NHS, the Slough Trading Estate started
the Slough Industrial Health Service for
the wellbeing of those who worked for the
businesses located on the estate.
FOR MORE INFORMATION, PLE ASE VISIT:
W W W.SEGRO.COM/ABOUT-US/2020
operations as straightforward as possible.
And this also extends to our largest customers,
many of whom share their plans with us so
that we can help them to secure space and
develop their distribution network. We take
pride in the strong customer relationships that
we have built and the part that we have played
in the success of their businesses.
OUR COMMUNITIES
We aspire to have a positive impact on the
communities surrounding our estates and this
goes beyond the direct effects of attracting
new businesses who pay rates and creating
new jobs. We focus our community efforts
on helping the unemployed into work and in
2019 the SEGRO Community Fund donated
£107,000 to 22 charities across London and
the Thames Valley. 1,350 people benefited
from our help and of those 165 secured
sustainable employment, 663 undertook
work experience and 1,300 completed CV
enhancing training.
As a listed company financial performance will
always be important, but at SEGRO this isn’t
our only focus. We care about our employees,
our customers, our communities and our
environment and we attempt to balance the
differing interests of all of our stakeholders in
the course of our decision making.
OUR EMPLOYEES
We want our employees to be inspired by
their work and to reach their full potential.
Health and wellbeing is an important part
of this and in 2019 we have built on our
Mental Health and Wellbeing programme.
This included the introduction of 25 mental
health ambassadors across the business,
awareness training for all line managers and a
number of other initiatives such as organising
yoga and meditation workshops.
OUR CUSTOMERS
Hanovia, our longest standing customer, has
been on the Slough Trading Estate since 1924,
occupying a variety of different buildings
during that time. We work closely with our
customers to adapt our offering to suit their
business needs. This includes the small sized
businesses in our Enterprise Quarters, to
whom we provide flexible, all-inclusive leases
to make the day-to-day running of their
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
07
BEE HIVES ACROSS
THE PORTFOLIO
75
NUMBER OF SEGRO BEES
3.75
million
2020
TACKLING CLIMATE CHANGE
Climate change remains the biggest global
challenge that we face and every business has
a responsibility to do their part.
Our SEGRO 2025 targets aim to reduce
our carbon footprint and resource usage,
but we also look at ways in which we can
produce energy (for example the installation
of photovoltaic panels) to offset not just
our carbon emissions, but also those of
our customers.
In addition to this we are trying to help
our customers to reduce their own carbon
footprints. This includes providing electric
vehicle charging capability in all new
developments and in 2019 we launched
a sensor technology trial in a number of
warehouses so that we can monitor their
usage and educate our customers on how
they can use the space more efficiently.
FOR MORE INFORMATION, PLE ASE VISIT:
W W W.SEGRO.COM/CSR /ENVIRONMENT
OUR ENVIRONMENT
In addition to the efforts that we make to
reduce the carbon footprint and resource
usage of our buildings, we also make efforts to
promote biodiversity. We create parks, plant
trees and wild flowers and in Italy we utilise
the green space around our developments
by partnering with local communities to allow
sheep and buffalo to graze on the land.
We have now installed more than 75 bee
hives on our estates across Europe, home to
over 3.7 million bees and have trained SEGRO
employees as apiarists to look after them.
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SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
OVERVIEW
WHAT WE DO
We develop, own, rent out and manage warehouse
and industrial properties for our customers in the
UK and Continental Europe.
BIG BOX WAREHOUSES
EXAMPLES OF USERS OF OUR BIG BOX SPACE:
LOCATED IN NATIONAL/REGIONAL
DISTRIBUTION HUBS
Retailers (online and traditional)
Third party logistics and transport companies
Big box warehouses are typically used for storage
and processing of goods for regional, national and
international distribution by larger trucks or by rail.
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, ports, rail freight terminals and airports)
to allow rapid transit.
Manufacturers
Distributors and wholesalers
BIG BOX WAREHOUSE
OUR PURPOSE:
WE CREATE THE
SPACE THAT ENABLES
EXTR AORDINARY
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 serve
their customers.
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 46
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
09
EMPLOYEES
CUSTOMERS
TOTAL SPACE
332
1,190
8m sq m
TOTAL AUM
£12bn
EXAMPLES OF USERS
OF OUR URBAN SPACE:
Retailers and supermarkets
Parcel delivery and third party
logistics companies
OUR TOP 20 CUSTOMERS:
Our top 20 customers represent
headline rent of £136 million
in aggregate, 32% of the
Group’s total headline rent at
31 December 2019.
8
1
7
6
5
2
Food preparation companies
1. Deutsche Post DHL
4
3
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
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.
Data centre operators
Air cargo handling companies
Wholesalers
2. Amazon
3.
4.
Fedex
Royal Mail
5. Worldwide Flight Services
6.
7.
8.
9.
British Airways
La Poste (DPD)
Equinix
XPO
10. Kuehne & Nagel
11. Tesco
12. Virtus
13. Geodis
14. CyrusOne
15.
ID Logistics
16. Mars
17.
IKEA
18. Leroy Merlin
19. Swissport
20. Sainsbury’s
URBAN WAREHOUSES
CUSTOMER TYPE BY
HEADLINE RENT
(SEGRO SHARE)
1. Transport and logistics
2. Food and general
manufacturing
23%
18%
3. Retail (physical and
16%
online)
4. Post and parcel
11%
delivery
5. Wholesale and retail
10%
distribution
6. Technology, media
and telecoms
7. Services and utilities
8. Other
9%
7%
6%
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 30-33
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SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
OVERVIEW
WHERE WE DO IT
Our portfolio is concentrated in areas expected to benefit
from sustainable 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:
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
39%
17%
9%
17%
10%
7%
12%
11%
1%
6%
5%
1%
1
39%
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
18%
15%
1. Slough Trading Estate
2. Rest of Thames Valley
6%
3. Rest of SEGRO
16%
1%
83%
Demand for large warehouses for inventory
storage and regional, national and international
distribution is growing, particularly amongst
online retailers.
61%
1
2
3
9%
1
2
17%
3
4
3. NATIONAL LOGISTICS
4. SOUTHERN EUROPE
URBAN WAREHOUSES
Facilitating efficient supply chains
and parcel delivery.
Increasing development in France;
building scale in Italy and Spain.
1. Midlands
2. South East
8%
1%
1. France
2.
Italy
3. Rest of SEGRO
91%
3. Spain
4. Rest of SEGRO
10%
6%
1%
83%
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
12%
1
2 3
6%
5. NORTHERN EUROPE
6. CENTR AL EUROPE
Delivering quality big box and
urban warehouses in major cities.
Making good progress in
a competitive market.
1. Germany
2. Netherlands
3. Austria
4. Rest of SEGRO
10%
1. Poland
2. Czech Republic
3. Rest of SEGRO
1%
1%
88%
5%
1%
94%
OTHER USES
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 30-33
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
11
OUR MAIN LOCATIONS:
1920
100 YEARS AGO SLOUGH
DEPOT CONSTRUCTION
Slough was chosen by the War
Department as the location of their vehicle
repair depot because it is close to London
and main communication routes, namely
the A4 Bath Road and GWR Main Line
Railway. The added advantage was that
there was gravel in the ground and a water
table 1,000 ft down.
FOR MORE INFORMATION, PLE ASE VISIT:
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MIDL ANDS
HAMBURG
AMSTERDAM
BERLIN
POZNAN
WARSAW
LONDON &
THAMES VALLEY
TILBURG
DÜSSELDORF
LILLE
COLOGNE
FR ANKFURT
WROCL AW
ŁODZ
PR AGUE
K ATOWICE
PARIS
LYON
MARSEILLE
MUNICH
MIL AN
BOLOGNA
BARCELONA
MADRID
ROME
12
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
CHIEF EXECUTIVE’S STATEMENT
POSITIONING OUR MODERN, SUSTAINABLE
PORTFOLIO FOR LONG-TERM SUCCESS
Another year of strong
performance across our business
as we head into our centenary
year with confidence.”
DAVID SLEATH
CHIEF EXECUTIVE
David Sleath reports on SEGRO’s performance
during the past year and looks to the future.
2019 was another year of strong financial and
operational performance by SEGRO. Earnings growth
has been supported by rental growth in our standing
assets and the additional income generated from
our active development pipeline. As a result we are
recommending an increased dividend to shareholders.
Our portfolio of prime, modern warehouses in
key strategic markets, with more than half located
in Europe’s most supply-constrained urban areas,
continues to position us well for sustainable success
and delivers on our purpose of creating the space
that enables extraordinary things to happen.
This year, on 19 May, SEGRO will celebrate its
centenary. Over the past one hundred years, not only
has our business changed significantly, but so has the
world around us and expectations of listed companies
now go much further than simply returning a profit
for shareholders.
Generating attractive financial returns from our
business, based on a strong balance sheet, continues
to be vital for the long-term sustainability of SEGRO as
a company. It has always been part of our DNA to take
into consideration the interests of our stakeholders and
wider society in the way that we do business. We aim
to minimise our impact on the environment in which
we operate, work in harmony with the communities
of which we are part, and to have a positive impact on
the customers, shareholders and other stakeholders
which we serve. As we celebrate our centenary in
2020 the balance between our financial and social
returns continues to be central to our strategy as we
look to position ourselves for the years ahead.
Looking back on 2019, the main highlights included:
££ A strong performance in securing new rent.
£65.8 million was signed in the period.
This included a particularly strong performance
from increased rent on existing space, helped by
successful re-gears in our Heathrow portfolio.
££ Continued growth and modernisation of our
portfolio with the addition of prime, sustainable
warehouses through our development programme.
2019 was another record year of development
with the completion of 871,800 sq m of space,
of which 92 per cent is already let, generating
over £40 million of new income. 94 per cent of
the eligible certified development completions
were rated BREEAM “Very Good” or “Excellent”
(or equivalent).
££ Creating opportunities to add to our portfolio
with targeted acquisitions of both assets and land
in some of our key urban markets, including
completed assets and land in the supply-constrained
London market.
WE APPLY OUR
STR ATEGY TO MAXIMISE
PERFORMANCE:
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 20-21
OUR STR ATEGY
PAGES 22-23
PRINCIPAL RISKS
PAGES 65-72
KPIs
PAGES 40-41
OUR RESPONSIBLE SEGRO
FR AMEWORK HELPS
GUIDE OUR BUSINESS
DECISIONS:
OU
R C
E
L
P
R PE O
U
O
O
U
R
S
T
A
K
E
H
O
L
HEALTH & S A F
DERS
O
M
M
U
N
I
T
Y
T
N
E
M
N
VIR O
N
T
E
Y
O U R E
RE AD MORE ABOUT HOW
WE ARE COMMIT TED TO
SUSTAINABILIT Y ON
PAGES 42-64
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
13
££ A 38 per cent increase in our renewable energy
capacity bringing it to 18.5 MW. On-site renewable
energy generation remains a core part of SEGRO’s
sustainability strategy to transition towards a low
carbon future.
££ A successful £451 million equity placing in February
2019 which has given us the capacity to continue
to add to our development pipeline and help us to
grow our rental income organically.
This activity has been reflected in a strong set of
results: adjusted profit before tax is up 10.8 per cent
to £267.5 million (IFRS: £902.0 million) and adjusted
earnings per share are up 4.3 per cent to 24.4 pence
(IFRS: 79.3 pence), or 9.9 per cent excluding the
impact of the SELP performance fee received in 2018.
Our EPRA NAV per share is up 8.9 per cent to 708
pence (IFRS: 697 pence) driven substantially by a 7.5
per cent increase in our portfolio value, which now
totals £10.3 billion (reflecting our share of £12.2 billion
of assets under management).
Our balance sheet is also in good shape. Our average
cost of debt remains low at 1.7 per cent (31 December
2018: 1.9 per cent) with an average duration
of 10.0 years (31 December 2018: 10.2 years).
SEGRO remains appropriately and efficiently funded
with a loan-to-value ratio of 24 per cent (31 December
2018: 29 per cent) and we have £1.4 billion of cash
and available facilities at our disposal, providing
significant financing flexibility.
The combination of a strong set of financial results in
2019 and our confident outlook for 2020 and beyond
means that we are recommending a 8.7 per cent
increase in final dividend to 14.4 pence per share,
resulting in a total distribution of 20.7 pence for 2019
as a whole (2018: 18.8 pence).
OUR MARKETS
SEGRO has continued to thrive, despite heightened
levels of geopolitical and macro-economic uncertainty.
The structural trends of urbanisation and technology
remain strong tailwinds for our business and the
impact of these can be seen at its greatest where the
two combine, most notably in our urban markets, in
which more than two-thirds of our assets are located.
Whilst these trends have been evident in the UK for
some time and have driven strong rental growth
across both our big box and urban portfolios, on
the Continent the impact is only now beginning to
be realised in a more meaningful way. E-commerce
penetration in both France and Germany is now
nearing the level at which retailers start to adapt their
supply chains for an omni-channel delivery model.
In the UK this has resulted in a requirement for more
warehouse space with a combination of larger centrally
located fulfilment centres, complemented by smaller
urban distribution centres, and we are starting to see a
similar pattern emerge in Continental Europe.
FINANCIAL
HIGHLIGHTS
ADJUSTED PROFIT1
BEFORE TAX
£267.5m
2018: £241.5m
IFRS PROFIT
BEFORE TAX
£902.0m
2018: £1,009.1m
ADJUSTED EARNINGS
PER SHARE1
24.4p
2018: 23.4p
IFRS EARNINGS
PER SHARE
79.3p
2018: 105.4p
EPR A NAV
PER SHARE1
708p
2018: 650p
IFRS NAV
PER SHARE
697p
2018: 644p
PORTFOLIO
VALUE 2
£10.3bn
2018: £9.4bn
TOTAL DIVIDEND
PER SHARE
20.7p
2018: 18.8p
Businesses linked to e-commerce (retailers, third party
logistics operators and parcel delivery companies)
continue to make up just over half of our rent roll but
beyond this a very wide range of other companies use
our space to manufacture goods (for example food,
electrical components, pharmaceuticals) as well as to
provide services (for example, car servicing, laundry,
data centres) to urban populations.
As European cities become more densely populated,
demand for goods and services rapidly increases and
at the same time consumers want these delivered
faster than ever before. It is therefore important for
even non e-commerce related businesses to be close
to their end users (as well as to their workforce),
driving further demand for urban warehouse space.
Our portfolio of well-located, modern warehousing
is highly desirable to all of these different types of
businesses and at the same time the supply response
continues to be controlled. Within our urban markets,
industrial land is in short supply and is frequently
converted into other high value alternative uses
(primarily residential), putting upward pressure on
rental values. We have seen strong rental growth
throughout 2019 in our UK, French and German
urban warehouse portfolios.
In the big box market supply tends to keep up with
demand, with most being built on a pre-let basis, and
as a result rental growth is more moderate. The recent
increase in speculative development in the UK is being
absorbed by take-up levels that continue to be higher
than the long-term average. Demand for our prime
logistics parks is strong with two further large pre-lets
signed during the year. We continue to take a low
risk approach to development, particularly in big box
warehouses, and have already pre-let 60 per cent of
our current pipeline.
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 147-148
contain more information about the adjustments and the reconciliation of
these to IFRS equivalents. SEGRO discloses EPRA alternative metrics on
pages 193-198.
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.
14
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
CHIEF EXECUTIVE’S STATEMENT
POSITIONING OUR MODERN, SUSTAINABLE
PORTFOLIO FOR LONG-TERM SUCCESS
CONTINUED
Industrial asset values remain supported by continued
demand from investors wanting to increase their
exposure to industrial and warehouse properties. As a
result we have seen further improvements in valuation
yields in the Continental European portfolio, whilst
yields in the UK have held steady at their historically
low levels.
OUR PORTFOLIO
Our portfolio of modern warehouses, with an
overweight position in urban markets, continues
to produce good operational results thanks to our
active approach to asset management and the strong
fundamentals. The vacancy remains low, retention
high and lease lengths continue to increase as
customers invest more in automation and fit-out and
seek to secure space close to urban centres for the
longer term.
We added to our portfolio in 2019 with targeted
acquisitions of completed assets as well as continuing
to invest in land to provide future development
opportunities. Particularly pleasing were some of the
off-market transactions in urban markets such as
London and Paris, which were only possible thanks to
the expertise of our local teams as well as our strong
customer relationships.
2019 was another record period of development
completions with 871,800 sq m of new space for
a diverse range of occupiers across our markets.
This elevated level of development allows us to
constantly upgrade our portfolio and all new
developments of 5,000 sq m or more are designed
to achieve BREEAM ‘Very Good’ or ‘Excellent’.
We continue to focus on the environmental
sustainability of our assets and are now working
towards our SEGRO 2025 targets. These are focused
on reducing the embodied carbon within our
developments and using the latest technology to help
our customers to reduce energy consumption in our
standing assets.
Our development pipeline is an important source
of growth and we have 826,200 sq m of new space
under construction, capable of generating £50 million
of new rent, of which 60 per cent has been secured
through pre-lets.
We continue to take a disciplined approach to capital
allocation and regularly review our portfolio, taking
opportunities to dispose of assets where we feel we
have maximised our potential returns.
DELIVERING INCREASING
DIVIDENDS
20.7 pence
p
7
0
2
.
.
p
8
8
1
.
p
6
6
1
.
p
7
5
1
.
p
9
4
1
5
1
0
2
6
1
0
2
7
1
0
2
8
1
0
2
9
1
0
2
OUR STAKEHOLDERS
We are both a developer and a long-term owner
of industrial assets which provides us with a unique
opportunity. Land zoned for industrial use is crucial to
the proper functioning of cities and we work closely
with local authorities to help ensure the right space is
retained to support cities’ needs. In our urban markets
this usually involves the regeneration of neglected
industrial sites, replacing old or disused facilities with
modern warehouse space with high sustainability
credentials which attracts new businesses to the area
and creates employment opportunities.
Once our warehouses are completed, we attempt
to connect our customers that choose to locate
their business inside them with the surrounding
communities, helping them to source employees
locally and also assisting with upskilling and training
through regional programmes such as Aspire on the
Slough Trading Estate.
We stay close to businesses throughout their time as a
SEGRO customer thanks to the internal management
of our portfolio. Our asset management and property
teams interact regularly with our customers, helping
us to understand the opportunities and challenges
that their businesses face and to anticipate their
needs. 88 per cent of our customers rate their overall
satisfaction as an occupier of a SEGRO warehouse as
‘excellent’ or ‘very good’. Strong relationships with our
customers also create opportunities, evidenced by the
fact that over half of our current development pipeline
is with existing customers.
We aim to be a trusted partner to all of our
stakeholders and it is through these connections that
we enable extraordinary things to happen within, and
around, the spaces that we create.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
15
OUR PEOPLE
Although real estate is a physical asset class, the
business of developing and managing it requires
human interaction and our longer-term success is
therefore dependent on the expertise, commitment
and motivation of our workforce. It is our employees
who manage our relationships on a day-to-day basis
and it is therefore crucial that we attract and retain
talented people.
Over 300 people now work in our 14 offices across
Europe. We have a strong company culture and a
Purpose and Values that are shared and aspired to
across all geographies. To enable the sharing of ideas
and best practices we have created cross-border
working groups and we encourage employees to visit
other regions and deepen their understanding of the
different parts of our business.
1
7
6
5
4
3
2
HIGH QUALITY
EUROPEAN PORTFOLIO
BY VALUE (SEGRO SHARE)
1. London
2. Thames Valley
3. Germany
4. France
5. National Logistics
6. Poland
7. Rest of Europe
39%
17%
11%
10%
9%
5%
9%
Total
100%
Our ‘Space to Grow’ programme offers our employees
the opportunity to undertake a broad range of training
and, as the use of technology advances within our
sector, we will expand the scope of this training to
ensure that it continues to provide our workforce with
the skills that they need to thrive in, and develop,
their roles.
Successful businesses are diverse and inclusive and
we promote this throughout our workplace, enabling
our employees to bring ‘their whole selves’ to work.
We have robust policies in place that help us to
support our belief that everyone deserves the right to
be treated equally.
I would like to take this opportunity to thank all
of our employees for their continued dedication
and commitment to our business and for their
contributions to the success of SEGRO in 2019.
FOR MORE INFORMATION ON OUR PEOPLE SEE
PAGES 46-49
OUTLOOK
The momentum that we have seen across our
markets during the final months of the year means
that we have started 2020 with confidence. We are
proud owners of one of the highest quality logistics
and industrial portfolios in Europe and we are well
positioned to benefit from the structural drivers that
are currently at play in our sector.
We expect to see further rental growth across our
geographies, with an increasing contribution from
Continental Europe, and the potential for further
upside in the UK as our future relationship with the
European Union becomes clearer.
Our development pipeline for 2020 is very healthy,
allowing us to both modernise our portfolio and
generate additional rental income, compounded by
the rental growth from the active asset management
of our existing estate. Whilst the trends of e-commerce
and urbanisation continue to drive occupier demand
we expect to be able to develop at this elevated level,
de-risking the majority of it by pre-letting.
Looking beyond the immediate future, we recognise
that the society in which we operate continues to
face unprecedented levels of change as technological
advances continue to impact our customers and wider
society. In order to position our business to embrace
this, we announced in January the creation of a new
Strategy, Investment and Innovation team. This will
ensure that we are able to navigate and benefit from
these structural changes and will help us to become
more agile in supporting the evolving needs of our
customers and other stakeholders.
Our core strategy and pure focus on warehouse and
industrial property will remain unchanged, but by
keeping one eye on the horizon we expect to be able
to position SEGRO for sustainable, long-term success.
Our high-quality, well-located
portfolio of urban and big box
warehouses continues to attract
a broad range of customers.”
DAVID SLEATH
CHIEF EXECUTIVE
16
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
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.
REAL ESTATE AS AN INVESTMENT ASSET
STRUCTUR AL VERSUS CYCLICAL DRIVERS
More recently there have also been structural
drivers at play in our sector. These are major
shifts in the way that an industry or market
functions and result in longer-term or even
permanent change. They are normally
triggered by innovation and act independently
of the business cycle so can either counter
cyclical forces or amplify them.
We believe that there are six main market
factors which influence the performance of
our portfolio. Three of these can be defined as
cyclical: stable economic growth, an attractive
yield profile and limited supply of modern
warehousing. The remaining three can be
described as structural: urbanisation, changes
in consumer behaviour and a need for
efficient and sustainable buildings.
For definitions of terms used in this Report,
please refer to the Glossary on page 202.
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 typically 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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
17
CYCLICAL
STABLE ECONOMIC OUTLOOK
ATTR ACTIVE YIELD PROFILE IN A LOW
INTEREST R ATE ENVIRONMENT
LIMITED SUPPLY OF
MODERN WAREHOUSING
GDP GROW TH FORECAST FOR OUR
MA JOR MARKETS (P.A., 2019–2021)
(%)
PRIME YIELDS IN ALL OUR MARKETS ARE
COMFORTABLY ABOVE RISK-FREE R ATES
(%)
BIG BOX WAREHOUSE VACANCY R ATES
(31 DECEMBER 2019)
(%)
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COMMENTARY:
COMMENTARY:
COMMENTARY:
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.
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 2019 yielded 0.8 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:
££ 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.
££ We see some potential upside for UK
occupier demand as our future relationship
with the European Union becomes clearer.
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 7.5 per cent in 2019, reflecting
improving rental values, particularly in
urban warehousing, and continued yield
compression in Continental Europe.
££ 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.
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: OECD (data correct as of 27 January 2019)
Source: CBRE, Bloomberg (at 31 December 2019)
Source: JLL (estimated rates at Q419)
18
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
MARKET OVERVIEW
A LOOK AT OUR MARKET DRIVERS
CONTINUED
STRUCTUR AL
URBANISATION
STRUCTUR AL CHANGES IN
CONSUMER BEHAVIOUR
NEED FOR EFFICIENT,
SUSTAINABLE BUILDINGS
FORECAST ECOMMERCE
PENETR ATION R ATES
(%)
UK
France
Germany
30%
20%
10%
0
7
1
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2
8
1
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2
9
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2
F
0
2
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2
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COMMENTARY:
COMMENTARY:
COMMENTARY:
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 London, rental values for our urban
warehouses increased by 3.3 per cent
reflecting the shortage of new supply
relative to levels of demand and we expect
continued rental growth in 2020.
££ The shortage of land supply in urban areas
is leading property developers to consider
ways to use land more intensively, including
multi-level warehouses.
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,
individual deliveries to homes, offices,
click-and-collect locations and high street
convenience stores and customer returns.
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.
££ Almost 70 per cent of lettings in 2019 were
from retailers, parcel delivery and third
party logistics companies.
££ See also factors under ‘Stable
economic outlook’.
Source: www.emarketer.com
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 2025 strategy (see page 53
for more details).
££ 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.
££ 94 per cent of the eligible development
completions in 2019 were rated BREEAM
“Very Good” or “Excellent” (or equivalent)
and we now have a total of over 2.7 million
sq m of sustainably certified assets in
our portfolio.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
19
OUR
GOAL
DISCIPLINED
CAPITAL
ALLOCATION
OPERATIONAL
EXCELLENCE
EFFICIENT CAPITAL AND
CORPORATE STRUCTURE
1970s
INTERNATIONAL EXPANSION
In the 1970s the Company continued to
diversify its business across international
markets with acquisitions in France in 1972
and Germany in 1974. Today France and
Germany are two of its most important
countries with portfolios valued at
£1.4 billion and £1.7 billion respectively.
FOR MORE INFORMATION, PLE ASE VISIT:
W W W.SEGRO.COM/ABOUT-US/2020
HOW ARE WE RESPONDING?
1.
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 generally be developed on a phased basis over a three to
five year time frame. 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 issued £451 million of new equity to fund our development-led
growth. Our look-through loan-to-value ratio remains low at 24 per cent and we have
£1.4 billion of cash and available facilities at our disposal.
FOR MORE INFORMATION SEE
PAGES 20-33
20
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
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 332
people with expert
skills across all aspects
of real estate
We work with local
authorities and other
organisations whose
aims 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 28-29
SEE PAGES 24-25
SEE PAGES 46-49
SEE PAGES 62-64
SEE PAGES 34-39
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 22-33
KPIs
PAGES 40-41
PRINCIPAL RISKS
PAGES 65-72
THE VALUE WE CREATE
FINANCIAL
NON-FINANCIAL
RENT ROLL
GROW TH
ADJUSTED
PROFIT
BEFORE TA X
TOTAL
PROPERT Y
RETURN
EPR A NAV
GROW TH
QUALIT Y
SUSTAINABLE
BUILDINGS
CREATING
BET TER
COMMUNITIES
A COMPANY
WHERE PEOPLE
WANT TO WORK
OR DO BUSINESS
SEE FULL KPIs PAGES 40-41
SEE PAGES 42-64
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
21
WHAT WE DO IN MORE DETAIL
BUY
SMART
ADD
VALUE
SELL
WELL
PEOPLE
LAND
ASSETS
Our investment teams source
and negotiate attractive
acquisition opportunities
We invested £147 million in
development land during the
year. We utilised £166 million
of land in new development
projects and sold £9 million
to third parties
We acquired a number of
urban warehouses assets in
Paris and Warsaw
CAPITAL
We fund our investment
activities – acquisitions and
development – using a
combination of equity, debt
and the proceeds of disposals.
PEOPLE
DEVELOPMENT
MANAGEMENT
PARTNERS
Development is a significant
means of adding value to
our business. In 2019, we
completed 871,800 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
BIG BOX
WAREHOUSES
URBAN
WAREHOUSES
Our teams in each market
manage the relationships
with existing customers,
seek new customers and
plan and execute our
development programme
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
Our investment professionals
assess returns from every asset
compared to other investments,
identifying potential candidates
for disposal
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 2019, 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
22
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
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
GOAL
DISCIPLINED
CAPITAL
ALLOCATION
OPERATIONAL
EXCELLENCE
EFFICIENT CAPITAL AND
CORPORATE STRUCTURE
WE APPLY OUR STR ATEGY TO MAXIMISE THE RETURNS FROM OUR BUSINESS
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, 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, an efficient
capital structure and appropriate
financial leverage.
Our strategy for achieving our 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.
Embedded in this strategy is the long-
term approach that we take to running our
business. This requires:
££ an understanding and assessment of the
risks facing the business and the actions
we can take to mitigate those risks.
More information can be found in the
Principal Risks section (page 65); and
££ engagement with our key stakeholders to
understand their priorities, and our impact
on the environment. These are covered in
the Responsible SEGRO section (page 42).
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.
FOR MORE INFORMATION ON
OUR KPIS SEE PAGES 40-41
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
23
OUR RESPONSIBLE SEGRO FR AMEWORK HELPS GUIDE OUR BUSINESS DECISIONS:
OU
R C
E
L
P
R PE O
U
O
O
U
R
S
T
A
K
E
H
O
L
HEALTH & S A F
DERS
O
M
M
U
N
I
T
Y
T
N
E
M
N
VIR O
N
RE AD MORE ABOUT HOW WE ARE
COMMIT TED TO SUSTAINABILIT Y ON
PAGES 42-64
T
E
Y
O U R E
2019
SEGRO BECOMES UK’S LARGEST
LISTED PROPERTY COMPANY
In 2018, SEGRO became the UK’s
largest listed property company by
market capitalisation.
At 31 December 2019, SEGRO was
worth £9.8 billion and had £12.2 billion
of assets under management covering
7.8 million sq m of space.
FOR MORE INFORMATION, PLE ASE VISIT:
W W W.SEGRO.COM/ABOUT-US/2020
COMPANIES ACT 2006 SECTION 172
STATEMENT (S172)
Each of the Directors is mindful of their duties
under s172 to run the Company for the benefit of its
shareholders, and in doing so, to take into account
the long term impact of any decisions on stakeholder
relationships and the impact of its activities on its
reputation for high standards of business conduct.
The Company cannot operate in a vacuum. We
can only succeed if we conduct ourselves in a
responsible manner and have positive relationships
with all of our stakeholders.
Although we have been considering the matters
set out in s172 for many years, and reporting our
activities within our Responsible SEGRO framework,
the 2018 UK Corporate Governance Code now
requires us to provide more specific information
about how the Group and the Directors have
considered the matters set out in s172. See page 80
for more information about the Code and the work
of the Board around s172.
Identifying the relevant the issues and
stakeholders: The Directors have defined the
Company’s key stakeholder as its: employees;
customers; investors; communities; and suppliers.
Building positive relations with these stakeholders,
treating them well and with respect is essential to
the success of the business. Underpinning these
stakeholder relationships is a culture which promotes
high standards of business ethics, is focused on a
long term sustainable strategy and which recognises
our responsibility to the environment.
Engagement mechanisms: There are many
engagement mechanisms with these stakeholders
within the business as well as at Board level and
there is more detail about how we engage with our
employees, customers, investors, suppliers and local
communities in the Responsible SEGRO section of
this report on pages 42 to 64, which also highlights
our environmental strategy and targets.
Effect on decisions: Set out below are some
examples of how the Directors have considered s172
in their decision making.
££ The Company’s move to a new London
head office.
Noting the feedback from the 2018 Employee
Engagement survey regarding the quality of our
former London office, the Board reviewed a move
to new, more modern premises. This included the
re-location of 51 employees who had previously
worked in our Slough office. When the Board
considered the office move it took account of the
impact for employees, along with the proposed
changes to working practices and the financial
assistance the employees re-locating from Slough
would receive to help them to adjust to the new
location. Shortly after the move, the Directors had
lunch with the employees in the new London office
in December to see how they were settling into the
new environment.
WHERE ELSE YOU CAN READ ABOUT
STAKEHOLDER ENGAGEMENT AND
OUR APPROACH TO S172
EMPLOYEES
CHIEF EXECUTIVE’S STATEMENT
PAGE 15
RESPONSIBLE SEGRO
PAGES 46-49
GOVERNANCE PAGE 81
CUSTOMERS
RESPONSIBLE SEGRO PAGE 62
SUPPLIERS
INVESTORS
GOVERNANCE PAGE 80
RESPONSIBLE SEGRO
PAGE 62
HOW WE CRE ATE VALUE
PAGES 18-19
RESPONSIBLE SEGRO PAGE 63
GOVERNANCE PAGE 80
££ Major new investment in a site at Coventry.
ENVIRONMENT RESPONSIBLE SEGRO
Discussions about the major new investment in a
450 acre site adjacent to Coventry Airport, focussed
around sustainable returns for investors, job creation
for the local communities, the creation of new
facilities for customers but also the risks and costs
associated with remediation of a large and complex
site. Having taken account of these factors, the
Directors approved the investment in the site.
££ Future trends and technologies.
The Board had a presentation about PropTech
and the broad trends and technologies which
may become disruptors to the Company and its
customers in the future. The Directors also took
part in some sessions with groups of employees
who had researched some futures topics such as
artificial intelligence and asset tokenisation. These
briefings gave the Directors a wider perspective
about the future trends and helped them in their
discussions with customers and when making
investment discussions.
HIGH
STANDARDS OF
CONDUCT
PAGES 53-61
HE ALTH AND SAFET Y
PAGES 43–45
BUSINESS ETHICS AND MODERN
SL AVERY PAGES 48-49
COMMUNIT Y
RESPONSIBLE SEGRO
PAGES 50-52
LONG TERM
OUR STR ATEGY PAGE 22
DISCIPLINED CAPITAL
ALLOCATION PAGES 24-25
EFFICIENT CAPITAL STRUCTURE
PAGES 34-39
RISK MANAGEMENT
PAGES 65–72
VIABILIT Y STATEMENT
PAGE 69
GOVERNANCE, STR ATEGY DAY,
PAGES 81, 83
24
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
OUR STR ATEGY
DISCIPLINED CAPITAL ALLOCATION
We invested £692 million in our portfolio
during the year: acquisitions of £136 million of
assets, £147 million of land and development
capital expenditure of £409 million. This was
partly offset by £442 million of disposals.
ACQUISITIONS FOCUSED ON BUILDING
SCALE IN URBAN WAREHOUSING
2019 was a relatively quiet year for asset
acquisitions as we continued to focus
investment on our development pipeline,
including many further land purchases.
We did however complete a small number of
transactions in key strategic markets.
£95 million of the acquisitions were
urban warehouses in the UK, France and
Italy. In London we made two off-market
acquisitions; a warehouse in East London
that complements our existing portfolio,
and a further acquisition in South London,
establishing a presence in the area for the first
time. In France we purchased two properties
in the supply-constrained market of Lyon.
Finally, in Italy we acquired a warehouse on
the outskirts of Verona, to be used by a global
online retailer for their last mile distribution.
The remaining acquisitions included big
box warehouses in Barcelona, where we are
working to achieve scale, and also in Lille
and Wrocław, two markets where we have
identified strong occupier demand for logistics.
The consideration for the asset acquisitions
was £136 million, reflecting a blended topped-
up initial yield of 4.7 per cent.
ACQUISITIONS: WHAT TO EXPECT IN 2020
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.
ASSET RECYCLING TO IMPROVE
PORTFOLIO FOCUS
During 2019, 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 component of these disposals
was £259 million of UK stand-alone big box
warehouses. Going forwards, our UK big box
focus will be on developing logistics parks
rather than stand-alone buildings.
Other disposals included the sale of a building
at SLPEMG to its occupier and we also sold
our holdings in Gdan’ sk, a smaller regional
market that we have decided to exit in order
to focus on other parts of Poland.
As in previous years, we sold a portfolio of
Continental European big box warehouses
developed by SEGRO to SELP for which we
received £113 million net proceeds from an
effective sale of a 50 per cent interest.
The consideration for the asset disposals was
£433 million, reflecting a blended topped-
up initial yield of 3.9 per cent. The disposals
generated a modest gain on sale compared to
book values at 31 December 2018.
Additionally, we disposed of £9 million of
land, primarily comprising plots in non-
core markets.
DISPOSALS: WHAT TO EXPECT IN 2020
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
A typical run rate would be £150-250 million
per year.
WHAT WE SAID WE WOULD DO
We expected demand for warehouse assets
to remain strong and said that we would
continue to sell non-core assets to release
funds for other opportunities offering a
better risk-return profile. We intended
to continue the focus of our investment
activity on development, taking advantage
of opportunities to acquire income-
producing assets offering attractive risk-
adjusted returns if they arose.
WHAT WE ACHIEVED IN 2019
Net investment during the year was
£250 million. We focused the majority
of our investment on our development
pipeline and land acquisitions but also
made some asset purchases in key strategic
markets (including in London). We sold a
portfolio of stand-alone big box assets in
the UK as well as smaller assets in Poland
and the Netherlands.
WHAT TO EXPECT IN 2020
We will continue our disciplined approach
to capital allocation, focusing the majority
of our investment into development.
ACQUISITIONS OF LAND AND ASSETS
£283.5m
2018: £221m
DISPOSALS OF LAND AND ASSETS
£442.4m
2018: £442m
INVESTMENT IN DEVELOPMENT
£408.7m
2018: £548m
PORTFOLIO VALUATION CHANGE
+7.5%
2018: +10.7%
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
25
2011
OUR NEW STR ATEGY
In November 2011 we launched our new
strategy, focusing on disciplined capital
allocation and operational excellence and
aiming to transform our business with the
goal of being the best owner-manager
and developer of industrial property in
Europe. Since then we have disposed of
over £4.4bn of assets and acquired £2.1bn
as we repositioned our portfolio, selling
out of non-core assets and reinvesting
in prime industrial warehouses in key
strategic markets.
FOR MORE INFORMATION, PLE ASE VISIT:
W W W.SEGRO.COM/ABOUT-US/2020
UNREALISED GAINS AND LOSSES ON
WHOLE PORTFOLIO
Unrealised
gains
£750m
£500m
£250m
Capital growth
%
6
9
+
.
%
5
7
+
.
.
%
8
4
1
+
.
%
5
4
1
+
e
p
o
r
u
E
n
r
e
h
t
r
o
N
%
5
4
+
.
y
e
l
l
a
V
s
e
m
a
h
T
%
0
4
+
.
n
o
d
n
o
L
r
e
t
a
e
r
G
%
9
5
+
.
s
c
i
t
s
i
g
o
L
l
a
n
o
i
t
a
N
l
a
t
o
T
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
ACQUISITIONS COMPLETED IN 2019
Asset Type
Big box logistics
Urban warehousing
Land2
Acquisitions
completed in 20193
Purchase
price
(£m, SEGRO
share)
Net initial
yield (%)
Topped-up
net initial
yield (%)
40.8
95.6
147.1
5.4
4.0
–
6.1
4.0
–
283.5
4.42
4.71
1 Yield excludes land transactions.
2 Land acquisitions are discussed in Future
Development Pipeline.
3 A reconciliation of acquisitions completed to the Financial
Statements is provided in Table 8 of the supplementary notes.
DISPOSALS COMPLETED IN 2019
Asset Type
Big box logistics
Urban warehousing
Land
Disposal
proceeds
(£m, SEGRO
share)
Net initial
yield (%)
Topped-up
net initial
yield (%)
427.2
6.3
8.9
3.8
10.8
–
3.8
10.8
–
Disposals completed
in 20192
442.4
3.91
3.91
1 Yield excludes land transactions.
2 A reconciliation of disposals completed to the Financial
Statements is provided in Table 8 of the supplementary notes.
VALUATION GAINS FROM ASSET
MANAGEMENT, DEVELOPMENT, AND
MARKET-DRIVEN YIELD IMPROVEMENT
Warehouse property values across Europe
increased throughout the year, with
Continental Europe outperforming the UK.
Investment volumes across Europe continued
to be healthy, at similar levels to 2018.
Both investor and occupier demand for the
asset class remained strong.
The Group’s property portfolio was valued
at £10.3 billion at 31 December 2019
(£12.2 billion of assets under management).
The portfolio valuation, including completed
assets, land and buildings under construction,
increased by 7.5 per cent on a like-for-like
basis (adjusting for capital expenditure and
asset recycling during the year) compared to
10.7 per cent in 2018.
1 See Table 3 in the Supplementary Notes for further detail on
the calculation
This primarily comprises a 5.8 per cent
increase in the assets held throughout the
year (2018: 10.1 per cent), driven by a 2.7 per
cent increase in our valuer’s estimate of the
market rental value of our portfolio (ERV) and
in Continental Europe this was complemented
by approximately 50 basis points of yield
compression. In total, our portfolio generated
a total property return of 10.5 per cent
(2018: 15.4 per cent).
Assets held throughout the year in the UK
increased in value by 2.5 per cent (2018:
12.0 per cent), outperforming the MSCI Real
Estate UK All Industrial 2019 index which
increased by 2.4 per cent. The performance
was mostly due to the capture of reversionary
potential in lease reviews and renewals,
particularly in London. The true equivalent
yield applied to our UK portfolio was 4.6
per cent, 20 basis points lower than at
31 December 2018 (4.8 per cent) reflecting
the impact of newly completed developments
and the disposal of some higher yielding
assets rather than a movement in market
yields. Rental values improved by 2.6 per cent
(2018: 4.7 per cent).
Assets held throughout the year in Continental
Europe increased in value by 13.5 per cent
(2018: 5.1 per cent) on a constant currency
basis, reflecting a combination of yield
compression to 5.2 per cent (31 December
2018: 5.9 per cent) and rental value growth of
3.0 per cent (2018: 0.7 per cent).
More details of our property portfolio can be
found in Note 27 to the Financial Statements
and in the 2019 Property Analysis Report
available at www.segro.com/investors.
VALUATIONS: WHAT TO EXPECT IN 2020
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.
Nevertheless, the prospects for our portfolio
of big box and urban warehouses remain
strong, supported by structural drivers of
demand and relatively limited amounts of
new speculative 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 or most other property types, and this
premium should be supportive for valuations.
We believe that our high quality portfolio and
our focus on asset management will enable us
to outperform the wider market.
26
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
OUR STR ATEGY
OPERATIONAL EXCELLENCE:
ACTIVE ASSET MANAGEMENT
There was an increase in the amount of
speculative development of UK big box
warehouses during 2019 but it appears
that this space is be being absorbed with
take-up levels above the long-term average.
Our recent letting activity at SLPEMG and also
at our new logistics park close to Kettering,
shows that there is still good demand from
occupiers to sign pre-lets for modern,
sustainable warehouses in prime locations.
On the Continent we have seen stronger
rental growth in 2019 as the impact of
e-commerce began to be felt. Overall we
believe the prospects for significant rental
growth in big box warehouses are, and
have always been, limited but this asset class
brings other benefits including lower asset
management intensity and long leases which
help to ensure a sustainable level of income.
We do not see evidence of oversupply in any
of the markets in which we operate.
CUSTOMER RELATIONSHIPS KEY
TO OUR CONTINUED SUCCESS
As long-term owners of warehouses, and
given that we manage the majority of our
portfolio internally, we seek to develop strong
customer relationships.
Part of the role of our asset managers is to
build a knowledge of the businesses that
occupy our space. By understanding their
evolving needs and requirements, we can not
only help them to change and grow, but it also
means that we can predict coming trends and
innovate accordingly.
Almost 60 per cent of our headline rent
comes from customers with whom we have
multiple leases and over half of the potential
rent from our current development pipeline
has been secured by a pre-let with an
existing customer.
WHAT WE SAID WE WOULD DO
We expected occupier demand to remain
strong, which, combined with our strong
customer focus, should enable us to keep
retention high, driving positive rent roll
growth and keeping vacancy rates low.
WHAT WE ACHIEVED IN 2019
Our rent roll growth hit another record
high at £54.5 million reflecting a high level
of customer retention and a particularly
strong performance in rent reviews and
renewals. The vacancy rate remained
low, aided by a strong performance in
leasing recently completed speculative
development and also by disposals.
WHAT TO EXPECT IN 2020
We are anticipating 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 with further
rental growth.
PORTFOLIO PASSING RENT
£378m
2018: £350m
RENT CONTR ACTED DURING THE YEAR
£65.8m
2018: £66.4m
CUSTOMER RETENTION
88%
2018: 89%
VACANCY R ATE
4.0%
2018: 5.2%
Our portfolio comprises two main asset types:
urban warehouses and big box warehouses.
The demand-supply dynamics in both asset
classes continue to be 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, and are located mainly in and on
the edges of major cities 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.
Our urban portfolio is concentrated in London
and South-East England (83 per cent) and
major cities in Continental Europe (17 per
cent), including Paris, Düsseldorf, Frankfurt,
Berlin and Warsaw. 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.
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, Łódz,
Poznan, and the industrial region of Silesia).
30 per cent of our big box warehouses are in
the UK and the remaining 70 per cent are in
Continental Europe.
Occupier demand continues to be healthy
across all of our markets but the nature (and
typical location) of big box warehouses tends
to mean that, over time, supply is able to
increase more easily to satisfy demand, as
there is generally more land available in out of
town locations.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
27
££ Continued strong demand from
customers for pre-let agreements.
In addition to increased rents from existing
assets, we contracted £33.2 million of
headline rent from pre-let agreements
and lettings of speculative developments
prior to completion (2018: £41.5 million).
Included in this are four new data centres
on the Slough Trading Estate and a
number of big box units around both
Milan and Rome (the largest of which we
are developing for a global online retailer).
Other noteworthy lettings included our first
pre-let at SEGRO Park Kettering, a large
unit for an online grocery retailer in East
London, further lettings at SLPEMG and
our latest development in Wrocław, Poland.
££ Rent roll growth increased to
£54.5 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
£54.5 million in 2019, from £53.5 million
in 2018.
££ Vacancy has remained low. The vacancy
at 31 December 2019 was 4.0 per cent
(31 December 2018: 5.2 per cent).
This reduction was due to a combination
of a strong performance in letting recently
completed speculatively developed space
as well as the disposal of two vacant UK
big box warehouses. This has helped bring
the vacancy rate on our standing stock
down to 2.6 per cent (2018: 3.4 per cent).
The vacancy rate is now at the bottom end
of our target range of between 4 and 6
per cent. The average vacancy rate during
the period was also down at 4.6 per cent
(2018: 5.0 per cent).
££ High retention rate of 88 per cent.
During the period, space equating
to £11.0 million (2018: £12.2 million)
of rent was returned to us, including
£1.1 million of rent lost due to insolvency
(2018: £1.1 million). We took back space
equating to £0.3 million of rent for
redevelopment. Approximately £58 million
of headline rent was at risk from a break
or lease expiry during the period of which
we retained 86 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 6.6 per cent of the headline
rent (2018: 5.6 per cent). The portfolio’s
weighted average lease length increased
to 7.8 years to first break and 9.2 years to
expiry (31 December 2018: 7.5 years to first
break, 8.9 years to expiry). Lease terms are
longer in the UK (9.3 years to break) than in
Continental Europe (5.4 years to break).
££ £14.1 million of net new rent from
existing assets. The combination of
these strong metrics has enabled us
to generate £13.2 million of headline
rent from new leases on existing assets
(2018: £12.9 million) and £11.9 million from
rent reviews, lease renewals and indexation
(2018: £8.3 million). This was offset by
rent from space returned of £11.0 million
(2018: £12.2 million).
GROWING RENTAL INCOME FROM
LETTING EXISTING SPACE AND NEW
DEVELOPMENTS
At 31 December 2019, our portfolio
generated passing rent of £378 million,
rising to £426 million once rent free periods
expire (“headline rent”). During the year, we
contracted £65.8 million of new headline
rent, level with our record 2018 performance
(£66.4 million). New pre-let agreements
continue to contribute strongly to this number
but in 2019 we also grew rent on our existing
space significantly, helped by successful re-
gears at the Heathrow Cargo Centre.
Our customer base remains well diversified,
reflecting the multitude of uses of warehouse
space. Our top 20 customers account for
32 per cent of total headline rent, and
our largest customer, Deutsche Post DHL,
accounts for 4.5 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 almost
70 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
17.8 per cent (2018: 8.8 per cent) for the
portfolio as a whole compared to previous
headline rent. During the year, new rents
agreed at review and renewal were
25.1 per cent higher in the UK (2018:
12.8 per cent) as reversion accumulated
over the past five years was reflected in
new rents agreed, adding £8.5 million of
headline rent. In Continental Europe, rents
agreed on renewal fell by 0.7 per cent
(2018: 2.2 per cent lower), equating to a
less than £0.1 million reduction in the rent
roll, as market rental growth starts to get
closer to the indexation provisions that have
accumulated over recent years.
££ 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 2019, one third of our customer base
responded and 88 per cent of the 367
participants in the surveys rated their
experience as a SEGRO customer as “good”
or “excellent” (2018: 80 per cent).
28
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
OUR STR ATEGY
OPERATIONAL EXCELLENCE:
DEVELOPMENT ACTIVITY
WHAT WE SAID WE WOULD DO
We expected to continue developing
at an increased pace during 2019 and
anticipated investing over £600 million
in development capex and land.
WHAT WE ACHIEVED IN 2019
Occupier demand has continued to be
strong throughout 2019, reflected in a
record 871,800 sq m of development
completions, 92 per cent of which has
been let. During the year, we invested
£556 million in our development pipeline,
comprising £409 million on development
capital expenditure (including £18 million
on infrastructure) as well as a further
£147 million on land acquisitions.
One particularly large land transaction that
we expected to complete in 2019 carried
over into 2020 and completed in January.
WHAT TO EXPECT IN 2020
We have 826,200 sq m of development
projects under way, capable of generating
£50 million of new headline rent, of which
60 per cent has been secured.
We expect to invest in excess of
£600 million in development capex and
land, including approximately £50 million
of infrastructure expenditure.
DEVELOPMENT COMPLETIONS
871,800 sq m
2018: 673,400 sq m
CURRENT PIPELINE
POTENTIAL RENT
£50m
2018: £46.0m
CURRENT PIPELINE
YIELD ON COST
6.6%
2018: 7.1%
POTENTIAL RENT FROM
FUTURE PIPELINE
£100m
2018: £115m
During 2019, we invested £556 million in
our development pipeline which comprised
£409 million (2018: £548 million) in
development spend, of which £18 million was
for infrastructure, and a further £147 million
to replenish our land bank to enable future
development. Since the year end we also
completed the acquisition of a further 182
hectares of land that had been expected to
complete in 2019.
DEVELOPMENT PROJECTS COMPLETED
We completed 871,800 sq m of new space
during the year, a 30 per cent increase on
2018, which had already been a record year
for SEGRO. These projects were 85 per
cent pre-let prior to the start of construction
and were 92 per cent let as at 31 December
2019, generating £40.4 million of headline
rent, with a potential further £3.5 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 7.3 per cent when
fully let.
We completed 785,800 sq m of big box
warehouse space, including the first four
units at SLPEMG. Other big box completions
included pre-lets to occupiers including
Amazon, Geodis, Antony Morato, ALDI
and Porsche.
We completed 86,000 sq m of urban
warehouses, of which 90 per cent are already
let. These included five new data centres on
the Slough Trading Estate, a unit for airline
caterer DO&CO at Heathrow and further
phases of our urban warehouse parks in Berlin
and Düsseldorf.
We also completed the strategic rail freight
interchange terminal at SLPEMG and
Maritime Intermodal launched their first route
from this in early January.
CURRENT DEVELOPMENT PIPELINE
At 31 December 2019, we had development
projects approved, contracted or under
construction totalling 826,200 sq m,
representing £316 million of future capital
expenditure to complete and £50 million of
annualised gross rental income when fully
let. 60 per cent of this rent has already been
secured and these projects should yield 6.6
per cent on total development cost when
fully occupied.
££ In the UK, we have 160,700 sq m of space
approved or under construction. Within this
are two more data centres on the Slough
Trading Estate (taking the total number to
29) as well as a number of developments
in East London, including a further phase
at Rainham and our largest ever pre-let in
London at a site close to Purfleet. We are
also developing SEGRO Park Hayes in
West London, a new urban warehouse
estate close to Enfield in North London and
finally two pre-lets in our National Logistics
portfolio, one at SLPEMG and the other at
SEGRO Park Kettering.
££ In Continental Europe, we have 572,200 sq
m of space approved or under construction.
This includes pre-let big box warehouses
for a variety of different occupiers, from
retailers to manufacturers, across all
of our European markets. We are also
developing further phases of our successful
urban warehouse parks in Frankfurt and
Düsseldorf as well as new schemes in Lyon
and on the outskirts of Paris.
££ In addition to the above projects that we are
developing ourselves, we also have 93,300
sq m of space under construction as part
of forward-funded agreements with local
developers. This is proving to be a very
effective way to get access to opportunities
in competitive markets where accessing
land is more difficult.
We continue to focus our speculative
developments primarily on urban warehouse
projects, particularly in the UK, France and
Germany, where modern space is in short
supply and occupier demand is strong. In the
UK, our speculative projects are focused in
London and on the Slough Trading Estate.
In Continental Europe, we continue to
build scale in Germany, where projects are
underway in Düsseldorf and Frankfurt, as well
as in France, with projects in Lyon and Paris.
Within our Continental European
development programme, approximately
£15 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 2019, SEGRO sold £226 million of
completed assets to SELP, representing a net
disposal of £113 million.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
29
Further details of our completed projects and
current development pipeline are available
in the 2019 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 395,300 sq m of space,
equating to approximately £205 million of
additional capital expenditure and £20 million
of additional rent.
LAND BANK
Our land bank identified for future
development (including the near-term projects
detailed above) totalled 507 hectares at
31 December 2019, valued at £423 million,
less than 5 per cent of our total portfolio value.
We invested £147 million in acquiring new
land during the year, including land associated
with developments already underway or
expected to start in the short term.
We estimate that our land bank can support
2.1 million sq m of development over the
next five years. The prospective capital
expenditure associated with the future
pipeline is approximately £1.0 billion. It could
generate £100 million of gross rental income,
representing a yield on total development
cost (including land and notional finance
costs) of around 7 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.
Since the period end we acquired
approximately 182 hectares of land ideally
suited to big box warehouse development
close to Coventry in the UK.
CONDITIONAL LAND ACQUISITIONS AND
LAND HELD UNDER OPTION AGREEMENTS
USING OUR DEVELOPMENT PROGR AMME
TO HELP TR ANSFORM COMMUNITIES
Our urban warehouse developments
typically involve the regeneration of former,
often neglected, manufacturing sites and
the redevelopment of this land attracts new
businesses and brings jobs and prosperity to
the area.
We work closely with local authorities on the
section 106 agreements (or equivalent) that
form part of the planning process and we
often go above and beyond what is required.
This can involve making investment to
improve the local infrastructure, asking our
contractors to source materials from local
suppliers and advocating the recruitment of
local workers during the construction process.
Once our warehouses are occupied we also
do what we can to help our customers to
employ locally and fund training programmes
to upskill people from the surrounding
community. We also create job networks
to help connect our customers with
potential employees.
As long-term owners of our assets it is in our
interest for the communities that we are part
of to thrive. Taking this into consideration from
the very start of the development process is
key to maximising the contribution that we
can make and the impact that we can have.
Land acquisitions (contracted but subject
to further conditions) and land held under
option agreements are not included in
the figures above but together represent
significant further development opportunities.
These include sites for big box warehouses in
the UK Midlands as well as in Germany and
Italy. They also include urban warehouse sites
in East London and close to Heathrow.
The options are held on the balance sheet
at a value of £37 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 over
1.8 million sq m of space and generating
approximately £116 million of headline
rent (SEGRO share) for a blended yield of
approximately 7 per cent.
ENVIRONMENTAL IMPACT
The carbon generated through our
development activity is a significant part of
our total carbon footprint and we understand
that, as a developer, we are responsible for
minimising the environmental impact of our
activity and making our buildings as efficient
as possible to operate.
Of the eligible certified space completed in
2019, 94 per cent has been accredited as
BREEAM ‘Excellent’ or ‘Very Good’ (or a
local equivalent).
We pay attention to our use of energy,
resources and materials throughout the
construction of our warehouses and are
increasingly looking at how we can use design
to minimise the carbon footprint of them
throughout their entire life cycle. We now
regularly include features such as LED lighting,
transparent panels to improve natural daylight,
water recycling systems and electric vehicle
charging points.
We are also investigating ways of offsetting
the carbon that we produce, for example
by installing solar panels on our buildings to
produce renewable energy. During 2019 we
increased our renewable energy capacity by
38 per cent, bringing it to 18.5 MW, enough
to power 4,500 homes.
30
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
OUR STR ATEGY
OPERATIONAL EXCELLENCE:
REGIONAL REVIEW
GREATER LONDON
OPER ATING SUMMARY OF THE YEAR
££ Strong performance in capturing reversionary potential across the London
portfolio, generating a 34.1 per cent uplift (equating to over £7 million of
headline rent) compared to previous rents
££ Significant progress in the development of our East+ portfolio with the
completion of projects at SEGRO Park Newham and good take up of
speculatively developed space at SEGRO Park Rainham
OPPORTUNITIES FOR THE YEAR AHEAD
££ 98,300 sq m of new urban warehouses under construction across all
parts of London including the second phase of SEGRO Park Rainham in
East London, the redevelopment of SEGRO Park Hayes in West London
and our largest ever London pre-let (by rent) in East London for Ocado
££ We continue to look into opportunities for growth within London’s
Opportunity Areas and to consider ways of intensifying land use so that
we can continue to support our customers’ growth plans
RISKS FOR THE YEAR AHEAD
££ Land continues to be in limited supply but our market position and strong
network gives us access to off-market opportunities
££ There has been limited impact on our portfolio from the uncertainty
surrounding the UK’s position in Europe and until it has been finalised
we remain alert to the potential risks of this
OPER ATING SUMMARY OF THE YEAR
££ Vacancy has remained low at 2.4 per cent and customer retention has
remained high
££ We completed five new data centres on the Slough Trading Estate, adding
£5 million to the rent roll. We also completed two new buildings at our
new estate SEGRO Park Bracknell and both are already fully leased
OPPORTUNITIES FOR THE YEAR AHEAD
££ We have another two data centres under construction, both due for
completion in 2020, adding another £3 million of rental income
££ We have a further four warehouses being speculatively developed
on the Slough Trading Estate and another on SEGRO Park Bracknell
££ Continued strong interest from the data centre sector driven by the
increasing importance of digital ecosystems
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
££ There has been limited impact on our portfolio from the uncertainty
surrounding the UK’s position in Europe and until it has been finalised
we remain alert to the potential risks of this
RENTAL GROW TH ACROSS THE LONDON PORTFOLIO
Our strategy in London continues to deliver results with
consistent rental growth across all of the sub-markets in
which we operate. We have made very good progress in
capturing the revisionary potential that has accumulated
across the portfolio, supported by strong occupier
demand from a wide variety of businesses, all of whom
need to be close to their customers and their labour force.
We have taken advantage of our strong competitive
position in London to create some off-market
opportunities for asset and land acquisitions so that we
can continue to grow the portfolio.
THAMES VALLEY
MODERNISING THE SLOUGH TR ADING ESTATE AND
EXPANDING OUR PRESENCE IN THE THAMES VALLEY
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. We continue to attract data
centres due to the close proximity of the estate to London,
the access to a robust power supply and the
fibre-optic connectivity.
We are expanding our presence in the Thames Valley
with addition of our new estate SEGRO Park Bracknell.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
31
NATIONAL LOGISTICS (UK BIG BOX WAREHOUSES)
FOCUSING OUR UK BIG BOX STR ATEGY ON LOGISTICS
PARKS
We continue to see high levels of interest for our well-
located logistics parks despite an uptick in speculative
development in the Midlands.
During the year we made good progress at SEGRO
Logistics Park East Midlands Gateway (SLPEMG) and have
also secured our first pre-let at SEGRO Park Kettering.
We continue to work on bringing major sites forward
for development and intend to focus our investment on
logistics parks rather than stand-alone assets.
NORTHERN EUROPE (GERMANY AND NETHERLANDS)
CONTINUING TO BUILD OUT OUR URBAN PORTFOLIO
IN GERMANY AND FOCUSED ON ACHIEVING SCALE IN
THE NETHERLANDS
A very strong period of performance in both leasing
and development.
We continue to build out our urban warehouse portfolio
in Germany and see high levels of occupier demand for
our well-located, modern warehouses, and this resulted in
strong rental growth during 2019.
We are also focused on achieving scale in the Netherlands
and made good progress during the period.
OPER ATING SUMMARY OF THE YEAR
££ Completed four buildings at SLPEMG, generating £11 million of
additional rent. We also completed the infrastructure work and the
Strategic Rail Freight Interchange, which became operational in
January 2020
££ Secured our first pre-let at SPK and a further pre-let at SLPEMG, both
of which should complete in summer 2020
OPPORTUNITIES FOR THE YEAR AHEAD
££ We will be working hard to secure further pre-lets at SLPEMG and SPK
££ Since the year end we have purchased and commenced the infrastructure
work at SEGRO Park Coventry, which will provide 343,700 sq m of
logistics and manufacturing space
RISKS FOR THE YEAR AHEAD
££ Speculative development of big box warehouses in the UK rose in 2019
in response to continued strong occupier demand. We expect rental
growth to be modest during 2020 but are continuing to receive high
levels of enquiries for our well-located logistics parks
££ There has been limited impact on our portfolio from the uncertainty
surrounding the UK’s position in Europe and until it has been finalised
we remain alert to the potential risks of this
OPER ATING SUMMARY OF THE YEAR
££ Another record year of development with 173,300 sq m of space
created in Germany, including 31,500 sq m of urban warehouse space
in Düsseldorf and Berlin
££ Strong performance in leasing recently completed speculative
developments has resulted in the vacancy rate improving to 7.0 per cent,
almost all of which is modern, recently completed space
££ Strong customer relationships and active asset management of our
portfolio resulted in a 98 per cent retention rate
OPPORTUNITIES FOR THE YEAR AHEAD
££ We have 145,500 sq m of new developments currently under
construction, including our urban warehouse park in Rodelheim, another
phase of our urban scheme in Düsseldorf Süd and developments close
to Schiphol airport in Amsterdam
££ We will be working hard to secure lettings at our recently completed
urban warehouses in Germany and continuing to look for opportunities
to build scale in the Netherlands
RISKS FOR THE YEAR AHEAD
££ We continue to remain alert to the potential risks of slowing economic
growth in the Eurozone but the impact on occupier demand has so far
been limited
32
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
OUR STR ATEGY
OPERATIONAL EXCELLENCE:
REGIONAL REVIEW
CONTINUED
SOUTHERN EUROPE (FR ANCE, ITALY AND SPAIN)
STRONG OCCUPIER DEMAND DRIVEN BY
E-COMMERCE
The increased level of e-commerce penetration in
Southern Europe is resulting in strong demand for our
modern warehouse as retailers re-engineer their supply
chains and seek space close to their end customers.
This has resulted in very strong rental growth in France,
whilst in Italy our development pipeline continues to
generate significant additional rental income. We have also
completed a number of developments in Spain and are
getting closer to achieving scale.
CENTRAL EUROPE (POLAND AND CZECH REPUBLIC)
FOCUSED ON FIVE KEY LOGISTICS MARKETS AND
URBAN WAREHOUSING IN WARSAW AS WELL AS
GROWING OUR PORTFOLIO AROUND PR AGUE
The Polish market remains competitive but we have made
good progress during 2019. We have acquired assets in
Wrocław, a key target market, and exited Gdan’ sk.
There is an increased demand for urban warehousing in
Warsaw and we have secured additional land during the
year to extend our portfolio.
The demand for industrial space remains strong in the
Czech Republic.
OPER ATING SUMMARY OF THE YEAR
££ Completed 409,800 sq m of development in France, Italy and Spain,
generating a potential £16 million of rent, almost 90 per cent of which has
been secured
££ Vacancy rate remains low at 4.8 per cent, reflecting healthy occupier
demand for our well-located portfolio and we made good progress in
leasing recently completed speculative developments
OPPORTUNITIES FOR THE YEAR AHEAD
££ Leasing up our speculatively developed space in Barcelona and Madrid
££ We have 455,400 sq m of development underway in Southern Europe,
including a number of urban warehouse schemes in Paris, further pre-let
big box warehouses for major retailers in Italy and additional development
close to Madrid
RISKS FOR THE YEAR AHEAD
££ Large infrastructure projects in Paris (Grand Paris and 2024 Olympics)
continue to put pressure on building costs and contractor availability.
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 tends to comprise a higher level of speculative
projects in line with the market norm, meaning that there is heightened
letting risk compared to most of our other markets
OPER ATING SUMMARY OF THE YEAR
££ Continued low vacancy of only 3.5 per cent in our Central
European portfolio
££ Active asset management of the portfolio, resulting in rental growth and
development opportunities
££ Acquisition of assets and land in Wrocław have helped us to strengthen
our position in this market
OPPORTUNITIES FOR THE YEAR AHEAD
££ 64,600 sq m of pre-let big box warehouse space under development in
Poland, including development on land that we acquired in 2019
££ Continuing to strengthen our market position in Poland by focusing
on the five major logistics markets (Poznan, Łódz, Gliwice, Warsaw and
Wrocław) and commencing the development of further urban warehouses
in Warsaw
RISKS FOR THE YEAR AHEAD
££ Competition for customers in Poland remains strong, particularly from
trader-developers, which may impact the potential for rental growth
££ A wider European macro economic slowdown could negatively impact
occupier demand
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
33
OPERATIONAL EXCELLENCE:
SELP
SEGRO EUROPEAN LOGISTICS PARTNERSHIP (SELP)
SELP is 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 2019, it has a portfolio worth just under
€4.5 billion. It generates €222 million of headline rent with an
occupancy rate of 94 per cent.
This partnership continues to be 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 have been 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
under management 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 2019
Assets under management at inception
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34
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCE REVIEW
EFFICIENT CAPITAL STRUCTURE
STRONG OPERATING RESULT
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 2019
Through a combination of asset disposals
and the increase in value of our portfolio,
the LTV at 31 December 2019 is 24 per
cent. Our cost of debt remains low at 1.7
per cent.
WHAT TO EXPECT IN 2020
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 £1.4 billion (including our share of joint
ventures) on which we can draw to fund
our investment plans.
ADJUSTED PROFIT BEFORE TAX
£267.5m
2018: £241.5m
IFRS PROFIT BEFORE TAX
£902.0m
2018: £1,099.1m
NEW FINANCING DURING THE YEAR
£0.5bn
2018: £0.4bn
LOOK-THROUGH LOAN
TO VALUE R ATIO
24%
2018: 29%
During 2019, we have taken advantage of
favourable financing conditions to improve the
capital structure of both SEGRO and SELP.
FINANCING
In February 2019, SEGRO issued 71 million
new shares, raising £451 million of gross
proceeds to help to fund our development
programme while also retaining an
appropriate capital structure. The shares were
issued at 635 pence per share, a 2 per cent
discount to the prior day’s closing share price.
In May 2019, SEGRO redeemed its
£250 million 5.625 per cent sterling bonds
due to mature in 2020 and, in September
2019, we extended the maturity of
£915 million of revolving credit facilities for a
further year to 2024.
In April 2019, SELP executed a new
€200 million syndicated revolving credit
facility, with a 2023 maturity. This means that
SELP now has total revolving credit facilities
of €500 million to help fund its development
programme. In June 2019, SELP issued a
€500 million, 7.5 year unsecured bond at a
coupon of 1.5 per cent. The proceeds were
used to refinance existing bank borrowings
as well as provide additional liquidity to
the venture.
As 31 December 2019, the gross
borrowings of SEGRO Group and its
share of gross borrowings in joint ventures
totalled £2,637.8 million (31 December
2018: £2,803.6 million), all but £27.6 million
(31 December 2018: £29.8 million) of which
were unsecured, and cash and cash equivalent
balances were £153.5 million (31 December
2018: £90.2 million). Average debt maturity
was 10.0 years (31 December 2018: 10.2
years) and average cost of debt (excluding
non-cash interest and commitment fees) was
1.7 per cent (31 December 2018 1.9 per cent).
Funds available to SEGRO Group
(including its share of joint venture funds) at
31 December 2019 totalled £1,370.0 million
(31 December 2018: £1,248.9 million),
comprising £153.5 million cash and short term
investments and £1,216.5 million of undrawn
bank facilities of which only £8.5 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.
MONITORING AND MITIGATING
FINANCIAL RISK
As explained in the Risks section on page 65
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 (“look-through”)
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 2019 on this basis
was 24 per cent (31 December 2018: 29 per
cent), reflecting a combination of lower total
debt levels mainly due to the new equity
raised in early 2019 and the increase in the
value of the portfolio during the course of
the year.
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 2019, as defined within
the principal debt funding arrangements of
the Group, was 23 per cent (31 December
2018: 33 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 64 per cent from their 31 December
2019 values to reach the gearing covenant
threshold of 160 per cent. A 64 per cent fall in
property values would equate to an LTV ratio
of approximately 68 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 2019, the Group comfortably
met this ratio at 6.2 times. On a proportionally
consolidated basis, including joint ventures,
this ratio was 6.3 times.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
35
a reduction in gearing of approximately
1.8 per cent and in the LTV of 1.5 per cent.
The average exchange rate used to translate
euro denominated earnings generated during
2019 into sterling within the consolidated
income statement of the Group was
€1.14:£1. Based on the hedging position at
31 December 2019, and assuming that this
position had applied throughout 2019, if the
euro had been 10 per cent weaker than the
average exchange rate (€1.25:£1), Adjusted
profit after tax for the year would have been
approximately £7.8 million (3.0 per cent)
lower than reported. If it had been 10 per cent
stronger, Adjusted profit after tax for the year
would have been approximately £9.6 million
(3.6 per cent) higher than reported.
GOING CONCERN
As noted in the financial position and funding
section above, the Group has a very strong
liquidity position, a favourable debt maturity
profile and substantial headroom against
financial covenants. Accordingly, it can
reasonably expect to be able 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 these
financial statements.
We mitigate the risk of over-gearing the
Company and breaching debt covenants by
carefully monitoring the impact of investment
decisions on our LTV and by stress-testing
our balance sheet to potential changes in
property values.
Our intention for the foreseeable future is
to maintain our LTV at around 30 per cent,
lower than our mid-cycle target of 40 per
cent. This provides the flexibility to take
advantage of investment opportunities and
ensures significant headroom compared to our
tightest gearing covenants should property
values decline.
At 31 December 2019, the only debt maturity
falling due within 12 months is a €59 million
secured facility in SELP. The weighted average
maturity of the gross borrowings of the Group
(including joint ventures at share) was 10.0
years. With a majority of the Group’s bank
debt facilities not due to mature until 2024,
and no Group debt maturities in 2020, this
long average debt maturity translates into a
favourable, well spread debt funding maturity
profile which reduces future refinancing risk.
INTEREST R ATE 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 2019, including the impact of
derivative instruments, 89 per cent (2018: 67
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 fixed only level of debt is 57 per
cent at 31 December 2019 (31 December
2018: 53 per cent).
FINANCIAL POSITION AND FUNDING
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
2019, the adjusted net finance cost of the
Group would have increased by approximately
£8.9 million representing around 3 per cent of
Adjusted profit after tax.
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
eliminated from Adjusted profit after tax.
FOREIGN CURRENCY TR ANSLATION RISK
The Group has minimal 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 its foreign currency gross assets
using either borrowings or derivative
instruments. The Group targets a hedging
range of between the last reported LTV ratio
(31 December 2019: 24 per cent) and 100
per cent. At 31 December 2019, the Group
had gross foreign currency assets which
were 65 per cent hedged by gross foreign
currency denominated liabilities (31 December
2018: 67 per cent).
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
2019 weakened by 10 per cent against sterling
(to €1.30, in the case of euros), net assets
would have decreased by approximately
£98 million and there would have been
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)
31 December 2019
31 December 2018
SEGRO
Group
SEGRO Group
and JVs at share
SEGRO
Group
SEGRO Group
and JVs at share
1,811.0
1,173.2
2,484.3
1,370.0
2,177.0
1,177.8
2,713.4
1,248.9
23
22
1.8
6.2
11.6
N/A
24
1.7
6.3
10.0
33
28
2.1
4.5
11.4
N/A
29
1.9
4.9
10.2
1 Based on gross debt, excluding commitment fees and non-cash interest.
2 Net rental income/Adjusted net finance costs (before capitalisation).
36
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
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 current period there
have been no such adjustments. In the prior
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.
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.
ADJUSTED PROFIT (NOTE 2)
GROSS RENTAL INCOME
2019
£m
2018
£m
362.0
323.2
PROPERTY OPERATING EXPENSES
(80.7)
(75.6)
NET RENTAL INCOME
JOINT VENTURE FEE INCOME
ADMINISTRATION EXPENSES
281.3
247.6
20.4
44.9
(51.5)
(44.1)
SHARE OF JOINT VENTURES’ ADJUSTED PROFIT1
54.0
39.0
ADJUSTED OPERATING PROFIT BEFORE
INTEREST AND TAX
304.2
287.4
NET FINANCE COSTS
(36.7)
(45.9)
ADJUSTED PROFIT BEFORE TAX
267.5
241.5
TAX ON ADJUSTED PROFIT
(3.2)
(4.4)
NON-CONTROLLING INTERESTS SHARE
OF ADJUSTED PROFIT
(0.2)
(0.6)
ADJUSTED PROFIT AFTER TAX
264.1
236.5
1 Comprises net property rental income less administration expenses, net interest expenses
and taxation.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
37
NET RENTAL INCOME
1
ADMINISTR ATIVE AND
OPER ATING COSTS
1 3
ADJUSTED PROFIT
5
£33.7m higher
Cost ratio: 22.9%
£26.0m higher
Adjusted profit before tax increased
by 10.8 per cent to £267.5 million
(2018: £241.5 million) during 2019 as a
result of the above movements (see Note 2).
TAXATION
6
Effective rate: 1.2%
The tax charge on Adjusted profit of
£3.2 million (2018: £4.4 million) reflects
an effective tax rate of 1.2 per cent
(2018: 1.8 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.
ADJUSTED EARNINGS PER SHARE
24.4p, +4.3%
Adjusted earnings per share are 24.4 pence
compared to 23.4 pence in 2018 (which
included 1.2 pence in respect of the SELP
performance fee).
Net rental income increased by £33.7 million
to £281.3 million, reflecting the positive
net impact of like-for-like rental growth,
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 £13.6 million, or 4.8 per cent, compared
to 2018. This is due to strong rental
performance across our portfolio (UK: 5.7
per cent increase and Continental Europe:
3.1 per cent increase).
INCOME FROM JOINT VENTURES
2 3
£9.5m lower
Joint venture fee income decreased by
£24.5 million to £20.4 million. This decrease
is due to a performance fee from SELP
of £26.2 million that was recognised and
paid in the prior year.
SEGRO’s share of joint ventures’ Adjusted
profit after tax increased by £15.0 million
from £39.0 million in 2018 to £54.0 million
in 2019. The increase is due to underlying
growth in the SELP joint venture and the
inclusion, in the prior year, of performance
fee costs of £11.9 million (at share, being
£13.1 million less tax of £1.2 million).
The share of joint ventures’ Adjusted profit
after tax are primarily from the SELP joint
venture in 2019.
The performance fee is calculated and
receivable every five years should the SELP
property portfolio meet certain performance
criteria. It does not meet the recognition
criteria in this period due to the volatility and
uncertainty around its measurements.
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 2019 has been maintained at
22.9 per cent in line with 2018, above our
20 per cent target. The calculation is set out
in Table 7 of the Supplementary Notes to
the Financial Statements.
Total costs in respect of the cost ratio
calculation (see Table 7), have increased
by £10.7 million to £95.2 million in 2019
with a proportional increase in gross rental
income, by £46.0 million to £414.9 million
(see Table 7), has maintained the cost ratio
consistent with the prior year. The increase
in costs include increased property operating
costs following the growth of the property
portfolio (see Note 5) and staff costs (see
Note 6).
Excluding share-based payments, the cost
ratio would be 19.9 per cent, unchanged
compared to 2018.
Total costs (see Note 5) have increased
by £47.4 million to £123.9 million.
This is primarily due to the inclusion of
£43.2 million trading property cost of sales.
Costs also include service charge expenses
of £27.6 million (2018: £25.5 million),
previously shown net, as detailed further in
Note 1.
NET FINANCE COSTS
£9.2m lower
4
Net finance costs (including adjustments)
decreased by £9.2 million in 2019 to
£36.7 million primarily as a result of lower
debt levels across the year compared to the
prior period as a result of the equity placing
and lower average cost of debt following the
repayment of debt in the current period.
Net finance costs also include £3.0 million in
respect of interest on lease liabilities following
the adoption of IFRS 16 (see Note 1).
1 The like-for-like rental growth metric is based on properties held throughout both 2019 and 2018 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. Further details are given in Table 9 of the supplementary notes.
38
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCE REVIEW
EFFICIENT CAPITAL STRUCTURE
STRONG OPERATING RESULT
CONTINUED
CASH FLOW AND NET DEBT
RECONCILIATION
Overall, net debt has decreased in the year
from £2,177.0 million to £1,811.0 million.
Cash flow generated from operations was
£210.3 million in 2019, an increase of
£10.0 million from 2018. The underlying
increase in cash flows from operating
activities (£56.5 million) is driven by increased
Adjusted profit in the year including
favourable movements in trading properties
of £30.9 million, largely due to a disposal
during the year. This is offset by tax paid of
£46.9 million, primarily in Italy from property
disposals in the prior period.
The Group made net investments of
£217.2 million of investment and development
properties (including options and loans to
joint ventures) during the year on a cash
flow basis (2018: £276.5 million investment).
This includes cash from disposals of
£412.4 million (2018: £480.4 million) the
largest of which was a portfolio of UK big
box warehouses where £75.4 million of
the proceeds were deferred until 2021 (see
Note 14 for further details). The Group spent
£602.9 million (2018: £637.1 million) to
purchase and develop investment properties,
and it invested £12.2 million in joint ventures
(2018: £99.2 million divestment).
The largest financing cash flow arose in
respect of proceeds from the issue of shares
primarily from an equity placing undertaken
in February 2019. Other significant cash
flows include dividends paid of £141.7 million
(2018: £120.4 million) where cash flows are
lower than the total dividend due to the level
of scrip uptake.
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 £892.8 million, a
decrease of £64.2 million compared to 2018.
More detail on acquisitions can be found in
the Disciplined Capital Allocation section of
Our Strategy on pages 24 to 25.
Development capital expenditure of
£408.7 million was spent in the year
(2018: £548.2 million) across all our business
units, particularly Southern Europe, reflecting
our development led growth strategy.
Development spend incorporates interest
capitalised of £9.0 million (2018: £10.0 million)
including joint ventures at share.
Spend on existing completed properties, none
of which increased lettable space, totalled
£30.8 million (2018: £30.3 million), of which
£17.4 million (2018: £17.1 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 5 per cent of
EPRA NET ASSET VALUE
p
4
6
p
0
5
6
p
4
2
p
)
0
2
(
p
)
2
(
p
)
2
(
p
)
6
(
p
8
0
7
IFRS PROFIT
IFRS profit before tax in 2019 was
£902.0 million (2018: £1,099.1 million),
equating to basic post-tax IFRS earnings per
share of 79.3 pence compared with 105.4
pence for 2018, principally reflecting lower
realised and unrealised gains in the wholly-
owned portfolio.
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
£496.1 million in 2019 (2018: £852.6 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 £476.7 million
(2018: £791.4 million) and a profit of
£7.2 million on investment property disposals
(2018: £56.5 million).
SEGRO’s share of realised and unrealised
gains on properties held in joint ventures
was £214.2 million (2018: £101.1 million)
largely in respect of the SELP portfolio and is
further analysed in Note 7. The SELP portfolio
is entirely based in Continental Europe
where capital growth was above that in the
UK (where the majority of the wholly-owned
portfolio is located).
The cost of closing out debt in the year was
£18.6 million (2018: £6.4 million) following
the buy-back of the SEGRO bonds maturing
in 2020. IFRS earnings were also impacted
by a net fair value gain on interest rate
swaps and other derivatives of £7.9 million
(2018: £22.0 million loss) and a tax charge of
£41.4 million (2018: £33.0 million) of which
£38.2 million (2018: £28.6 million) arises in
respect of adjustments, primarily in relation to
property valuation movements.
BALANCE SHEET
At 31 December 2019, IFRS net assets
attributable to ordinary shareholders
were £7,677.6 million (31 December
2018: £6,564.0 million), reflecting 697
pence per share (31 December 2018: 644
pence) on a diluted basis.
EPRA NAV per share at 31 December 2019
was 708 pence (31 December 2018: 650
pence). The 8.9 per cent increase primarily
reflects property gains in the period. The chart
opposite highlights the other principal factors
behind the increase. A reconciliation between
IFRS and EPRA NAV is available in Note 12
to the Financial Statements.
EPRA net
assets
attributable
to ordinary
shareholders
at
31 December
2018
Realised and
unrealised
property gain
Adjusted profit
after tax
and
non-
controlling
interests
Dividend net
of scrip
shares issued
(2018 final
& 2019 interim)
Early
repayment
of debt
Issue
of shares
Other
including
exchange
rate
movement
EPRA net
assets
attributable
to
ordinary
shareholders
at
31 December
2019
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
39
2010-19
DELIVERING PROCEEDS OF GROW TH
Since 2010, SEGRO has distributed
£1.3 billion in dividends to its shareholders.
In 2010, SEGRO paid dividends worth
£104 million; in 2019, that figure was
£213 million.
FOR MORE INFORMATION, PLE ASE VISIT:
W W W.SEGRO.COM/ABOUT-US/2020
Adjusted profit before tax and less than 2 per
cent of total spend.
In considering the final dividend, the Board
took into account:
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 by 1.15 pence to 14.4
pence (2018: 13.25 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 1 May 2020 to
shareholders on the register at the close of
business on 19 March 2020.
££ 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 2019 and the outlook
for earnings.
The total dividend for the year will, therefore,
be 20.7 pence, a rise of 10.1 per cent on 2018
(18.8 pence) and represents distribution of
85 per cent of Adjusted profit after tax and
Adjusted EPS.
As at 31 December 2019, 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 2019 of over 4 times
(2018: 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 2019 final dividend,
allowing shareholders to choose whether
to receive the dividend in cash or new
shares. In 2019, 36 per cent of the 2018 final
dividend and 36 per cent of the 2019 interim
dividend was paid in new shares, equating
to £71 million of cash retained on the
balance sheet.
CASH FLOW BRIDGE (£m)
)
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Opening
net debt
Cash flows
from
operating
activities
before
debt
close out
costs
Finance
costs
(net)
Debt and
IRS close
out costs
Dividends
received
(net)
Tax
paid
Dividends
paid
Acquisition
and
development
of investment
property
Investment
property
sales
(including
joint
ventures)
Acquisition
of interest
in property
and other
investments
Net
investment
in joint
ventures
Proceeds
from
issue of
shares
Net
settlement
of foreign
exchange
derivatives
Exchange
rate
movements
Purchase
of NCI
Other
Closing
net debt
40
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
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 97-117
WE APPLY OUR STR ATEGY
TO MAXIMISE PERFORMANCE:
OUR
GOAL
TOTAL PROPERTY RETURN
(% TPR)1
EPR A NAV PER SHARE
(PENCE)2 3
10.5%
708p
2019
2018
2017
2016
2015
10.5%
15.4%
9.3%
18.9%
19.0%
2019
2018
2017
2016
2015
708p
650p
556p
478p
443p
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 100 to 114.
OUR PERFORMANCE: The TPR of the Group’s standing
assets held throughout 2019 was 10.5 per cent (2018: 15.4
per cent). The UK portfolio generated a TPR of 6.3 per cent,
performing slightly behind the benchmark calculated by MSCI
Real Estate of 6.9 per cent. The TPR of our Continental Europe
portfolio was 19.6 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 58 pence
per share over the year to 31 December 2019, most of which
was due to a 7.5 per cent like-for-like increase in the value of the
Group’s property portfolio. Diluted NAV per share increased by
53 pence to 697 pence. The reconciliation between Diluted NAV
per share and EPRA NAV per share can be found in Note 12(ii)
on page 159.
DISCIPLINED
CAPITAL
ALLOCATION
OPERATIONAL
EXCELLENCE
EPR A VACANCY R ATE
(%)
CUSTOMER SATISFACTION
(%)
EFFICIENT CAPITAL &
CORPORATE STRUCTURE
4.0%
88%
RE AD MORE ABOUT HOW WE ARE DELIVERING
ON OUR STR ATEGY:
OUR STR ATEGY
PAGES 22-33
PRINCIPAL RISKS
PAGES 65-72
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 KPIS IS IDENTIFIED IN THE
PRINCIPAL RISKS ON PAGES 65-72
2019
2018
2017
2016
2015
4.0%
4.0%
5.2%
5.7%
4.8%
2019
2018
2017
2016
2015
88%
80%
87%
79%
77%
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 decreased
to 4.0 per cent (31 December 2018: 5.2 per cent) reflecting a
strong performance in letting recently completed speculative
developments and some vacant asset disposals. Further details
can be found in Table 6 on page 195.
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 88 per cent
of the 367 customers which participated in the 2019 survey
(2018: 80 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. 96 per cent of our customers
said that they would recommend SEGRO to others.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
41
DISCIPLINED
CAPITAL ALLOCATION
OPER ATIONAL
EXCELLENCE
EFFICIENT CAPITAL AND
CORPOR ATE STRUCTURE
ITEMS ARE DIRECTLY
CAPTURED IN SEGRO’S
INCENTIVE SCHEMES
ADJUSTED EPS
(PENCE) 3
24.4p
LOAN TO VALUE R ATIO (LTV)
(% INCLUDING JOINT VENTURES AT SHARE)
TOTAL SHAREHOLDER RETURN
(% TSR)
56.8%
24%
2019
2018
2017
2016
2015
24%
2019
56.8%
2019
29%
30%
33%
38%
2018
3.1%
2017
2016
2015
10.8%
20.1%
38.7%
2018
2017
2016
2015
24.4p
23.4p
19.9p
18.8p
17.6p
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 and excludes
head lease ROU asset) 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 30-35 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
24 per cent from 29 per cent year on year. This reduction was
primarily due to the equity raise in February 2019 combined
with the proceeds from disposals and the unrealised gain on the
value of our portfolio. 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 56.8
per cent, compared with 33.5 per cent for the FTSE 350 Real
Estate index. This performance reflects a combination of the
19.55 pence dividend (13.25 pence 2018 final dividend and
6.3 pence 2019 interim dividend) paid during the year and an
increase in the share price from 589 pence at 31 December
2018 to 897 pence at 31 December 2019. The 71 million new
shares issued in February 2019 were entitled to receive the 2018
final dividend.
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 158.
OUR PERFORMANCE: Adjusted EPS increased by
4.3 per cent during the year, reflecting higher rental income
from our standing assets, new income from acquisitions and
developments, and lower financing costs, partly offset by higher
administrative and operating costs and lower joint venture fee
income. The increase was 9.9 per cent excluding the 1.2p SELP
performance fee received in 2018.
TOTAL COST R ATIO
(%)
22.9%
RENT ROLL GROW TH
(£)
£54.5m
2019
2018
2017
2016
2015
22.9%
22.9%
2019
2018
£54.5m
£53.5m
24.6%
2017
£41.5m
23.0%
22.2%
2016
2015
£29.7m
£23.6m
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 was stable at 22.9
per cent (2018: 22.9 per cent). Excluding share-based payments,
the total cost ratio would have been 19.9 per cent, the same as
in 2018 (19.9 per cent). Further details can be found in Table 7
on page 196.
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 £54.5 million
of net new annualised rent during the year (2018: £53.5 million).
The increase was driven substantially by higher rents on review
and renewal in the UK, with Heathrow Cargo Centre making
a significant contribution, and by the increased volume of
rent from development completions and pre-let agreements
secured during the year.
1 The TPR has been calculated independently by MSCI Real
Estate 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 193
to 198 (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.
42
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
RESPONSIBLE SEGRO
RESPONSIBLE SEGRO
our suppliers and investors, as well as to the
environment and the communities in which
we operate. None is more important than
our commitment to the highest standards
of Health and Safety for our own people
and those who work on our buildings.
Our business model is based on long-term
ownership of our properties which, in turn,
allows us to take a long-term perspective,
both in terms of the buildings themselves
and our customers, but also to the needs
of the communities living around and
working in our assets.
We use the latest techniques to ensure
that the buildings are high quality and
environmentally sustainable and, as a result,
have a longer lifespan than their predecessors,
while also making sure that they are efficient
for our customers to run.
Long-term ownership also means that
our own people have the time to nurture
relationships with customers in our buildings,
as well as with our neighbours, suppliers,
local authorities and municipalities, which is
crucial to building their trust that we will act
in all our stakeholders’ best interests.
We believe that this long-term approach
to what we do and how we do it has
enabled us to create significant value and
creates a compelling investment case
for our shareholders, lenders and joint
venture partners.
As we look towards the next hundred
years, we are determined that our unique
combination of culture, buildings, relationships
and expertise means that SEGRO can be a
dynamic force for good over the long term.
HEALTH AND SAFETY
Health and Safety is central to all our
business activities. It is our responsibility
to ensure that we provide and promote
a healthy, safe and secure environment
in which our employees and customers
can work, extending throughout our supply
chain, including development projects.
OUR PEOPLE
It is our responsibility to make SEGRO
a place where people feel fulfilled by the
work that they do, are inspired by the
environment they work in and are supported
and developed to reach their full potential.
We have just over 300 employees who help
manage, maintain and build our portfolio
and run the business.
DAVID SLEATH
CHIEF EXECUTIVE
OVERVIEW
Understanding the needs and priorities
of our customers and wider stakeholders
has been at the heart of our business for
100 years. Just as the expectations of those
stakeholders have evolved, so have we.
SEGRO is a leader in providing modern,
adaptable warehousing to high sustainability
standards both in their development and
in their operation. We recognise that society
is facing a significant challenge from climate
change and, as a major property owner,
we recognise our responsibility to contribute
to global efforts to prepare for climate change,
and to minimise the impact we have on the
environment. Our responsibility goes well
beyond the space we own, and we work
hard to make a positive contribution to our
customers, our people, our partners and
the communities in which we operate.
As we enter our second century, we will
continue to work with our existing, and new,
stakeholders as we adapt and respond to
the opportunities and risks ahead of us in
a responsible and sustainable way.
Much of this Annual Report is focused on
what we do as a business and the financial
returns we generate. Responsible SEGRO
is the framework we use to explain how
we do business.
We are celebrating our centenary in 2020,
having reached our 70th year as a listed
company late in 2019. Throughout that
history we have always recognised our
responsibilities to our stakeholders, from
our own people to our customers and
OUR COMMUNITY
It is our responsibility, as a long-term investor
in our assets and local areas, to take a strategic
approach to our communities, understanding
the specific needs of the areas in which we
operate, ensuring that we deliver long-term
economic and social benefits. We take pride
in regeneration and believe that we make
a positive difference to areas where we
have a presence, particularly through the
provision of employment opportunities and
economic prosperity.
OUR ENVIRONMENT
It is our responsibility, as a long-term
investor in our properties, to utilise the latest
technologies and construction techniques
to ensure that our buildings are efficient
to build and use, and stand the test of time.
We recognise that our planet is facing a
significant challenge from climate change and
it is our responsibility as a property owner
and developer, and as an employer, to play
our part in helping to combat the challenge of
climate change and natural resource depletion.
OUR OTHER STAKEHOLDERS
It is our responsibility to build and maintain
strong relationships with our customers,
suppliers, investors and other partners.
Without these stakeholders, our business
would not exist and we recognise that fair
treatment, regular communication and
their understanding of our priorities and
our understanding of theirs are vital to
ensuring mutual success.
OU
R C
E
L
P
R PE O
U
O
O
U
R
S
T
A
K
E
H
O
L
HEALTH & S A F
DERS
O
M
M
U
N
I
T
Y
T
N
E
M
N
VIR O
N
T
E
Y
O U R E
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
43
RESPONSIBLE SEGRO
HEALTH AND SAFETY
The focus on Health and
Safety is at the core of
our business.”
ANDY GULLIFORD
CHIEF OPER ATING OFFICER
HEALTH AND SAFETY WORKING GROUP
In 2019, the Health & Safety Working Group was
created to ensure further proactive collaboration
and communication on important health and
safety topics relevant to SEGRO’s activities.
The Working Group is chaired by the Group
Health & Safety Manager and consists of Health
& Safety Representatives from each of the seven
European businesses within the Group, alongside
a Human Resource representative. The quarterly
meetings include a site visit to an operational
asset or construction site and external specialists
providing topical training.
The Working Group’s responsibilities include
overseeing the effectiveness of the implementation
of, and compliance with, the Group Health & Safety
Policy and Safety Management System to ensure
the health, safety and security of all employees,
visitors and contractors. The Working Group
also provides relevant recommendations to the
Operations Committee (chaired by the Chief
Operating Officer) which remains SEGRO’s Health
& Safety Committee for the Group. The Working
Group ensures the sharing of best practice across
the business, the understanding of the latest
regulations and standards from external bodies
and the implementation and enhancement of
SEGRO’s overall Health & Safety policies.
During the year, the Working Group visited
UK and Italian construction sites and worked
collectively to update local level safety training,
improve construction standards on SEGRO
projects with supporting guidance and local
level safety reviews, and continue to promote
and improve the safety on our existing estates.
OUR COMMITMENT
It is our responsibility to ensure that we
provide and promote a healthy, safe and
secure environment in which our employees
and customers can work; this extends
throughout our supply chain, including
development projects. We aim to achieve
these high standards through a combination
of risk mitigation, training and promoting
a widespread awareness and culture of
health and safety.
OVERSIGHT
Health and Safety is at the core of our
business. The Board maintains a strategic
oversight, discussing key topics and
receiving regular reports throughout the
year as well as an annual update from
the Group Health and Safety Manager.
The Executive Committee discusses health
and safety on a monthly basis and receives
annual training to continue its awareness
of key issues within the industry. The Chief
Operating Officer takes responsibility for
the implementation of our Health and Safety
policies with the support of the Operations
Committee, which represents all Business
Units and is supported by the Group Health
& Safety Manager and the Health and
Safety Working Group.
In 2019, our Accident Frequency Rate
for employees remained at zero. Inevitably,
incidents will occur on our operational
estates or development sites that do not
meet our high standards of health and safety.
Whenever this occurs, we fully investigate
to understand the causes, involving external
consultants where appropriate. Findings and
learnings are disseminated across the Group,
including to the Board and Executive
Committee, to ensure that we (and where
appropriate, third parties) respond and
improve our processes where necessary.
44
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
RESPONSIBLE SEGRO
HEALTH AND SAFETY
CONTINUED
Following an accident in an estate within our
Greater London business unit in August 2017,
we took steps to improve safety at the site
concerned and carried out a risk assessment,
followed by amendments to procedures
where necessary, at other SEGRO-owned sites
with similar characteristics. Following their
investigation, the Health & Safety Executive
(“HSE”) has recently notified two Group
companies, along with four other parties,
that they will be issuing proceedings alleging
health and safety breaches in connection with
this incident. We believe appropriate actions
have already been taken to address any
deficiencies in the health and safety regime
at the site, but will continue to work with our
customers and the HSE, to implement any
further changes needed.
We continue to be recognised for our safety
performance through the RoSPA (Royal
Society for the Prevention of Accidents)
Awards. We have been awarded Gold for
seven consecutive years and this year were
awarded our third RoSPA Gold Medal for this
continued success. These awards recognise
our Group commitment and practical
application of Health and Safety procedures
across all of our business operations.
HEALTH & SAFETY POLICY
Our Group Health & Safety policy
and more details on our initiatives in
this area are available on our website
http://www.segro.com/csr.
PROTECTING OUR EMPLOYEES
Our highest priority is to ensure that our
employees can work in a healthy, safe and
secure environment to ensure everyone
goes home safely.
££ We provide training: All employees
receive Health and Safety training on
commencement of employment and further
specific training dependent on their role.
Our employees have completed over
700 hours of safety training throughout
2019, including work at height, first aid
and driver training.
££ We raise awareness: Health & Safety is a
permanent feature of employee briefings
which occur throughout the year on
a Company-wide basis. Topics include
safety stories from around the business,
such as winter driving and safety
reminders. Further communications
take place on a local level supported
by the Working Group.
££ We mitigate risk: All employees
understand their responsibility to
report any health and safety issues to
their manager or appropriate person
whether in our offices or at one of our
assets. All health and safety incidents
are recorded and reported and, where
appropriate, measures are put in place
to ensure that they do not reoccur.
At SEGRO we have a long history of
encouraging healthy living for our employees.
In 2019, we increased the profile of mental
health and provided mandatory training to all
line managers on identifying and addressing
mental health. Please see the People section
on page 46 for more information.
PROTECTING OUR CUSTOMERS
AND COMMUNITIES
Our Health and Safety commitment applies
not only to our own employees but across
all areas in which we operate. Many of our
estates are accessed by both our customers
and the public and there are a wide variety
of risks which we assess and mitigate.
££ We provide training: We invited our
customers to join us on a number of
estate safety days across the Group.
SEGRO Airport Park in Berlin saw over
60 customers attend a fire safety training
event which included a detailed briefing
by local fire prevention officers and a
simulated exercise.
££ We raise awareness: Sometimes,
incidents on our estates are beyond
our control, but it is important for us to
ensure that when such incidents occur,
we communicate with our customers to
ensure that they are well informed to enable
them to take appropriate action. During the
year, there was a fire on one of our estates.
Our proactive approach to communicating
with our customers ensured that they
were well informed about the nature of
the incident and the recommended action
to take to allow emergency services to
focus their efforts on extinguishing the
fire, which they did within 30 minutes.
There were no injuries.
££ We mitigate risk: The safety of pedestrians
and vehicle movement is a key risk on some
of our estates, and is an area of continued
focus. The Deptford Trading Estate in
East London is one of our older estates,
and in 2019 we worked with our customers
and the local council to improve traffic flows
around the estate, benefiting not only the
efficiency of vehicular movements but also
enhanced the segregation of pedestrians
and vehicles. We consulted with our own
customers on the estate, as well as on
adjacent estates, to make sure that the
changes worked for all businesses. We now
have a one-way system through the estate
with traffic marshals in place to monitor its
use. In consultation with us, the local council
installed double-yellow lines on the road
outside the estate to improve visibility for
those vehicles leaving the estate.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
45
WORKING WITH OUR SUPPLIERS
We only want to work with businesses
who share our Health and Safety culture.
We require all of our suppliers to confirm
that they meet our Health & Safety Standards,
and we undertake particularly rigorous
assessments of those companies working
on our development sites.
££ We mitigate risk: We encourage our
contractors to innovate and work with us to
ensure that health and safety considerations
on our development sites are paramount.
Throughout 2019 the contractors
undertaking development activities have
ensured that: there is appropriate health
and safety expertise on site; access control
systems are implemented; pedestrian routes
are in place; and key safety messages are
communicated clearly. We have supported
and continue to support our contractors by
providing additional guidance, signage and
health and safety visits to our development
sites throughout each project.
Fire training in Berlin and Tychy
We have provided training on
how to tackle fires to a number of
our customers across our portfolio,
including Germany, Poland and
the UK.
46
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
RESPONSIBLE SEGRO
OUR PEOPLE
We want SEGRO to be
a place where everyone
is able to be themselves
in a working environment
which is inclusive, free
from bias and provides
equal opportunities for all.”
LIZ REILLY
GROUP HUMAN RESOURCES DIRECTOR
OUR PURPOSE:
WE CREATE THE SPACE THAT
ENABLES EXTR AORDINARY
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
2
2
EMPLOYEES SERVING
1,190 CUSTOMERS
332
2018: 315
VOLUNTARY STAFF
TURNOVER IN 2019
BOARD
1. Female (3)
2. Male (6)
Total
LEADERSHIP TEAM
33%
67%
1. Female (5)
2. Male (10)
100%
Total
33%
67%
100%
5%
2018: 9%
2
1
HOURS OF TR AINING
DELIVERED IN 2019
3,507
2018: 3,708
WORKFORCE COMPOSITION
1
2
WORKFORCE
1. Female (162)
2. Male (170)
49%
51%
1. Full-time (301)
2. Part-time (31)
Total
100%
Total
It is our responsibility to make SEGRO a place
where people feel fulfilled by the work that
they do and are inspired by the environment
they work in. We invest significant time and
energy engaging with our employees across
all of our geographies to ensure that we listen
to their views and respond to their feedback.
CULTURE
The culture at SEGRO is brought to life
by our people every single day. Five years
ago, we involved the entire Company in
establishing our Purpose and Values and we
continue to work hard to ensure that these
remain an organic part of the Company’s
culture and are owned by every one of
our employees. A company’s culture is
often intangible but there are a number of
measures we can take to tangibly support
and enhance it.
91%
9%
100%
OUR WORKING ENVIRONMENT
One important element of our culture is
the environment in which we work. In 2019,
we moved our head office to more modern
space in London and refurbished our office
in Slough. We invested around £1 million
in the fit-out to create fresh, spacious
and modern facilities, enabling increased
collaboration between teams.
LEVERAGING TECHNOLOGY
TO SUPPORT AGILE WORKING
SEGRO has long invested time and resources
in its technology infrastructure to allow its
employees to work on a flexible basis. All of
our offices across the Group are open-plan,
each employee has a laptop and, in London,
only a few administrative staff have dedicated
desks, encouraging most – across all levels
of seniority including the Executive Directors –
to sit in different places day to day to facilitate
collaboration and communication. In addition,
all offices have break-out areas, informal
meeting areas and open tables to reflect the
different ways people like to work. In 2019,
we formalised this in an agile working policy
for our UK employees which facilitates remote
working where possible.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
47
SEGRO London office
GENDER BALANCE OF
SENIOR MANAGEMENT
As defined by the Code, the Executive
Committee are considered to be the
Company’s senior management. As at
31 December 2019, the gender balance of:
££ the Directors was 70 per cent male
(seven men) and 30 per cent female
(three women)
££ the senior management was 67 per cent
male (four men) and 33 per cent female
(two women); and
££ the senior management’s direct reports
(who include members of the Leadership
team) and who are the next layer of
management below senior management,
was 70 per cent male (14 men) and
30 per cent female (six women).
The gender balance of the total workforce
at 31 December 2019 was 51 per cent
male (170 men) and 49 per cent female
(162 women).
ENCOURAGING TWO-WAY COMMUNICATION
Our approach to internal communication and
engagement ensures that our employees are
kept up to date about information relating to
them individually, as well as what is happening
around the business. On a day-to-day basis,
our interactive intranet site (‘The Box’) helps
employees interact and share knowledge,
while monthly and quarterly group meetings
and webcasts hosted by local and Group
management provide an update on the
Company’s performance and on business-
wide events and initiatives. These are not
only an important means of communication
but also allow all employees to ask questions
of local and central management on points
of interest or concern. Every two years, the
Company commissions an Engagement
Survey covering all employees with results
reported to the Board, Leadership Team and
local managers, highlighting both areas of
notable success and areas for improvement.
HIGHLIGHTING CONCERNS
We believe that the Company’s culture
supports open and honest expression
of concerns between employees and
management. In practical terms, the Executive
Directors regularly visit our offices and
assets across the Group, allowing employees
opportunities to raise issues directly with
them. In the event that an employee
(or third party supplier) wishes to raise a
concern on a confidential and anonymous
basis, the Company offers a whistle-
blowing helpline which is operated by an
independent company.
TALENT AND DIVERSITY
To get the best from our people and to
attract high quality people to join SEGRO,
we understand that people need to feel
comfortable and free to be themselves.
We have therefore created a working
environment which is inclusive, free from
bias and has equal opportunities for all.
EQUAL OPPORTUNITIES FOR ALL
We have robust policies in place with regard
to equal opportunities supporting our belief
that everyone deserves the right to be treated
equally and should not be discriminated
against because of their differences, such
as age, gender, disability, ethnicity, gender
identity and expression, religion, sexual
orientation or educational or professional
background. This includes appropriate
support, retraining and facilities for employees
who are disabled or who become disabled
whilst in our employment.
48
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
RESPONSIBLE SEGRO
OUR PEOPLE
CONTINUED
MENTAL HEALTH AND WELLBEING
The wellbeing of our employees is paramount –
both in and out of their working lives.
SEGRO is committed to raising the profile of
mental health and wellbeing within the workplace,
encouraging others to recognise changes in
colleagues and to create an environment that
enables employees to talk openly about the
subject as well as be more aware about their
own resilience.
In 2019, we built on our Mental Health and
Wellbeing programme to provide awareness
training to SEGRO line managers across the
Group on the subject. We also enhanced our
BUPA offering to include the Healthy Minds
service, which offers our UK employees a
24/7 confidential helpline offering short-term
counselling with fully qualified counsellors.
Similarly in Continental Europe, we offer
an Employee Assistance Line offering 24/7
confidential help.
SEGRO aims to promote mental health
awareness within the workplace through a
number of initiatives including blogs, employee
forums, videos, printed materials and events.
An internal working group has been formed to
plan events and discussions around the subject
on an ongoing basis, which also helps encourage
openness around the topic. A wealth of support
and information is also available on our intranet.
Some of the other initiatives we have
undertaken include:
££ Meditation and Breathe workshops in our
London and Slough offices;
££ ‘Time to Talk’ drop in sessions across three
of our offices. These sessions provided hints,
tips and resources but also an opportunity
for employees to give ideas and feedback on
what SEGRO can do to make working lives
as manageable and stress-free as possible; and
££ A nutrition presentation discussing the effects
of food on mental health and wellbeing in
our Slough office.
Our Diversity and Inclusion Policy is available
on our website at www.SEGRO.com/csr/
policies, with further commitments from
a governance perspective in the Board’s
Diversity Policy available at www.segro.com/
about-us/corporate-governance/board-
diversity-policy.
We believe that we are an inclusive employer
but there is always room for improvement.
Every employee receives diversity training
as part of our induction process and
we continue to introduce new initiatives
to increase diversity within our Company
and the sector more widely.
We have publicly committed to increasing
diversity 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 might not otherwise have
access to property as a career;
££ our Chief Executive has signed 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/) which
was achieved by SEGRO this year.
We are proud that our workforce is diverse,
particularly by gender, but we have further
work to do to improve the representation of
women at senior levels. Across the Company,
49 per cent of our workforce are women,
but on the Leadership Team this falls to
33 per cent. There are three women on the
Board, representing 33 per cent of Directors.
1920
ORIGINAL WORKFORCE
In 1920 it was reported that 52% of our
employees were ex-service men, 14%
of which had been partially disabled in
the war.
FOR MORE INFORMATION, PLE ASE VISIT:
W W W.SEGRO.COM/ABOUT-US/2020
During the year, we have taken a number of
steps to improve and embed our commitment
to diversity:
££ We have enhanced our maternity pay
in the UK and our shared parental leave
policy. Shared parental leave allows parents
to share up to 50 weeks of leave and up
to 37 weeks of pay, with up to 26 weeks
at full basic pay;
££ We have commissioned an executive
search agency to identify senior women
in our sector who we can approach
when suitable roles become available;
££ Every employee is required to complete
diversity training, particularly to combat
unconscious bias; and
££ In 2019, we launched our mental
wellbeing initiative, at the core of which
is the provision of training to all UK line
managers to identify signs of mental
health issues in their team members and
to explain what resources are available to
help. This programme will be extended
to our Continental Europe teams in
2020. All employees and their families
are able to access confidential help from
trained counsellors through our Employee
Assistance Programme both on the
phone and online.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
49
REWARDING AND RETAINING TALENT
SEGRO believes in treating all employees
equally, including in respect of pay. SEGRO’s
median pay gap is 50 per cent, broadly in
line with 2018 (representing the average pay
of all men compared to the average pay of
all women we employ in the UK).
While our median pay gap in the UK has
narrowed over the past two years, it remains
wide and reflects a relatively small sample
size (we employ significantly fewer than
250 people in the UK) and the make-up
of our workforce (we currently employ
more men in senior roles than women).
As highlighted earlier, we are determined
to increase the number of women in senior
positions in the Company. In the meantime,
we continuously monitor levels of pay to
ensure that we do not pay men and women
differently for doing the same or similar roles.
There is no evidence of significant differences
in pay on this basis.
Every permanent employee is entitled to
variable compensation which is based on
their own and the Company’s performance
against targets and objectives. In addition,
the Company operates share incentive
plans through which shares are awarded to
employees based on the Company achieving
profit targets against budget (see page 108 for
more details). In 2019, 98 per cent of eligible
employees chose to participate in the UK and
Continental European plans, each receiving
439 SEGRO shares.
In addition to fixed and variable
compensation, we provide every employee
with health insurance and the opportunity to
join a defined contribution personal pension
scheme to which the Company contributes
and will match a proportion of additional
personal contributions.
We want our people to achieve great things
during their time with SEGRO, supported by
appropriate resources, training and coaching.
This commitment is reflected in the delivery
of 3,507 hours of training to our employees
during the year.
We are committed to building our employee
awareness on ethical business practices and
our people and others who work with SEGRO
are encouraged to speak up without recourse,
either through the independent confidential
whistle-blowing reporting service or by talking
to their line manager or a member of the
Executive Committee, if they are concerned
that the Code of Ethics is not being followed.
Any breaches of the Code of Ethics are fully
investigated and managed accordingly by
the General Counsel or Group HR Director
as appropriate.
The Code of Ethics also requires that
appropriate systems and controls are
implemented to ensure any suppliers,
partners, contractors and others representing
SEGRO, are appointed and managed
responsibly in accordance with the Code
of Ethics.
MODERN SLAVERY AND HUMAN
TRAFFICKING
Our due diligence activities to combat slavery
and human trafficking are risk based and
correspond with the level of risk identified,
reflecting the United Nations Guiding
Principles on Business and Human Rights.
We have systems and controls in place
designed to ensure that modern slavery
is not taking place anywhere within our
organisation and throughout our supply chain.
We require our suppliers, contractors and
business partners to adhere to the principles
in our Modern Slavery and Labour Standards
Supplier Code, in accordance with our
Anti-Slavery and Human Trafficking Policy,
both of which can be found on our website,
together with our latest annual Modern
Slavery statement which was approved by
the Board in May 2019. The Modern Slavery
policies are supported by a clear statement
that any person with concerns about modern
slavery or human trafficking, either within
SEGRO or within our supply chain, may report
their concerns on a confidential basis to our
General Counsel, our Group HR Director or to
our independent confidential whistle-blowing
reporting service.
Every employee has an interim and full
year appraisal, at which their performance
is reviewed and objectives are set, alongside
training needs to achieve their objectives.
Employees are encouraged to set personal
as well as professional objectives and training
is available to support both. Aside from the
formal appraisal process, the management
structure facilitates two-way communication
between manager and team member
throughout the year.
We believe that this approach to rewarding
and developing talent, alongside a supportive
and collaborative company culture, is reflected
in our low employee turnover of 5 per cent
(2018: 9 per cent).
BUSINESS ETHICS AND COMBATTING
MODERN SLAVERY
SEGRO has long recognised the importance
of respecting the human rights of all our
stakeholders including our own employees,
our suppliers and the wider communities
in which we operate. It is core to how we do
business. Our commitment to this is reflected
in our Code of Ethics, which highlights the
importance for all at SEGRO and all those
associated with SEGRO, of behaving morally,
legally and ethically, consistent with our
Purpose and Values.
SEGRO EMPLOYEE CODE OF ETHICS
The Code of Ethics sets out the high ethical
standards expected of all employees and gives
guidance on how to put these standards into
practice. It incorporates policies on bribery,
corruption and fraud; gifts and hospitality;
insider trading; confidentiality; conflicts
of interest; relationships with stakeholders;
political and charitable donations; raising
serious concerns; and modern slavery and
human trafficking. Compliance with the Code
of Ethics is a condition of each employee’s
employment. There were no material reported
incidents of breaches of the Code of Ethics
in 2019.
All new employees receive information on the
Code of Ethics and are required to complete
training on it within a month of joining the
Company. In addition, all employees must
certify each year (and have certified for
2019) that they continue to understand and
adhere to the Code of Ethics. As part of the
certification, all employees are also asked
to confirm their compliance with the Criminal
Finances Act 2017 to help ensure that the
Company and its employees have not, and
are not, facilitating tax evasion.
50
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
RESPONSIBLE SEGRO
OUR COMMUNITY
£ In Slough, the SEGRO Community
Award was created in 2017 to fund
innovative projects that benefit the
community. In 2019, the award was given
to The London Irish Foundation’s HITZ
programme. The funding will be used
to enable 200 young people who are at
risk of becoming NEET (Not in Education,
Employment or Training) to complete a level
one coaching qualification. The programme
will also provide educational support
in Mathematics and English, as well as
supporting the young people to pursue
further qualifications and work placements.
£ In London, SEGRO continues to support
the Outward Bound Trust to raise
aspirations and attainment levels among
young people living in deprived areas of
London. Our donation allowed up to 24
school children to attend an outdoor activity
event where they can experience mountain
climbing, hiking, rafting and canoeing,
whilst enhancing skills, such as confidence
and teamwork. In 2019 two SEGRO
employees accompanied the young people
on the trip to mentor them and provide
support during their time away.
£ In Düsseldorf, SEGRO has continued
to work with Die Arche, our local charity
partner that supports children from
socially disadvantaged backgrounds.
In 2019, we donated nine laptops to the
charity for children to use for web research
and to provide them with the opportunity
to use a keyboard and a mouse (rather
than commonly used touch functions).
£ In Poland, SEGRO supports the Iskierka
Foundation, a charity which provides
financial, psychological and social support
to children with cancer and their families
mainly in three specialist centres in Silesia.
It is our responsibility, as a long-term investor
in our assets and markets, to take a strategic
approach to supporting our local communities,
by understanding and accommodating
the specific needs of the areas in which we
operate, to ensure that we deliver long-term
economic and social benefits.
As a Company, we also support causes
close to the hearts of our own people and
the wider real estate sector.
INVESTING IN OUR LOCAL COMMUNITIES
INVESTING IN EDUCATION AND TRAINING
We work hard to make sure that our assets,
which are often situated in or close to
residential areas, are valued by the local
community, in particular as local employment
hubs. We want to help residents to take full
advantage of the opportunities offered by
the companies occupying our buildings so
that we can have a positive impact beyond
the development and ownership of modern
warehouse and industrial space.
In partnership with our contractors and
customers, we focus our investment effort
on the provision of education, training and
employment. With our contractors, we create
on-site training and job opportunities during
the construction stage of our developments
and, with our customers, we will often work to
encourage local recruitment to create a wide
range of high quality and sustainable jobs.
INVESTING IN LOCAL AMENITIES
Beyond the work we do to improve the job
prospects of local residents, we also support
local charities seeking to improve the lives of
vulnerable members of the local community.
Grass-roots community groups have the
knowledge and expertise to best help those
residents who need specialist or intensive
support to develop the confidence and skills
they need to progress into employment,
education or training.
£ The SEGRO Community Fund was
established to provide training and
development opportunities to give
those residents furthest away from the
job market the skills and confidence to
get into employment. In 2019, SEGRO
contributed £110,000 to 23 local charities
and, to date, the SEGRO Community Fund
has delivered a number of achievements
as detailed in the graphic opposite.
By working with local
partners we are able to
provide a range of benefits
to residents and local
businesses ensuring that
we can have a positive
impact beyond our space.”
NEIL IMPIAZZI
PARTNERSHIP DEVELOPMENT DIRECTOR
TOTAL CONTRIBUTION
TO CHARITY IN 2019
£876,780
2018: £791,941
TOTAL EMPLOYEE DAYS DONATED
TO CHARITY IN 2019
331
2018: 357
NUMBER OF PEOPLE BENEFITING
FROM THE SEGRO COMMUNITY FUND
1,350
2018: 1,105
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
51
The visit gave the young people an insight into the
world of construction and the opportunity to meet
with different tradesmen and apprentices to learn
about career opportunities.
SEGRO also encouraged its contractor to locally
source materials and services, where possible, over
the construction period. This resulted in £1.7 million
being invested in the local economy.
Now that the building is substantially complete,
SEGRO has committed to funding the creation and
delivery of a customer-led pre-employment training
programme for Hounslow residents. In partnership
with DO & CO, we will work with approved training
and recruitment providers to upskill and retrain
unemployed residents, enabling them to compete
for the vacancies created by the development.
Residents who successfully complete the programme
will be guaranteed an interview for the available jobs.
Once the development is complete, it is estimated
that it will create approximately 1,000 jobs.
SEGRO PARK HEATHROW
In the London Borough of Hounslow, SEGRO
has delivered a 172,000 sq ft facility for DO & CO,
an airline catering company. During the construction
of the development SEGRO worked with local
training partners to deliver a dedicated skills and
employment programme for residents.
In addition, we funded health and safety training
to 42 unemployed local residents, which would
enable them to work on construction sites in the
future. Four residents were given the opportunity
to develop their skills by undertaking paid work
experience on the site.
We supported two apprentices through the
Construction Industry Training Board to undertake
a shared apprenticeship Level 3 Construction
in the Built Environment and provided paid work
experience on the site to five college students.
We also worked with SPARK, a local education
charity to help raise the aspirations of eight young
people from a pupil referral unit for excluded
children by organising a visit to site.
COMMUNITY ENGAGEMENT
JOBS AND SKILLS
COMMUNITY INVESTMENT
GIVING
Slough Aspire is a skills and training facility on
the Slough Trading Estate, supported by SEGRO,
which is 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 £110,000 to the SEGRO Community
Fund in 2019 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 2019, SEGRO donated the equivalent of:
Enabled 15,637 young people to engage with business
professionals to improve their awareness of potential
career paths
Facilitated 5,395 skills and employment interventions
for residents to access training, qualifications and jobs
Supported the career progression of 2,918 business
professionals via networking and training opportunities
Supported the creation of 42 new businesses
1,350 people directly benefited
£319,000 in the form of direct donations
23 organisations funded
1,307 people attended training
717 people gained accreditation
8,772 hours of training and education provided
161 people gained sustainable employment
60 people came off work related benefits
£125,780 through employee volunteering
£432,000 from assistance in kind
1941
SLOUGH PHILHARMONIC ORCHESTR A
Slough Philharmonic Orchestra has
been active in the community for more
than 75 years.
Founded by our Company in 1941,
the orchestra is still supported by
SEGRO today.
FOR MORE INFORMATION, PLE ASE VISIT:
W W W.SEGRO.COM/ABOUT-US/2020
52
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
RESPONSIBLE SEGRO
OUR COMMUNITY
CONTINUED
INVESTING IN OUR PEOPLE’S PASSIONS
£ LandAid: SEGRO continues to play
an active role in supporting LandAid,
the UK property industry charity,
which supports charities delivering
life-changing services for young people
who are or have been homeless, or
who are at risk of homelessness in the
future. SEGRO employees organised
and participated in a number of LandAid
charity events throughout the year
including the annual Steptober challenge
and The Big SEGRO Quiz.
£ Pathways to Property: SEGRO continues
to fund the University of Reading’s Pathways
to Property Programme. The programme
is designed to encourage and excite
young people from diverse or deprived
backgrounds to consider a career in the
real estate sector. The programme delivers
careers talks in schools, and supports
students with an interest in property and
real estate to attend a week long summer
school at the university. In 2019, 30 young
people, from the areas in which we operate,
attended the summer school and 13
schools engaged with the Pathways to
Property careers programme. SEGRO also
provided work experience for participants
of the programme.
SEGRO takes a proactive approach
towards charitable giving and encourages
all employees to participate in charitable
activities, providing their time and skills.
In 2019, SEGRO donated almost £900,000
in the form of direct donations, employee
volunteering and assistance in kind.
At the heart of SEGRO’s charitable activity
is the annual, company-wide ‘Day of Giving’,
which allows our employees to volunteer to
support a cause close to them or their team,
or to work with one of the local charities that
SEGRO has recently funded. In June 2019,
257 SEGRO colleagues from seven different
countries participated in the Day of Giving
by redecorating, gardening, cooking at food
banks and homeless shelters and providing
company and conversation to the young
and the old, among many other activities.
Away from the Day of Giving, our people
run, cycle, swim, skydive, walk and sleep
out to raise money for a wide range of great
causes. In Paris, 11 employees participated in
one of the biggest charity events in France –
the Course des Héros – raising over €7,000
for the 11 charities they sponsored.
We also corporately support a number
of causes focused on improving the lives of,
and improving access to employment for,
disadvantaged young people:
£ Patchwork Foundation: The Patchwork
Foundation is a charity dedicated to
enabling young people from deprived
and under-represented groups to get
involved in the democratic process and
civil society. Thirty young people, many
from the communities in areas where
SEGRO has a presence, were selected
to complete a prestigious ten-month
Masterclass programme where they
had the opportunity to learn from and
question high profile politicians, civil
servants, journalists and business leaders,
including David Sleath. The programme
provided intensive mentoring and guidance
to enable the young people to gain the
tools they need to effect change and to
pursue the careers of their choice.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
53
RESPONSIBLE SEGRO
OUR ENVIRONMENT
It is our responsibility, as a long-term
investor, to use the latest technologies and
construction techniques to ensure that our
buildings are efficient to use and stand the
test of time. We recognise that our planet
is facing a climate emergency and that we
need to play our part in helping to combat
the challenge of climate change and natural
resource depletion.
We continuously monitor and, where
appropriate, adopt new approaches,
technologies and techniques to reduce
the environmental footprint of our
existing properties and our developments.
The Investment Committee considers the
environmental impact of all capital investment
decisions to ensure that they are consistent
with our environmental targets and ambitions.
We take a materiality-based approach to our
environmental strategy, focusing on the areas
where our footprint is greatest.
The largest source of carbon emissions from
our own activities is the embodied carbon
in our buildings. For our existing buildings,
we can work to improve their efficiency in
operational terms (with more energy-efficient
LED lighting, for example); but it is in our
development programme, which delivered
over 871,800 sq m of new space in 2019
with a further 826,200 sq m of space under
construction at year-end, where we can make
the greatest impact. In many cases, once we
hand a building over to a customer, they
control all operational aspects so it is our
responsibility to provide them with an efficient
building and the tools to operate it efficiently.
We are serious about
our environmental
responsibilities, creating
and owning buildings
which are efficient to use
and stand the test of time.”
BEN BR AKES
GROUP SUSTAINABILIT Y MANAGER
TOTAL FLOORSPACE
ENVIRONMENTALLY CERTIFIED
35% OF THE PORTFOLIO
2.7m sq m
RESPONSIBLE SEGRO 2025 ENVIRONMENTAL TARGETS
Target
We will reduce the carbon intensity of properties,
where we have influence, by 40% by 2025 against
a 2017 baseline, in line with the Paris Agreement1
We will reduce the average
embodied carbon intensity of all
new developments by 20% by 2025
(against our average benchmark
in 2019)2
Including
external
areas
Building
only
We will reduce the waste generated through our
operations and send zero waste to landfill by 20253
ENVIRONMENTAL PERFORMANCE
METRICS
Highly-rated environmental certification4
2017
(baseline)
2019
Change On/Off Track
45.8
kgCO2e/m2
42.0
kgCO2e/m2
-8%
–
–
348.0
kgCO2e/m2
280.7
kgCO2/m2
–
–
20%
6%
-14%
2017
2018
2019
∆
∆
∆
∆
Total portfolio (million sq m)
1.5 (22%)
1.7 (25%)
2.7 (35%)
Development completions (million sq m)
0.6 (91%)
0.5 (95%)
0.7 (94%)
We will increase the UK portfolio Energy
Performance Certificates (EPC) ratings
2018: 1.7m sq m (25% of portfolio)
– UK floorspace rated C or better
PROPORTION OF UK PORTFOLIO
EPC R ATED ‘C’ OR ABOVE
61%
2018: 55%
ON-SITE RENEWABLE
ENERGY CAPACITY
+5.0 MW
18.5 MW
2018: 13.5 MW
– UK floorspace rated F or lower
– UK floorspace not yet rated
We will increase the amount of on
site renewable energy capacity and
generation across the portfolio
Capacity at
year-end
(MW)
Generated
(MWh)
51%
2%
23%
13.9
55%
2%
19%
13.55
61%
<1%
19%
18.5
11,603
13,728
16,887
1 Represents the energy use of 47% of our total property footprint by area. The remaining 53% was controlled by our
customers during the year.
2 The limited information available in 2017 means that, for the purpose of this target, we will use the average CO2/m2 embodied
carbon figure from 2019 as the baseline.
3 The provision of information about how waste is treated varies between countries. In 2019, we were able to collect accurate
data on waste for 19 out of 29 projects. We continue to work towards having full visibility on the final destination of waste.
4 Based on assets under management and development completions by space and includes BREEAM (“Very Good” or better),
DGNB (“Silver” or better) and HQE (“Very Good” or better). Developments less than 5,000 sq m are not certified. At the end
of 2019, certifications of 0.1 million sq m of development completions were pending and have been excluded.
5 Decline from 2017 reflects the disposal of two buildings during the year PV capacity of 2.1MW.
∆ Selected information within the scope of limited assurance. See www.segro.com for details of the independent assurance.
54
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
RESPONSIBLE SEGRO
OUR ENVIRONMENT
CONTINUED
Having established where we could
make most impact on our carbon footprint,
in 2019 we announced our new sustainability
targets which were created using a science
based approach, to ensure that we play our
part in achieving the aim of limiting global
temperature rises to two degrees by 2050.
Over the past year we have been embedding
our new approach into all areas of the
business, raising awareness and undertaking
new initiatives to ensure we are progressing
against the new targets. Our progress on
our targets is outlined in this report, with
further information available on our website.
Our science based approach has meant
that we have expanded our focus to the
key areas in which we have a direct impact
and are challenging ourselves to reduce not
only our direct operational carbon footprint
but also the footprint of our buildings and,
where possible, those of our customers.
As a result, we have joined many of our
sector peers in signing a pledge to be carbon
neutral by 2050, although in practice we aim
to achieve this much sooner.
SUSTAINABLE TR ANSPORTATION
Transport is an essential feature of many
of our customers’ businesses so we ensure that
electric vehicle infrastructure is built into our new
estates and is retrofitted into our existing estates.
We have continued to increase the number
of electric vehicle charging stations across our
portfolio and some of our initiatives in this area
are summarised below:
££ In response to the ultra-low emission zone
expansion in London, we have partnered with
two leading suppliers to ensure the charging
technology we install is fit for the future.
££ At SEGRO Park Heathrow we have installed
12 electric vehicle charging stations which
can deliver up to 22 kW of charge. We have
also engaged with our customers about how
we can help them transition their employees’
vehicles as well as their commercial fleet.
££ In Poland, we have installed 25 charge points
in 2019, with each estate having at least
one charging point delivering up to 44 kW
of power. The communal charge points are
complimentary for our customers and facility
management services.
££ In collaboration with our customer’s requirements,
we installed additional charging stations at
our two-storey urban warehouse in Paris,
Gennevilliers DC7.
££ At SEGRO Logistics Park East Midlands Gateway,
we provide a fully electric bus service to link with
existing public transportation around the estate,
to reduce the need for the workforce to use
personal cars and switch to local public transport.
££ Within our own company, to encourage our staff
to switch to electric vehicles, we have increased
incentives for employees on the company car
scheme and provided more charging stations
at our offices.
We monitor our performance across
various Environmental, Social and Governance
(ESG) indices and review trends to ensure
our approach and the information we
disclose meets the needs of our stakeholders.
There are a number of different organisations
and structures for reporting on our wider
ESG metrics, and we report against the
following either in this Annual Report or on
the Responsible SEGRO area on our website:
££ Global Reporting Initiative (GRI)
££ Task Force on Climate-related Financial
Disclosure project (TCFD)
££ European Public Real Estate Association
(EPRA) — Rated Gold
££ Global Real Estate Sustainability Benchmark
(GRESB) — Rated three-star
££ Carbon Disclosure Project (CDP) —
Rated A–
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
55
MATERIALS
WASTE
ENERGY
While waste generated across our own offices
(where we have control) is monitored, tracked
and reported, the majority of our waste is
created as a result of our construction and
demolition projects. Our target is to send
zero waste to landfill by 2025.
For demolition waste, which makes up
the bulk of our total waste, it is important to
re-use as much as possible on-site to avoid
the carbon emissions related to transportation
of waste off-site and the import of virgin
materials from elsewhere.
There are still a number of countries in
which we operate where we cannot be certain
of the final destination of construction waste.
We are working towards having full visibility
across all projects. During 2019, we had full
visibility for 19 out of 29 eligible projects
and 6 per cent of waste from these projects
was sent to landfill, meaning 94 per cent
was recycled or reused.
We undertake pre-demolition audits
to identify waste materials taking into
consideration the quantity and quality of
waste to be re-used on site as aggregate.
We also re-use on site where materials are
non-hazardous and will not have a detrimental
effect on the environment. Hazardous waste
is treated differently and is not included within
these figures. Hazardous waste is dealt with
in the appropriate manner, fully in line with
relevant regulation.
ZERO CARBON ENERGY
As well as having the responsibility for our
own energy consumption, in many markets
we also procure the energy used by our
customers in their operations. In order to
accelerate the shift to a low carbon economy,
in 2018, we began moving all our electricity
contracts onto zero carbon tariffs. In some
regions where we are in long term contracts,
we have already sourced zero carbon energy
from 2021 and beyond.
Following the move of our German
operations, our Netherlands portfolio moved
on to a zero carbon energy contract at the
beginning of 2019. The electricity is provided
by offshore wind turbines which helps
SEGRO and our customers decrease their
carbon emissions.
Where we do not have operational control,
we engage with our customers on their own
energy provision. On the Slough Trading
Estate, for example, we have over 20 data
centres which are significant consumers of
power. Our two largest data centre customers,
Equinix and Virtus, both source their own
electricity to power their buildings and both
have stated publicly that they source through
renewable energy contracts.
Our materiality assessment identified
that the carbon in the materials which
we use for our developments is significant
for SEGRO. Our sustainability strategy
ensures that we target the upfront carbon
footprint of our developments, related to
the construction materials and transportation
emissions attributed to each and every
new development.
We also now aim to carry out assessments
on as many projects as possible to identify
how we can reduce a building’s carbon
footprint over its full life cycle both by utilising
alternative, more sustainable materials during
construction and by considering the emissions
related to the deconstruction at the end of
the building’s useful life. We believe this
holistic approach to embodied carbon is the
most impactful. In 2019, we conducted six full
life cycle assessments, covering approximately
20 per cent of the developments completed
(by space) during the year.
It is clear that hard landscaping has a
significant influence on the embodied carbon
of our developments. We therefore report
carbon intensity both with and without hard
landscaping for an accurate comparison
between projects. The average carbon
intensity across the life cycle assessments
undertaken in 2019 was 348 kilograms
of CO2 per m2 of delivered floor space
(including external areas; 281 kilograms
without). Assessment of full life embodied
carbon is still in its early stages meaning that
our performance is difficult to benchmark
at this stage.
We are increasingly using Building
Information Management (BIM) in our
development projects, a technology which
facilitates three dimensional modelling of the
proposed building. It allows us to assess more
accurately the amount of material needed
for the construction (reducing waste) and
the carbon emissions from the materials.
It also allows us to model the building
across its whole life, making it an important
contributor to our target of reducing the
level of whole life-cycle embodied carbon
in our developments.
We will continue to adopt the latest
techniques to reduce embodied carbon
within our developments and to expand
the number of projects assessed to attain
greater visibility of our progress in reducing
this important element of our overall
carbon footprint.
56
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
RESPONSIBLE SEGRO
OUR ENVIRONMENT
CONTINUED
INCREASING BIODIVERSITY
In addition to the roof space on our buildings,
we also have significant landscaping on our
estates and a land bank awaiting development.
These offer us opportunities to contribute
to improving biodiversity while also creating
areas for those who work on our estates to
relax outside. Every estate manager has been
challenged to identify projects to enhance
our estates and increase biodiversity.
££ On the Slough Trading Estate we have
planted wildflowers in the landscaping areas
to make the most of the available green space
and help support insects. We have created
a pocket park, with bee hives, smart benches
and hard standing for street food.
££ At SEGRO City Park Frankfurt we have
restored part of the development site to its
natural condition with additional measures
like bird boxes to support local wildlife.
££ In Poland we now have over 50 bee hives
across the country.
££ In Italy, most of our big box warehouse assets
have bee hives as part of the landscaping
which we manage and provide the honey
produced to our customers. In addition,
we pay local farmers to manage a number
of our land plots which have yielded risotto
rice, buffalo mozzarella and wool from sheep
which, in the case of Castel San Giovanni,
also help to keep the grass well maintained.
WASTE GENER ATED (TONNES)
23,925
SEGRO LOGISTICS PARK
MARTORELLES 2, BARCELONA
SEGRO Logistics Park Martorelles 2 involved
the demolition of an existing redundant factory
to make way for a new 19,000 sq m warehouse.
A site waste management plan was created for
the 30,000 sq m plot and the waste generated
was monitored throughout the project. In total,
23,925 tonnes of waste was generated across
the project (excluding hazardous waste and soils)
with 95 per cent being either re-used on site
or recycled.
1. Concrete crushed and reused on-site
91%
2. Recycled concrete, bricks and ceramics
3. Recycled metals
4. Recycled other waste
5. Waste to Landfill
2%
1%
1%
5%
23451 OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
57
MANDATORY GREENHOUSE GAS (GHG) REPORTING
REPORTING METHODOLOGY
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 (on a like-for-like basis)
Intensity Kilograms CO2
2018
1,591 ∆
1,944 ∆
1,467 ∆
2019
830 ∆
2,244 ∆
2,055 ∆
3,535 ∆
3,075 ∆
595 ∆
374,910
1.59
353 ∆
374,910
0.94
*
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 2018 and 2019. This comparison uses EPRA guidance on best practice for real estate companies.
∆ Selected information within the scope of limited assurance. See www.segro.com/csr for more details of the
independent assurance.
CARBON FOOTPRINT – SCOPE 3 EMISSIONS
3 1
2
GHG Protocol Reporting Category
1. Capital goods
2. Downstream leased assets
3. Other:
Upstream transportation and distribution
Use of sold products
Waste generated in operations
Business travel
Employee commuting
Upstream leased assets
Fuel and energy related activities
Downstream transportation and distribution
Processing of sold products
End-of-life treatment of sold products
Franchises
Investments
Purchased goods and services
Total
Tonnes CO2e
380,925
139,980
5,064
4,988
1,035
529
373
86
40
%
72%
26%
1%
1%
0%
0%
0%
0%
0%
n/a
n/a
n/a
n/a
n/a
Not available
533,020
100%
The Greenhouse Gas (GHG) 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 been in the portfolio for both 2018 and
2019, and have remained either fully occupied or
fully vacant for both years.
ENERGY (CONTINUED)
ON-SITE GENERATION
Although we seek to source electricity via
renewable energy contracts where we can,
our portfolio has a significant expanse of
roof space, much of which can potentially
be used for on-site generation of electricity
through photo-voltaic solar (PV) panels.
On-site generation has multiple benefits
besides being zero carbon as it also
offers customers an extra degree of
energy resilience.
In 2019, we continued to grow our
on-site PV assets across the portfolio,
with large solar installations on a number
of new developments. We aim for all
new developments to go beyond minimum
planning requirements to provide renewable
energy generation to meet our customers’
energy demands and to support their
own sustainability goals. Our largest solar
installation in 2019 was the 2.5 MW array at
our new logistics development Verona DC1,
Italy. Our total renewable energy capacity
is now 18.5 MW, a 38 per cent increase on
2018. On-site energy generation remains a
core part of SEGRO’s sustainability strategy
to transition towards a low carbon future.
58
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
RESPONSIBLE SEGRO
OUR ENVIRONMENT
CONTINUED
ENERGY (CONTINUED)
ENERGY EFFICIENT BUILDINGS
In order to ensure our properties are
sustainable for the long term, it is imperative
that we build efficiencies into the base build
to enable our customers to benefit from
lower energy bills.
For this reason, we target all developments to
exceed the minimum standards for efficiency
in each of our markets. 70 per cent of the
eligible development completions in 2019
achieved an A-rated Energy Performance
Certificate (EPC), which is lower than our
100 per cent target. The remaining projects
received a B rating. We intend to improve
this score for the 2020 completions.
For example, the third development phase
of SEGRO Park Newham, London is our
latest building to be EPC rated A+, and
designed to be carbon neutral for regulated
energy. The building is highly energy efficient
with the latest lighting technology and high
performance cladding. This is combined with
a rooftop solar PV array which will generate
117,000 kWh annually.
In the UK, 61 per cent of our total
space has an EPC rating of C or better
(2018: 55 per cent) and less than 1 per cent
has a rating of F or below (2018: 2 per cent).
Overall, 35 per cent of our total portfolio
has achieved a “Very good” (or equivalent)
environmental certification rating
(2018: 25 per cent). We are investigating and
testing sensor technology to improve our,
and our customers’, understanding of energy
usage in our existing buildings which should
help to direct our resources to improve
their energy efficiency and, therefore, the
environmental and energy ratings.
CARBON FOOTPRINT
As part of our ongoing sustainability
programme, we are constantly looking
to expand the scope of our data reporting.
As part of this programme, in 2019 we
conducted an investigation into our total
Scope 3 emissions.
The Mandatory Greenhouse Gas (GHG)
Reporting table on page 57 provides
information on SEGRO’s greenhouse gas
emissions for 2019, in which we are pleased
to report another reduction in our combined
like-for-like Scope 1 and Scope 2 emissions
from 2018.
The reduction is concentrated in Scope 1
emissions, and largely due to removing
gas as a primary heating source in new
developments. Whilst this results in an
increase in Scope 2 electric emissions,
the move to zero carbon tariffs has limited
this rise in CO2 emissions.
The energy use of almost all of SEGRO’s
buildings is controlled by the underlying
customer. Therefore, the amount of SEGRO-
controlled space in our portfolio is relatively
low at just 374,910 sq m (on a like-for-like
basis) out of our 7.8 million sq m portfolio
under management, This represents around
5 per cent of our portfolio.
The vast majority of emissions from the
portfolio fall into Scope 3, 47 per cent
of which we have some measure of control
over and this is reported via our scope 3
emissions and within our Science Based
Carbon intensity target. Scope 3 emissions
cover our developments and business
activities, but which derive from sources over
which we do not have any control and which
are not classed as Scope 1 or 2 emissions.
We use the GHG Protocol to identify the
categories of emissions, of which ten are
directly relevant for SEGRO. Of these, we are
not yet able to report on “Purchased Goods
and Services”.
The table on page 57 identifies the Scope
3 carbon emissions related to the activities
which took place during the year.
The two largest contributing categories are
“Capital Goods” and “Downstream Leased
Assets”, contributing over 97 per cent of our
total Scope 3 emissions:
££ Capital Goods include the emissions
and embodied carbon associated with
the manufacture and transport of materials
used within our development activity.
££ Downstream Leased Assets are SEGRO
assets associated with our customers over
which we have a level of control, namely
the procurement of the energy. The total
area footprint of the reported downstream
leased assets makes up 47 per cent of
our total footprint under management.
The remaining space is under the control
of our customers over which we have
no sight of energy use or type of energy.
We are working with our customers to
increase the breadth of reporting to cover
the remaining 53 per cent of assets over
which we currently have no direct visibility.
We anticipate that Purchased Goods and
Services, which include emissions from
our supply chain outside our development
activities, to be another material category
for us and we are working closely with
our suppliers to produce these emission
numbers for 2020.
Our SEGRO 2025 targets are designed
to address the two largest contributing
categories. In 2019, we have made good
progress towards our main targets:
££ Capital Goods: we will reduce the
average embodied carbon intensity of
all new developments by 20 per cent by
2025 (vs 2019) and we will reduce the
waste generated through our operations
and send zero waste to landfill by 2025
(vs 2017 baseline). On the second of these,
just 6 per cent of waste was taken to landfill
in 2019, compared to 20 per cent in 2017.
££ Downstream Leased Assets: we will reduce
the carbon intensity of our properties,
where we have influence, by 40 per cent by
2025 against a 2017 baseline, in line with
the Paris Agreement. In 2019, we managed
an 8 per cent reduction vs the baseline.
TASKFORCE FOR CLIMATE-RELATED
FINANCIAL DISCLOSURE (TCFD)
“The risk climate change poses to businesses
and financial markets is real and already
present. It is more important than ever
that businesses lead in understanding and
responding to these risks — and seizing the
opportunities — to build a stronger, more
resilient, and sustainable global economy.”
Michael R. Bloomberg, in his letter to Mark
Carney, Chair of the Financial Stability Board,
15 June 2017.
The TCFD was established to help identify
the information needed by investors, lenders,
and insurance underwriters to appropriately
assess and price climate-related risks and
opportunities. The Taskforce structured
its recommendations around four thematic
areas that represent core elements of how
organisations operate: governance; strategy;
risk management; and metrics and targets.
Our response to the recommendations is on
the following pages.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
59
TCFD DISCLOSURE
Recommendation
SEGRO Approach
Governance
Disclose the organisation’s
governance around
climate-related risks
and opportunities.
The Board has overall responsibility for ensuring risks, including climate-related risks and opportunities, are effectively
and consistently managed throughout the Group. The Board delegates the execution of the risk management process
to the Executive Committee. At an operational level, the Chief Operating Officer, supported by the Operations Committee
and the Cross Border Technical Working Group, is responsible for ensuring that our environmental (and wider Responsible
SEGRO) targets are met on both existing assets and new developments.
The SEGRO Group Head of Sustainability has Group-wide responsibility for sustainability on a day-to-day basis and
works with a network of representatives across the business that support SEGRO’s sustainability objectives by sharing
best practice, obtaining customer feedback and providing legislative and technical guidance for their respective areas
of the business.
Further information
Governance
(page 73)
Strategy
Disclose the actual
and potential impacts
of climate-related risks
and opportunities on the
organisation’s businesses,
strategy, and financial
planning where such
information is material.
Risk Management
Disclose how the
organisation identifies,
assesses, and manages
climate-related risks.
As a long term property owner, we need to ensure that our buildings are fit for purpose for the future. One of the ways
we do this is to build relatively generic buildings, suited to more than one customer. This ensures a longer life-span for
the building as well as reducing the risk of vacancy and future refurbishment costs.
Strategy Report
(page 12)
In order to ensure that our buildings are fit for purpose and meet the requirements of our customers for the long term
we have integrated adaptation and mitigation into our standard building design. With the potential for a changing climate
across Europe, we ensure that aspects such as heating and sustainable drainage are assessed and costed in all designs.
Although these adaptations involve additional cost, we believe that buildings with enhanced sustainability aspects will
increasingly be valued more highly than those without.
Climate Change adaptation is now a standard process of our maintenance programme. We have identified climate change
as a risk to the ongoing operation of our buildings. We have increased climate change related aspects of maintenance,
such as sewer clearance, enhanced drainage and glazing replacement.
The Board considers climate-related risks and opportunities as part of the risk review process. The Group Head
of Sustainability reports on climate-related risks and opportunities to the Executive Committee and to the Board.
These risks include regulatory risk, reputational risk, and physical environmental risk.
Climate Change has been recognised as having a potential for both risks and opportunities across the business
for some time. In order to determine how our business could potentially be impacted, both positively and negatively,
by a changing climate, we have conducted extensive research to determine the potential impacts of a changing
physical world both in terms of the physical changes (weather patterns, temperature increase etc) and the transitional
changes (legislative, financial etc).
These risks have been modelled out to short, medium and long-term time horizons and taking into account of the
scenarios used by the Intergovernmental Panel on Climate Change (IPCC) which cover the impact of a 2 degree Celsius
increase in global temperatures as well as the worst case scenario and business as usual. Having reviewed all of the
IPCC scenarios, we have conducted our risk assessment based on the 2 degree and 4 degree scenarios.
The modelling of the different Representative Concentration Pathways (the different climate scenarios identified by
the IPCC) across an 80 year timeframe enabled us to understand the likelihood of varying chronic and acute physical
risks across the geographies in which we operate.
— Chronic risks are long-term changes in the overall climate and include increased average temperatures which in
turn lead to increased cost through increased cooling demands;
— Acute risks include the more regular occurrence of extreme weather events such as wind or rain causing flooding
or structural property damage which could lead to increased insurance costs and pre-emptive mitigation measures.
Transitional risks, such as changes to legislation are also dependent on the different scenarios. For example, in order to
transition to a 2 degree scenario, it will be necessary for countries to adopt strong regulatory and legislative measures.
Behaviours of consumers would also need to adapt greatly. An example of some of the transitional risks that we have
identified include, strengthening localised legislation such as the proposed changes to MEES legislation in the UK
and the Green Deal Policy from the European Union.
Principal Risks
(page 65)
See following
page for a map
showing the
climate risks
assessed for
our portfolio
geographies
Metrics and Targets
Disclose the metrics and
targets used to assess
and manage relevant
climate-related risks and
opportunities where such
information is material.
To enable our stakeholders to consider and compare our reporting, we compile and align our outputs in line with
the EPRA Best Practices Recommendations on Sustainability Reporting.
In order to ensure that we also report on those issues that we can have a direct impact upon, we use our materiality
assessment to identify the key metrics that are material to the business. For SEGRO, these are carbon emissions,
waste production and the embodied carbon of our developments.
For our carbon emissions target, we have produced carbon reduction targets, in line with the Paris International
Climate Change Agreement in 2016, to ensure we align our carbon reduction programme to its objectives, as well
as minimising our risk exposure to climate change on our managed portfolio.
Responsible
SEGRO (page 42)
www.segro.com/csr
60
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
RESPONSIBLE SEGRO
OUR ENVIRONMENT
CONTINUED
PROJECTED CLIMATE IN EUROPE
MIDL ANDS
HAMBURG
LONDON &
THAMES VALLEY
AMSTERDAM
BERLIN
POZNAN
WARSAW
DÜSSELDORF
LEIPZIG
ŁODZ
FR ANKFURT
PR AGUE
K ATOWICE
MUNICH
VIENNA
MIL AN
BOLOGNA
ROME
PARIS
LYON
MARSEILLE
BARCELONA
MADRID
The TCFD identifies two types of risk associated
with climate change:
Acute: relating to specific phenomena, such as
extreme weather events.
Transition risks associated with the transition
to a low or ultra-low economy;
Chronic: relating to more gradual, longer-term
shifts in climate patterns.
Physical risks associated with physical effects
of climate change.
In 2018, we undertook a Climate Resilience study to
assess the physical risk to our portfolio by geography
and building type. The map, and associated key,
identifies the main risks from climate change for
our portfolio geographies. The risks are split into:
The case study opposite shows how we are using
this information to inform our development plans
on a site we acquired in London during 2019.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
61
PROJECTED CLIMATE IN EUROPE
NORTH-WESTERN EUROPE
CHRONIC
££ Temperature increase (greatest in winter)
££ Increased precipitation
££ Sea level rise
££ Decrease in snow, lake and river ice cover
ACUTE
££ Temperature extremes & heat waves
££ Extreme precipitation events
££ Greater flood risk (coastal, river
& drainage network)
££ Winter wind speed extremes
(medium confidence)
CENTR AL & EASTERN EUROPE
CHRONIC
£ Temperature increase
£ High variability in weather patterns
£ Decreased precipitation, especially in summer
(medium confidence)
ACUTE
£ Extreme precipitation events & risk of flash floods
£ Increased duration & intensity of high
temperature extremes
£ Extreme sea level events (e.g. storm surges)
£ Increased intensity & frequency of droughts
(medium confidence)
£ Winter wind speed extremes
(medium confidence)
MEDITERR ANEAN & SOUTHERN EUROPE
CHRONIC
£ Increase in temperatures (above
European average)
£ Sea level rise
£ Decreased precipitation (medium confidence)
& water availability
£ Decrease in river flow (medium confidence)
ACUTE
£ Increase in duration & intensity of heat waves
£ Extreme precipitation events, flooding
& flash floods
£ Extreme sea level events
£ Increased intensity & frequency of droughts
(medium confidence)
STAKEHOLDER ENGAGEMENT AND CLIMATE CHANGE ASSESSMENT
AT SEGRO PARK TOTTENHAM
In 2019, we acquired a 3 hectare plot of land
in Tottenham, London, formerly the location of
a self storage unit which was destroyed by fire.
Our development plans will regenerate the site with
a new urban warehouse estate, creating long term,
sustainable returns for our investors, employment
opportunities for contractors, customers and the
local community, as well as improving the built
environment and the local economy.
As part of the development plan, we carried out
an extensive consultation with the local community,
including local residents and their elected
representatives, to ensure that issues important to
them were identified and addressed. This included
actions and landscaping to mitigate the visual and
noise impact on local residents during construction
and once the buildings are complete.
We estimate that 250 new jobs will be provided
by businesses occupying the new premises and
we are working with Haringey Council to ensure
that local people have access to the employment
opportunities created.
We also used the findings of the Climate Resilience
study to inform the plans for the site. This study
assessed the acute risks from flooding, extreme
weather events and water stress (drought) as well as
the chronic risk of increasing average temperatures
and increasing average rainfall over the short-term
(next 20 years), medium term (20-40 years) and
long term (40-60 years).
The chart below shows the hazard assessment over
the short and long term. The risk of these hazards
to the eventual properties will vary depending
on the size of the building and its usage.
However, generically, the report concludes that
flooding events or droughts, as well as the impact
of an increase in temperature over time are all
long term risks.
By carrying out these assessments at an early
stage of development, we are able to integrate
risk mitigation into the building at design stage,
reducing the future cost of having to retro-fit or,
in the worst case, find that the building is not
fit for purpose under future climate conditions.
CLIMATE HAZARD ASSESSMENT
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62
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
RESPONSIBLE SEGRO
OUR STAKEHOLDERS:
CUSTOMERS, SUPPLIERS
AND INVESTORS
It is our responsibility to build and maintain
strong relationships with our customers,
suppliers and investors. Without these
stakeholders, our business would not exist
and we recognise that fair treatment, regular
communication and their understanding
of our priorities and our understanding of
theirs are vital to ensuring mutual success.
of respondents rated SEGRO as ‘good’ or
‘excellent’ (2018: 80 per cent). 96 per cent
of respondents said they would be willing
to recommend SEGRO (2018: 93 per cent).
During 2020, we will review the format of
this survey to focus as much on the future
business needs of our customers, rather than
just measuring existing satisfaction.
CUSTOMERS
Strong and meaningful relationships with our
customers are essential to the success of our
business. Just as buildings range in size and
specification so do our customers, from small,
owner-managed start-ups to global businesses.
Owning high quality buildings in areas of
strong occupier demand is an important
attraction for customers. But as a developer
and long-term owner of real estate, we are
able to invest the time to understand our
customers’ priorities and offer them creative
solutions to their real estate requirements.
This can be as basic as offering additional,
larger or smaller premises to align with
their own growth aspirations. Equally, we
are able to work with them to adapt their
existing buildings to suit their evolving needs,
such as by investing in energy efficiency
measures such as LED lighting or solar PV
panels to help them meet their own carbon
reduction targets.
This close relationship with our customers
is only achievable through communication
at a strategic, as well as a practical level.
We continue to hold “Futures Forums”
at which we bring customers together for
a day to look at near- and long-term trends
that could impact all of our businesses.
Environmental impacts continue to be an
important consideration at these events,
particularly focusing on the impact of greater
home delivery on congestion and pollution,
and the growing power demands from
warehouse automation and electric vehicles.
A number of our multi-region customers
are supported by dedicated cross border
service teams to make sure they receive a
co-ordinated and consistent service from us.
In 2019, we have continued to invest in this
programme and have introduced a number of
new initiatives to support our teams including
a customer app which helps with the sharing
of information.
In addition to our direct communication with
customers, we employ an external company
to undertake rolling Customer Satisfaction
surveys to ensure that our customer approach
is effective and well received. In 2019,
the survey established that 88 per cent
Customers are at the heart of our business
and we are determined to continue to improve
our offer to them by providing high quality
real estate and first class customer service.
SUPPLIERS
SEGRO works with over 2,500 suppliers
across the Group, ranging from small local
businesses to multinational companies,
and spends over £600 million with them
each year.
We want to work with suppliers who share
our values and our approach to matters such
as health and safety, compliance, delivering
a professional service, anti-bribery and
corruption and modern slavery.
We are committed to ensuring that our
supply chain is safe, secure and efficient.
We follow a strict supplier assurance process
which enables us to be confident that our
supply chain is maintained to a high standard
and improvements can be made whenever
possible. Our comprehensive supplier
assurance process is automated, so it is easy
for suppliers to use and update information.
It requires all suppliers to provide information
appropriate to their service, including health
and safety policy, evidence of insurance
and confirmation of skills and experience.
They need to provide this data before they
become an accredited supplier. We re-test
and re-assess our suppliers, and regularly
update the list of assured suppliers.
We have service review sessions with
many of the professional services suppliers
(for example, with our lawyers and agents),
while those involved in construction activities
have regular visits from our Health and Safety
team. We also have a rolling programme
of meetings with our suppliers’ senior
management teams to discuss in more detail
their compliance with our approach to anti-
bribery and corruption and modern slavery.
There were no concerns or issues arising
out of the meetings conducted during 2019.
We want to work in partnership with suppliers
and we value long term relationships where
they understand us, our standards and our
preferred ways of working.
Building and maintaining
strong relationships
with our customers,
suppliers and investors
is core to achieving our
business purpose.”
ANDY GULLIFORD
CHIEF OPER ATING OFFICER
NUMBER OF CUSTOMERS
1,190
2018: 1,155
OCCUPIER SATISFACTION
IN OUR 2019 SURVEY
88%
2018: 80%
SUPPLIER SPEND PER ANNUM
over £600m
2018: Over £600m
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
63
In the spirit of partnership, we treat our
suppliers well and ensure that they are paid
on time. We are a signatory to the UK Prompt
Payment Code and, in 2019, over 95 per
cent of UK invoices were paid within 30 days
of receipt, with an average payment time of
17 days.
INVESTORS
As a listed company we have a responsibility
to those individuals and institutions who
have invested money in our business either
through equity (our shareholders and joint
venture partners) or debt (our banks and
bond holders) to deliver long-term and
sustainable returns on their investment.
We ensure regular communication with our
investors through an extensive programme,
mainly managed by a dedicated Investor
Relations team. This includes face to face
meetings, attendance at investor conferences
and presentations to investment banks as well
as site visits. The Annual General Meeting
is also an excellent opportunity to meet
with many of our retail shareholders and
answer their questions about the business.
Our website contains comprehensive
financial information about our strategy
and performance, regulatory news and press
releases as well as information about our
debt and our approach to Environmental,
Social and Governance (ESG) issues.
The Investors section of the site also includes
the presentations made during the investor
tours, a summary of the analysts’ financial
forecasts (consensus) and webcasts of the
Chief Executive and Chief Financial Officer
presenting the full year and half year results.
During 2019, the Executive Directors and
the Investor Relations team held meetings with
over 300 representatives from institutional
investors (including 14 of our top 25
shareholders) across 250 meetings to update
them on our performance and to provide
an opportunity for them to ask questions.
We also held a series of one on one and
group meetings with our lending banks and
investors in SEGRO and SELP’s bonds during
the year and we hold two conference calls
after our full and interim results for each of
our SEGRO and SELP debt investors.
Our largest joint venture is the SEGRO
European Logistics Partnership (SELP), owned
50-50 by SEGRO and PSP Investments.
This joint venture has a Board comprising
four directors, two from each parent company
and it meets at least quarterly.
SEGRO manages the joint venture and advises
the Board on investment and financial matters,
with decisions taken jointly by the two parents.
More information on SELP can be found at
www.selp.lu.
During the year, we hosted a series of tours of
our estates in the UK, France, Italy, Germany
and Poland. The visits provided investors and
analysts with unique opportunities to see the
quality of our assets and ask questions directly
to our people who manage our portfolio.
These face to face meetings allow us not only
to update our investors on our business but
also to understand their priorities and any
concerns. This feedback is vital to help shape
our strategy and our communications and
disclosure to make sure that we are meeting
their expectations of us.
KUEHNE + NAGEL
SEGRO has established a strong relationship
with Kuehne + Nagel which has brought benefits
for both companies. By sharing and understanding
each other’s business priorities, in 2019, we agreed
a sale and leaseback in Dagenham whereby Kuehne
+ Nagel released capital to help it to achieve its
growth plans, and we were able to add scale to our
East London portfolio.
And in March 2019, we completed 18,200 sq m
warehouse for Kuehne + Nagel at SEGRO Logistics
Park East Midlands Gateway.
We worked closely with the Kuehne + Nagel
team throughout the project to deliver a warehouse
with temperature controlled pharmaceutical areas
to meet their needs within a generic, sustainable
(rated BREEAM “Very Good”) building to ensure
it remains a useful asset for the long-term.
The new unit has enabled Kuehne + Nagel to
merge their Overland activities, previously in two
separate buildings, and to accommodate growth
plans within their Pharmaceutical business.
We are delighted to have
secured a site on the East
Midlands Gateway Park
which is ideally located for
our expanding Overland
operations. The new
facility will enable us to
continue to develop our
market-leading European
groupage product to
accelerate our ambitious
growth plans within the
Pharmaceutical sector.”
JIM HEDDERWICK
OVERL AND DIRECTOR AT
KUEHNE + NAGEL UK
64
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
RESPONSIBLE SEGRO
NON-FINANCIAL INFORMATION
STATEMENT
This table signposts related Non-Financial information in this report and further reading on our website.
Reporting requirement
Policies
Website (www.SEGRO.com)
1. ENVIRONMENTAL
MATTERS
Responsible SEGRO — Environment —
Environmental Sustainability: Our Vision
Reference in 2019 Annual Report
Our Environment on pages
53-61
2. EMPLOYEES
Code of Ethics
Responsible SEGRO — Policies and CSR Governance —
Code of Ethics
Our People page 49
Our Purpose & Values
Responsible SEGRO — Our People — Culture
Diversity & Inclusion Policy
Responsible SEGRO — Policies and CSR Governance —
Diversity & Inclusion Policy
Group Health & Safety
Policy
Responsible SEGRO — Policies and CSR Governance —
Group Health & Safety Policy
Governance page 79
Governance page 90 and
Our People pages 47-48
Health & Safety pages 43-45
3. HUMAN RIGHTS
Anti-Slavery and Human
Trafficking Policy
Responsible SEGRO — Policies and CSR Governance —
Anti-Slavery and Human Trafficking Policy
Our People page 49
Modern Slavery and Labour
Standards Supplier Code
Responsible SEGRO — Policies and CSR Governance —
Modern Slavery and Labour Standards Supplier Code
Our Stakeholders pages 62-63
4. SOCIAL
Modern Slavery and Labour
Standards Supply Code
Responsible SEGRO — Policies and CSR Governance —
Modern Slavery and Labour Standards Supplier Code
Group Health & Safety
Policy
Responsible SEGRO — Policies and CSR Governance —
Group Health & Safety Policy
Our Stakeholders pages 62-63
Health & Safety pages 43-45
5. ANTI-CORRUPTION
AND ANTI-BRIBERY
Code of Ethics
Responsible SEGRO — Policies and CSR Governance —
Code of Ethics
Our People page 49
6. BUSINESS MODEL
About Us — Our Business — What We Do — Our Business Model
How We Create Value on pages
20-21
7. PRINCIPAL RISKS AND
UNCERTAINTIES
8. NON-FINANCIAL
KEY PERFORMANCE
INDICATORS
Effective Risk Management on
pages 70-72
About Us — Our Business — What We Do — KPIs
Measured Against Our Targets
on pages 40-41
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
65
PRINCIPAL RISKS
EFFECTIVE RISK MANAGEMENT
Risk management is
integral to our strategy.”
SOUMEN DAS
CHIEF FINANCIAL OFFICER
OUR STR ATEGY FOR GROW TH IS
UNDERPINNED BY ACTIVE RISK
MANAGEMENT
2019 continued to present a backdrop of
political, economic and competitive challenges
in key markets, including the UK and across
the EU. Our risk process is embedded within
our business to allow effective decision-
making with clarity, accountability and
transparency, to enable successful delivery of
the Group’s strategy.
DISCIPLINED CAPITAL ALLOCATION
We have continued to pursue opportunities in
light of the Group’s capital investment strategy
and appetite for risk. In particular, our focus
on development pipeline and appetite for
non-income producing assets supplemented
by purchases in key strategic markets
(described in more detail on pages 24 to 25).
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 an efficient exposure to
speculative development;
£ using a broad range of key contractors
and closely managing them during
our developments;
£ maintaining an efficient capital structure and
liquidity position to fund the development
activity; 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.
BREXIT
Brexit continues to be an area of specific
focus for the Group, particularly the risk
of a disruptive Brexit which is continually
monitored and actively managed, supported
by a dedicated risk register. Whilst the UK
General Election in December 2019 has
enabled the UK government to move forward
and formally leave the EU on 31 January
2020, in reality any significant impact will only
be felt when the transition period ends on
31 December 2020 (or such other date that
is agreed). Until new trade and international
agreements and arrangements have been
finalised, the risk will remain elevated due
to the continuing uncertainty around the
economic, political and regulatory outlook.
The Executive Committee has considered
our approach and response plans regularly
throughout 2019, being aware of external
factors and focussing on controlling what we
can within our business, and will continue to
do so in 2020 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. Whilst we remain
constantly vigilant, 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, not specific
to us, 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 of
our future relationship with the EU once the
transition period finishes and we will initiate
the work once this is clear.
ENVIRONMENTAL SUSTAINABILITY AND
CLIMATE CHANGE
Environmental sustainability in the short to
medium term and the long-term emerging
risk of climate change is ever more important
for risk management. The environmental and
climate change related risks are managed
by our Group Sustainability Manager who
reports into the Chief Operating Officer and
ultimately the Board. These risks include
regulatory risk, reputational risk and physical
environmental risk. Extensive research on
potential impacts have been conducted across
different scenarios including physical changes
(such as weather patterns, temperature
increase) and transitional changes (including
legislative and financial). Our activity during
2019 and looking ahead to 2020 and beyond
is described in more detail on pages 53 to 61.
66
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
PRINCIPAL RISKS
EFFECTIVE RISK MANAGEMENT
CONTINUED
TECHNOLOGY
OUR RISK APPETITE
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.
CORPORATE RISK
We have a very low appetite for risks to our
good reputation and risks to being well-
regarded by our stakeholders, including
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; our
impact on the environment; the impact of
new and evolving technologies; compliance
with codes of conduct and ethics; ensuring
business continuity; and making a positive
contribution to the communities in which
we operate.
The Group remains alert to the risks and
opportunities that potentially disruptive
technology could have on the business.
During 2019 we invested significant effort
in assessing the potential impacts of a wide
range of technologies; we implemented a
digital and technology strategy; we invested
in our organisation in this area to deliver that
strategy. In January 2020 we announced
further investment in our capabilities in
this area with the creation of the Strategy,
Investment and Innovation function, as
described on page 15.
We continued to engage with a number
of external organisations – both property
sector and in the wider technology realm
to assist us in identifying and assessing
potentially disruptive technologies. None of
the technologies assessed in 2019 present an
imminent significant risk to the Group, though
a small number remain on our ‘watch list’ for
active monitoring.
FINANCING
The Group’s financing strategy is balanced
between supporting investment in our growth,
and to enable the Group to be well positioned
and resilient against potential risks faced in
both the short and long term. The Group’s
management of its capital structure, including
extending debt facilities and maturities, is
described on pages 34 to 35.
HEALTH AND SAFETY
Health and safety remains at the core of
our business. Our activity during 2019
included the creation of the Health and Safety
Working Group to ensure further proactive
collaboration and communication to mitigate
health and safety risk across the Group.
This and other activity in 2019 and looking
ahead to 2020 are described on pages 43
to 45.
EMERGING RISKS
During the year the Group has enhanced
its process in order to include the definition,
identification and documentation of emerging
risks to the business this is discussed in more
detail on page 67.
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, now and in the
long-term, value for our shareholders and
other stakeholders.
The Group’s risk appetite is reviewed annually
and approved by the Board in order to
guide management. As well as qualitative
descriptions, the risk appetite defines
tolerances and targets for key metrics. It is
equally applicable to wholly-owned operations
and joint ventures.
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.
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, construction and contractor
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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
67
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 regularly by
the relevant monitoring committees as well
as being integral to 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.
The Board has performed a robust assessment
of the principal and emerging risks facing
the Group. The Board has formally reviewed
the principal and emerging 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 68.
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.
OUR INTEGR ATED AND ROBUST
APPROACH TO RISK MANAGEMENT
The Board has overall responsibility for
ensuring that risk is effectively and consistently
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 84.
The risk management process is designed to
identify, evaluate and mitigate the significant
risks (both existing and emerging) 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.
Identification and review of emerging risks
are integrated into our risk review process.
Emerging risks are those risks or combination
of risks which are often rapidly evolving
for which the impact and probability of
occurrence have not yet been fully understood
and consequently necessary mitigations have
not yet fully evolved. All risk owners and
managers within the business are challenged
to consider emerging risks that they are aware
of and this is cross checked against formal
horizon scans with the Executive Committee.
The Board recognises that it has limited
control over many of the external risks it faces,
such as the macro-economic, geopolitical
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.
68
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
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 and
policy.
£ Conducts robust assessment of current and
emerging 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.
£ Oversees execution of risk management
£ Agrees internal audit programme in
conjunction with the Group Risk Register.
£ Conducts internal audit programme and
reports to Audit Committee.
£ Assign accountability for mitigating
individual risks to senior risk managers.
£ Ensure that risks are identified, assessed
and adequately controlled.
£ Review and identify existing and emerging
risks with the risk management function at
least twice per year.
across the business.
£ Formally considers risks, including
emerging risks, two times per year.
£ Directly oversees strategic risks.
£ Delegates accountability for risk
management and monitors performance
of risk controls.
£ Assigns Executive Risk Owners to each
risk.
RISK MANAGERS
MONITORING COMMITTEES
£ Responsible for ensuring the risk is within
£ Regularly identify and monitor the
appetite.
£ Drive design and implementation of
controls.
£ Review, identify and assess existing and
emerging 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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
69
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 95.
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
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 Business Model (page 20) and Strategy
(page 22) are designed to ensure the success
of the business in the long term and 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.
In particular the stress test has considered the
potential impacts of:
In stress testing we assessed the limits at
which key financial ratios and covenants would
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. In isolation, it would
take at least a 52 per cent fall in property
values during the five year assessment period,
to breach the gearing covenant. A decrease
in rental income of over 70 per cent or an
increase in interest rates to over 21 per cent,
during the five year assessment period, would
be required to breach the interest cover
covenant. This assumes that the current levels
of fixed rate debt are 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
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
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 2019; 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 2019, three of our risks have
increased, whilst the others have remained in
line with the prior year.
££ 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
business continuity.
w
o
L
3
Disruptive Brexit
1
Market cycle
2
Portfolio strategy
4
Health & safety
8
9
Political &
regulatory
5
Operational
delivery
& compliance
6
Development plan execution
7
Financing strategy
Investment plan execution
Below appetite
Within appetite
IMPACT
Intolerable
70
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
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 misread the market or fail to react
appropriately to changing market and wider
related geopolitical 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 reviewed
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:
The uncertainty associated with Brexit may
adversely impact investment, capital, financial
(including exchange rates), occupier and
labour markets in the UK as the nature of the
future relationships is negotiated.
££ 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 mix of risk assets (for
example between higher risk ‘opportunity’
assets and lower risk ‘core’ 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.
Whilst the UK left the EU on 31 January 2020, the
full impact will not be felt until such time that the
new trading relationship with the EU, and those
required more globally, become more certain.
The impact may be more acute depending on the
outcome of future negotiations.
In the long term, exit from the EU could impact
levels of investor and occupier demand as a result
of reduced trade, in particular those in industries
more at risk to the impact of a disruptive Brexit,
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
The Group is mindful of ongoing political
and economic uncertainties but remains
focussed on controlling what it can within its
own business. 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.
Regular portfolio analysis enables the portfolio
to be correctly positioned in terms of location
and asset type, and retains the right mix
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 Group’s strategy provides resilience
through the market cycle. As well as the
underlying quality and diversity (in terms of
both asset type and location) of the portfolio,
mitigations include substantial covenant
headroom, access to diverse sources of funding,
exchange rate and interest rate hedging, and
short, responsive development lead-times.
IMPACT ON STR ATEGY
IMPACT ON STR ATEGY
IMPACT ON STR ATEGY
CHANGE IN 2019
CHANGE IN 2019
CHANGE IN 2019
THE INCRE ASED R ATING IS A REFLECTION
OF PERSISTING UNCERTAINT Y OF FUTURE TR ADE
ARR ANGEMENTS.
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 12-15.
FURTHER INFORMATION: THE MARKET OUTLOOK
IS DETAILED IN THE CHIEF EXECUTIVE’S
STATEMENT ON PAGES 12-15.
FURTHER INFORMATION: THE GROUP ’S RESPONSE
TO THIS RISK IS DESCRIBED ON PAGE 65.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
71
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. DEVELOPMENT PLAN EXECUTION
6. INVESTMENT 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 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 all
our suppliers.
A published Health and Safety policy
is supported by annual site inspections
of existing assets, as part of proactive
management, and development project
inspections against SEGRO’s Health & Safety
Construction Standard.
We continue to improve health and safety
standards on our development sites, and
work more closely with our suppliers and
health and safety consultants to increase
understanding and implementation of
SEGRO’s requirements.
The Health and Safety Working Group are
responsible for overseeing the implementation
of, and compliance with, the Health and
Safety Policy and Safety Management System.
We undertake continuous monitoring of
health and safety practices, including incidents,
inspections and training tracked across the
Group. Legal guidance and further support
is provided through local health and safety
consultants and ENHESA who provide
regulatory assurance support to the Group.
££ Cost over-runs on larger, more complex
projects, including for example due to
contractor default or poor performance
and management.
££ Increased competition and/or construction
costs (from labour market changes or
supply chain pressures) 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, for example when acquisition decisions
are being made by the Investment Committee.
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.
The risk of cost-overruns is mitigated by our
experienced development teams and the use
of trusted advisors and contractors.
The risk of contractor default is mitigated by
using a diversified selection of companies
who have been through a rigorous
onboarding process.
Our short development lead-times enable a
quick response to changing market conditions.
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 changes in market
cycle and portfolio strategy. Further it may
be delinked and therefore misaligned from
portfolio strategy.
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 in line
with portfolio strategy.
IMPACT ON STR ATEGY
IMPACT ON STR ATEGY
IMPACT ON STR ATEGY
CHANGE IN 2019
CHANGE IN 2019
CHANGE IN 2019
RESIDUAL RISK WITHIN APPETITE?
RESIDUAL RISK WITHIN APPETITE?
RESIDUAL RISK WITHIN APPETITE?
OVERSEEN BY: OPER ATIONS COMMIT TEE;
EXECUTIVE COMMIT TEE
OVERSEEN BY: EXECUTIVE COMMIT TEE,
OPER ATIONS COMMIT TEE
OVERSEEN BY: EXECUTIVE COMMIT TEE;
INVESTMENT COMMIT TEE
FURTHER INFORMATION: HE ALTH AND SAFET Y
RISK MITIGATIONS ON PAGES 44-45.
FURTHER INFORMATION: THE MARKET OUTLOOK
IS DETAILED IN THE CHIEF EXECUTIVE’S
STATEMENT ON PAGES 12-15 .
72
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
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. FINANCING STRATEGY
8. POLITICAL AND REGULATORY
9. OPERATIONAL DELIVERY
The Group could fail to anticipate significant
political, legal, tax or regulatory changes,
such as those associated with environmental
sustainability, leading to a significant un-
forecasted financial or reputational impact.
In general, regulatory matters present
medium- to long-term risks with a medium
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.
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.
Such an event may be caused by: a failure
to obtain debt funding (for example, 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 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 light of
opportunities and market conditions and
maintains a good long-term relationship with
a wide range of sources of finance.
Financing activity in 2019 (see pages 34 to 35)
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.
Liquidity remains strong and there is
substantial headroom against all of our
financial covenants.
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; non-compliance
with legislation; major customer default;
supply chain failure; the structural failure of
one of our assets; or a cyber-security breach.
In addition the Group’s operations might also
be impacted by an adverse external event
(such as a health pandemic or terrorism) or
failure to respond to the consequences of
climate change (which may involve extreme
weather or environmental disaster).
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 Technology 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.
See pages 53 to 61 for further detail on our
approach to environmental sustainability and
climate change.
IMPACT ON STR ATEGY
IMPACT ON STR ATEGY
IMPACT ON STR ATEGY
CHANGE IN 2019
CHANGE IN 2019
THE INCREASED RATING REFLECTS LEVELS OF POLITICAL
UNCERTAINTY IN MARKETS INCLUDING THE UK, AND
KNOCK ON EFFECTS TO THE WIDER EU COUNTRIES.
CHANGE IN 2019
THE INCREASED RATING REFLECTS THE INCREASED
ENVIRONMENTAL CHALLENGES FACING THE
BUSINESS AND WIDER COMMUNITIES
RESIDUAL RISK WITHIN APPETITE?
RESIDUAL RISK WITHIN APPETITE?
RESIDUAL RISK WITHIN APPETITE?
OVERSEEN BY: EXECUTIVE COMMIT TEE
OVERSEEN BY: EXECUTIVE COMMIT TEE
OVERSEEN BY: OPER ATIONS COMMIT TEE;
TECHNOLOGY COMMIT TEE; EXECUTIVE
COMMIT TEE
73
74
76
78
84
88
92
97
118
124
126
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
GOVERNANCE
BOARD OF DIRECTORS
CHAIR’S INTRODUCTION
BOARD LEADERSHIP
AND COMPANY PURPOSE
DIVISION OF RESPONSIBILITIES
COMPOSITION, SUCCESSION
AND EVALUATION
AUDIT, RISK AND INTERNAL CONTROLS
DIRECTORS’ REMUNER ATION REPORT
DIRECTORS’ REMUNER ATION POLICY
DIRECTORS’ REPORT
STATEMENT OF DIRECTORS’
RESPONSIBILITIES
1920
THE SLOUGH TR ADING COMPANY LTD
In 1920, Lord Percival Perry, Redmond
McGrath and Sir Noel Mobbs came
together to form The Slough Trading
Company Ltd. The company purchased
the motor repair depot from the British
Government – 2.7sq KM of land, 1.8m
sq ft of buildings and all 17,000 vehicles
stored on a large area of agricultural
land to the west of Slough. The Slough
Trading Company rehired the original War
Department staff and set about working
to adapt the military vehicles for civilian
use. By 1925 the last remaining vehicles
were repaired and sold, and the company’s
focus had switched to renting its buildings
to a variety of other businesses. In doing
so it became a property company and the
modern industrial estate at Slough was
born. In 1926 the company changed its
name to Slough Estates Ltd to reflect its
new core business and set about growing
its customer base. Within two years of
switching to property, it doubled the
number of customers.
FOR MORE INFORMATION, PLE ASE VISIT:
W W W.SEGRO.COM/ABOUT-US/2020
74
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
BOARD OF DIRECTORS
N
GER ALD CORBETT
CHAIR
DAVID SLEATH
CHIEF EXECUTIVE
Appointed: 1 March 2016 (Chair: 22 April 2016)
Skills, experience and contribution
Gerald’s extensive experience as a director and a
Chair across various sectors brings indispensable
strategic insight to the boardroom. Throughout his
career he has been a director of 13 public companies,
seven of which he has chaired.
Current appointments
Chair of the Marylebone Cricket Club
Previous appointments
Chair, Betfair | Chair, Britvic plc | Chair,
Moneysupermarket.com | Chair, Numis Corporation
plc | Chair, SSL International plc | Chair, Woolworths
Group plc | Non-Executive Director, MEPC | Non-
Executive Director, Greencore Group | Non-Executive
Director, Burmah Castrol | Finance Director, Redland
and Grand Metropolitan | Chief Executive, Railtrack
Appointed: 28 April 2011 (Finance Director:
1 January 2006)
Skills, experience and contribution
David has considerable board level experience of listed
companies and has extensive knowledge of the real
estate, manufacturing and distribution sectors and
the Company. His financial and general management
experience has helped lead 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.
Current appointments
Senior Independent Non-Executive Director,
Electrocomponents plc
Previous appointments
Finance Director, Wagon plc | Partner, Arthur
Andersen | Board member of the European Public
Real Estate Association | President and board member
of the British Property Federation | Non-Executive
Director, Bunzl plc
SOUMEN DAS
CHIEF FINANCIAL OFFICER
Appointed: 16 January 2017
Skills, experience and contribution
Soumen has been Chief Financial Officer at board
level of listed companies for ten years. His background
as an experienced corporate financier and track record
of negotiating complex corporate transactions prove
valuable to the Board and business.
Previous appointments
Managing Director and Chief Financial Officer,
Capital & Counties Properties plc (Capco) | Partner,
Mountgrange Investment Management LLP |
Executive Director, UBS
N R
N
ANDY GULLIFORD
CHIEF OPER ATING OFFICER
Appointed: 1 May 2013
MARY BARNARD
INDEPENDENT NON-EXECUTIVE DIRECTOR
SUE CLAYTON
INDEPENDENT NON-EXECUTIVE DIRECTOR
Appointed: 1 March 2019
Appointed: 1 June 2018
Skills, experience and contribution
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 joined SEGRO in 2004 and 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
European Director, Jones Lang LaSalle | Director
of Corporate Acquisitions; Business Development
Director; Managing Director for Continental Europe,
SEGRO
Skills, experience and contribution
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 has a
strong knowledge of the operation of the retail market
and supply chain.
Current appointments
President US Sales, Mondelez International Inc |
President, CAOBISCO
Previous appointments
Senior Vice President and General Manager,
Pepsi-Lipton Partnership | Non-Executive Director,
Poundland Group plc | Chair, Cadbury Foundation |
EXCO member, Food & Drink Federation and Institute
of Grocery Distribution
Skills, experience and contribution
Sue brings a wealth of property market knowledge
to the Board, with over 25 years of experience in
UK investment markets, having worked in the UK
commercial property market for her whole career.
She is also active in promoting diversity including
through her roles as the Chair of Women’s Network
at CBRE and as a Founding Member of Real
Estate Balance.
Current appointments
Part time Executive Director, CBRE | Non-Executive
Director, Helical plc | Member of the Committee of
Management, Hermes Property Unit Trust | Chair,
Barwood 2017 Property Fund | Trustee, Reading Real
Estate Foundation
Previous appointments
Head of National Investment; Managing Director
of Capital Markets, CBRE | Board member on the
CBRE UK Management and Executive Boards | Board
member on the CBRE Group Inc Board
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
AUDIT COMMIT TEE MEMBER
NOMINATION COMMIT TEE MEMBER
REMUNER ATION COMMIT TEE MEMBER
CHAIR OF COMMIT TEE
75
A
N
R
A
N
R
A
N
R
A
N R
CAROL FAIRWEATHER
INDEPENDENT NON-EXECUTIVE DIRECTOR
CHRISTOPHER FISHER
INDEPENDENT NON-EXECUTIVE DIRECTOR
MARTIN MOORE
SENIOR INDEPENDENT NON-EXECUTIVE DIRECTOR
Appointed: 1 January 2018
Appointed: 1 October 2012
Appointed: 1 July 2014
Skills, experience and contribution
Carol has recent and relevant finance experience
and brings commercial knowledge to the Board.
Her experience as Chief Financial Officer of the
retailer Burberry Group is valuable to the Company,
as it seeks to help it and its customers adapt to the
e-commerce revolution.
Current appointments
Non-Executive Director, Smurfit Kappa Group plc |
Trustee, Somerset House Trust
Previous appointments
Chief Financial Officer, Burberry Group | Director
of Finance, News International Ltd | UK Regional
Controller, Shandwick plc
Skills, experience and contribution
Christopher has spent his career in corporate finance
and has some 16 years of listed Board experience.
His knowledge of large scale, international business,
coupled with his financial expertise, brings a range of
valued insights to the Board.
Current appointments
Non-Executive Director, National Savings &
Investments | Chair, Marshall Scholarship Programme |
Senior Adviser, Penfida
Previous appointments
Managing Director, Lazard | Vice Chair, KPMG,
Corporate Finance | Senior Partner, Penfida | Chair,
Bank of Ireland UK | Chair, Southern Cross Healthcare
| Non-Executive Director, Kelda | Chair, Council of the
University of Reading | Trustee, Imperial War Museum
Skills, experience and contribution
With over 40 years’ experience of real estate and the
property sector, Martin brings industry knowledge
and breadth of practice to the Board.
He is a member of the Royal Institution of Chartered
Surveyors (MRICS).
Current appointments
Chairman, BMO Commercial Property Trust | Non-
Executive Director, Secure Income REIT plc | Senior
Adviser Kohlberg Kravis Roberts & Co LLP
Previous appointments
Chief Executive and Chair, M&G Real Estate | Adviser
and Commissioner, The Crown Estate | Board member
and President, British Property Federation | Board
member and Chair, Investment Property Forum |
Commissioner, Historic England | Non-Executive
Director, M&G Asia Property Fund
ELIZABETH BLEASE
GENER AL COUNSEL AND GROUP
COMPANY SECRETARY
Elizabeth joined SEGRO as General Counsel and
Group Company Secretary in May 2008.
Previous appointments
Solicitor, Addleshaw Goddard | Group Company
Secretary, Brammer plc | Group Company Secretary,
Marshalls plc
BOARD ATTENDANCE
Mary Barnard1
Sue Clayton2
Gerald Corbett
Soumen Das
Carol Fairweather3
Christopher Fisher
Andy Gulliford
Martin Moore
Phil Redding
David Sleath
Total number of meetings
Board
Audit
Committee
Nomination
Committee
Remuneration
Committee
AGM
5/6
8/8
8/8
8/8
8/8
8/8
8/8
8/8
8/8
8/8
8
–
1/1
–
–
3/3
3/3
–
3/3
–
–
3
2/2
3/3
3/3
–
3/3
3/3
–
3/3
–
–
3
4/4
–
–
–
1/1
6/6
–
6/6
–
–
6
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1
All the Board and Committee members attended each meeting that they were eligible to attend with the exception of Mary Barnard,
who missed one Board meeting due to a prior commitment made before she joined the Board.
1 Mary Barnard joined the Board on 1 March 2019.
2 Sue Clayton stepped down from the Audit Committee in March 2019, for further information see page 89.
3 Carol Fairweather was appointed to the Remuneration Committee on 11 December 2019.
Doug Webb resigned as a Non-Executive Director on 30 September 2019.
Phil Redding stepped down as an Executive Director on 31 January 2020.
FURTHER DETAILS ON DIRECTORS’ SKILLS AND THE COMPOSITION OF THE BOARD,
INCLUDING DIVERSIT Y AND TENURE, IS AVAIL ABLE ON PAGES 89 AND 90.
76
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
CHAIR’S INTRODUCTION
CULTURE, STAKEHOLDERS AND SECTION
172 COMPANIES ACT 2006 (s172)
Much of the debate and discussion in the
corporate governance world this year, and
indeed around our Board table, has been
about these themes. We understand that we
do not exist in isolation. Our role is not to
focus on financial returns for shareholders at
all costs but to recognise our responsibility
to work together with all of our stakeholders
and to make a positive contribution to
wider society.
Although we have enjoyed our discussions this
year about our culture, our stakeholders and
our role in society, these themes aren’t new
to us. In May this year, we will celebrate our
100th birthday. As we have reflected on our
past and researched our history, particularly
the early years of the Slough Trading Estate,
time and again we have found stories of
how the Company has placed huge value on
the welfare of its people, its customers and
also the communities where we have assets.
Our history is also full of moments of great
innovation and enterprise as we have evolved
to stay relevant to society and in a position of
leadership for our stakeholders. In my view, it
is inconceivable that a company could survive,
and indeed thrive, for 100 years without living
these values.
You will read on page 79 about our Purpose
and our culture. We have reported on
compliance with s172 in two sections: on page
23 of the Strategy Report we show how the
business considers the matters set out in s172
every day while on pages 80 and 81 of this
Report we explain how the Directors consider
s172 in their decision making. The new
requirement to report on these areas has been
helpful in making the Board articulate what we
have been doing implicitly for many years.
We thought carefully about the new Code
provisions on employee engagement and
concluded that the alternative arrangements
permitted by the Code would be preferable
to the three options suggested. We set out
our approach on page 78.
I am delighted to present this Governance
Report following another year of excellent
performance. The business continues
to benefit from the structural trends of
urbanisation and technological revolution,
which have outweighed the effects of
the uncertain macro economic backdrop.
Throughout the year, there was continued
momentum in our pre-let development
pipeline and our balance sheet is well
positioned to support further development-led
growth. You can read more about our strategy
and performance in the Strategic Report on
pages 12 to 41.
BOARD CHANGES
For the Directors, 2019 was also a busy year.
In March, we welcomed Mary Barnard to
the Board as an Independent Non-Executive
Director. Her extensive commercial experience
in understanding customers through her
various international roles in sales and
marketing, together with her knowledge of
the operation of the retail supply chain has
brought a fresh perspective to many of our
discussions. Doug Webb retired in September
after over nine years on the Board, mostly as
Chair of our Audit Committee. He was a stable
presence throughout a period of change on
the Board, while his knowledge of the business
over this long period was often helpful.
More recently, we announced that our Chief
Investment Officer, Phil Redding, stepped
down from the Board in January 2020
following changes to our organisation’s
structure. Phil played a key role in the
development of the Group, particularly over
the past decade. My Board colleagues and I
will miss his contribution to Board discussions
and his particularly clear, thoughtful and
structured thinking around the portfolio and
strategy. On behalf of the Board, we thank
him for everything he has achieved and wish
him well for the future.
2018 UK CORPOR ATE GOVERNANCE CODE
(THE CODE)
This year was our first year operating
under this most recent version of the Code.
The Board has embraced the change of
emphasis in this Code which has made it more
relevant and reflective of the modern business
world. We have complied with the Code
during the year, as explained throughout
this Report.
GER ALD CORBET T
CHAIR
2018 CORPOR ATE GOVERNANCE CODE
BOARD LEADERSHIP AND PURPOSE
(including stakeholder relations)
We are responsible for leading the business in the
way which we believe is most likely to lead to long-
term sustainable success. This includes effective
engagement with our stakeholders and particularly
our colleagues.
RE AD MORE ON PAGES 78-83
DIVISION OF RESPONSIBILITIES
We ensure we have the right combination of
Executive and Non-Executive Directors without any
individual or group of individuals dominating the
decision making.
RE AD MORE ON PAGES 84-87
COMPOSITION, SUCCESSION
AND EVALUATION
Our Nomination Committee ensures that we have
a balanced Board with the appropriate skills to
govern the business, and an effective evaluation
and succession plan.
RE AD MORE ON PAGES 88-91
AUDIT, RISK AND INTERNAL CONTROL
Our Audit Committee oversees the processes
required to ensure that neither unnecessary nor
unacceptable risks are taken in the implementation
of strategy.
RE AD MORE ON PAGES 92-96
REMUNERATION
Our Remuneration Committee determines the
Remuneration Policy which aims to incentivise
strong performance whilst avoiding excess.
We are also mindful of the pay of our colleagues
across the business.
RE AD MORE ON PAGES 97-123
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
77
GOVERNANCE AND THE DELIVERY
OF STR ATEGY
Governance plays a key contributing role to
the effective delivery of strategy. Pages 86
and 87 describes the key activities of the
Board during the year, including the part that
we played in setting the strategic objectives
of the Company. We also ensured that
those strategic objectives were met during
the year. In accordance with our terms of
reference, any investment over £50 million
requires Board approval. The Board therefore
considered and approved the acquisition of
a 450 acre site adjacent to Coventry Airport
for future development of modern big box
warehouses to aid our strategy of enhancing
returns. It was right that we approved it since
the acquisition was large and complex, and
our discussions focussed around sustainable
returns for investors, job creation for the
local communities, the creation of new
facilities for customers but also the risks and
costs associated with remediation of a large
and complex site. We also considered the
Company’s move to a new London head office
during the year, including re-locating of 51
employees who had previously worked in our
Slough office to aid increased collaboration
between the UK teams. The Directors had
lunch with the employees in the new London
office in December to see how they were
settling into the new environment.
ENVIRONMENTAL, SOCIAL AND
GOVERNANCE (ESG)
During the year we have witnessed a sharp
increase in interest from investors in the ESG
arena. It aligns closely with the discussions we
have been having about culture, Purpose and
s172. We have seen an increased focus on
responsible investment practices, a heightened
awareness of social risk across supply
chains and growing demand for sustainable
business models along with requests for
increased disclosure.
There is now an opportunity for us, during
2020, to build on all the good work we have
been doing, and to define SEGRO’s ESG
strategy and to set some ambitious targets.
CONSULTATION WITH SHAREHOLDERS
LOOKING FORWARD
After 100 years, there is still plenty for us
to do as the world around us is changing
rapidly with new technologies and consumer
requirements affecting us and our customers’
businesses. Competition is intensifying and
the expectations of our existing and newly
emerging stakeholders are becoming more
demanding. We have begun already to
address these challenges and, as we approach
our centenary, we will be accelerating
and intensifying our efforts to ensure our
continued success in the future.
We have an energetic and dynamic Executive,
ably supported by the Leadership team and
the wider workforce, who are keen to further
drive forward the successful delivery of
strategy to enable the Company to thrive for
the next 100 years and beyond.
GER ALD CORBET T
CHAIR
In Christopher Fisher’s introduction to
the Remuneration Report on page 97,
he talks about our 2019 AGM, when the
2018 Remuneration Report was approved
by a small majority. Christopher, with the
support of the Remuneration Committee,
undertook extensive consultation with the
Company’s largest shareholders but the AGM
results were not expected. We hope that
shareholders are supportive of the changes
we have made following further consultation
over the Summer. For further details on
our approach to this, please see page 97
as well as the statements on our website at
www.SEGRO.com.
Last year, one of the proxy voting advisers
raised a question about Sue Clayton’s
independence. Although Sue is a Director
of CBRE, the Board considers her to be
independent and indeed, the experience she
brings due to her long career in real estate
is of great value to the Company (see page
89 for more information). We have engaged
with the proxy adviser as we firmly disagree
with their conclusion, and we have also
engaged with some of our larger shareholders
about this.
During the year, I wrote to our larger
shareholders offering them a meeting with
myself, our Senior Independent Director and
the Chairs of our Audit and Remuneration
Committees. We will continue to engage with
our shareholders as well as representative
bodies to make sure that there is an ongoing
dialogue about the Company’s approach to
governance, including remuneration, and
to ensure all views are fully understood
and considered.
OUR PEOPLE
We recognise that we have an extraordinary
team of people who are the cornerstone of
the success that the Company has enjoyed
over the last few years. On behalf of my
fellow Board members, I would like to take
this opportunity to thank all of our people for
their hard work, diligence and commitment to
the Company. In particular, to David and the
Executive team, whose insight and leadership
have steered the business so successfully.
78
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
BOARD LEADERSHIP AND COMPANY PURPOSE
WORKFORCE ENGAGEMENT
Earlier in the year, the Board considered how to respond to the Code’s provision
on workforce engagement mechanisms in a way which would be appropriate
for a non-unionised business with a headcount of around 330 people spread
across nine geographies. The Board felt that it was important that its approach
should mirror the Company’s values of openness and transparency in order for
the engagement to be authentic, meaningful and received positively. Against this
backdrop, it was agreed that alternative arrangements as permitted by the Code
were preferable to the three options suggested.
A three stage approach has been adopted:
Individual meetings with the Directors
£ There are many formal and ad hoc occasions when the Non-Executive Directors
meet with employees, for example through an induction programme, a Non-
Executive Director making an ad hoc asset visit or meetings with individuals to
discuss a particular topic.
£ The Committee Chairs have 1:1 meetings with a number of different employees
Informal meetings with the whole Board
£ The Board had an informal lunch with the workforce in our Milan office in June
and in the new London office in December. Both occasions gave the Non-
Executive Directors, in particular, time with all of the employees to chat to them
about their role and experiences at SEGRO.
£ In November, the Directors spent time with the team based at our Rugby
office, discussing with the former Roxhill employees how they had found the
integration with SEGRO, as well as looking at plans and models of proposed
development sites.
£ The Board took part in an exercise where the Directors received short
presentations in four separate sessions with small working groups who had
researched emerging topics including artificial intelligence and asset tokenisation.
As well as giving the Directors an introduction to these topics, and how they
might affect the business, it was also an opportunity for them to meet some of
our younger talent.
in relation to the business of their meetings.
Response to engagement
Presentations at Board and Committee meetings
£ The Executive Directors encourage their teams to present at Board meetings
and join asset tours. During the year, the Directors heard from employees about
sustainability, cyber security, the plans for the 2020 centenary celebrations,
health and safety, community engagement and PropTech.
Feedback from the Employee Engagement Survey, as well as informal feedback
from employees was taken into account by the Board and was an important
consideration when the Directors discussed the London office move and the
agile working policy (see Our People on page 46 for more detail).
As we approach our 100th anniversary, we
can prove beyond doubt that the business
has been run with one eye on the horizon,
with a constant focus on the long term.
We are absolutely committed to maintaining
this focus. The Board, as custodians of
the business, want to ensure that our
successors are well placed to celebrate our
next centenary.
AN EFFECTIVE AND ENTREPRENEURIAL
BOARD
PROMOTING LONG-TERM SUSTAINABLE
SUCCESS
The Board is responsible for creating and
delivering shareholder value by setting the
strategic direction of the Group. The Executive
team has day-to-day responsibility for
implementing this strategy and it is the
Board’s role to hold management to account
for ensuring that it is delivered. The work of
the Board should complement, enhance and
support the work of the Executive.
Information about our strategy is on pages
22 to 33 while you can read more about the
annual Board strategy day on page 83.
The Board is made up of a number of talented
individuals, with a depth of commercial
experience from a range of industries.
This diversity helps create an effective and
entrepreneurial Board as each member has
a fresh perspective to bring to discussions.
See pages 74 and 75 for more information
about the Directors and the contribution they
bring to the Board.
SEGRO’s principal duty is to deliver lasting,
sustainable success and generate value
for shareholders and other investors,
whilst being mindful of our impact on
stakeholders and wider society. 2019 was
another year of financial and operational
outperformance. Once again, earnings grew
strongly, supported by rental growth and the
additional income generated from our active
development pipeline. Looking ahead, the
combination of new rental income from the
development programme, and the benefits
of active asset management of our existing
portfolio, should enable us to drive sustainable
growth in both earnings and dividends.
The Chief Executive’s Statement on pages
12 to 15, along with the Finance Review on
pages 34 to 39 set out in much more detail
our strategy and the reasons for our continued
success. The TSR chart on page 106 tells
this story. Shareholders have benefited from
sustained share price growth with £100
invested in our shares in 2010 worth £414 at
the end of 2019. The dividend has increased
every year for the last seven years. At the end
of 2019, SEGRO was the largest REIT on the
London Stock Exchange and the 43rd largest
company in the FTSE 100.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
79
CULTURE, PURPOSE AND VALUES
Culture is the character and personality of a business, it’s what makes us unique and is the
sum of our purpose, values, behaviours and traditions. It guides our relationships not just with
our employees but with our other stakeholders as well. Our culture is unique and permeates
throughout the whole business. It sets the tone for good governance.
WHY
WE EXIST
WHY
Our Purpose is our compelling, memorable
and differentiating statement that energises us
as a team, beyond money or profit.
HOW
Values are our core beliefs about how we do
business which guide our decision making,
large and small.
WHAT
WE WANT
TO ACHIEVE
HOW
WE WORK
WHAT
Our Strategy is the goal we are aiming for.
We are proud of our Purpose to “create the space that enables extraordinary things to
happen” and our five Values. A few years ago, our Executive Committee invested in a
significant programme to engage everyone in the business in creating our Purpose and
Values. We wanted to develop a unifying purpose which aligned with our strategy and a set
of principles to guide the development of our future culture. Our Purpose and Values are
now well embedded in the business. They help to unify employees and describe the core
beliefs about how SEGRO does business. They are a universal language across our business
and the ten countries in which we operate.
It is essential that the Directors lead by example and live the Values. The Executive Directors
are obviously more visible leaders around the business and help to set the tone. When the
Board are together, they live the Values in the boardroom as follows:
SAY IT LIKE IT IS
STAND SIDE BY SIDE
KEEP ONE EYE ON
THE HORIZON
IF THE DOOR IS CLOSED…
The Directors are honest and transparent in dealings with each other
and those who interact with them both in and out of the boardroom.
The Chair encourages constructive debate and challenge during
meetings.
The Non-Executive Directors bring to the Board their knowledge and
experience from other businesses. The Directors are supportive and
take collective responsibility for decisions.
The Directors look to the long term in their decision making. They
want to understand future trends including those surrounding
PropTech and how the Company can use them for the benefit of itself
and others.
The Non-Executive Directors support the Executive Directors to find
solutions to more complex transactions and provide assistance where
more difficult judgement calls and decisions need to be made.
DOES IT MAKE THE BOAT
GO FASTER?
The Directors look at different ways of working to create effective
relationships and discuss regularly where they can best add value.
Within the boardroom, the consistent
feedback from all of the recent Board
evaluations is that all of the Directors feel
they can contribute, speak freely and don’t
feel constrained by the Board. The Chair
encourages open debate and no one
individual dominates. Board members can
‘say it like it is’ and have their thoughts heard
in a challenging yet supportive environment.
The Non-Executive Directors who joined the
Board more recently describe a welcoming,
positive and collaborative culture. It was
also noted that the overall culture had been
maintained during the period of change over
the last few years.
In June, our Group HR Director facilitated
a discussion with the Board about our
culture. There was agreement that its key
characteristics were:
£ a strong desire to create a successful
business we can be proud of;
£ trust and strong professional integrity –
we deliver on promises;
£ pragmatism – a ‘sleeves up’ approach
regardless of status;
£ thoughtful, detailed and measured in
decision making;
£ respectful and transparent; and
£ caring about people and taking an interest
in their wellbeing.
It can be challenging to measure culture but
there are many indicators which the Board
can monitor throughout the year which serve
as a temperature check, such as considering:
£ employee engagement survey results;
£ feedback from office and site visits by
Executive Directors and the Board as
a whole;
£ data on employee turnover;
£ Health and Safety incident statistics;
£ customer satisfaction surveys;
£ breaches of the Code of Ethics;
£ internal audit reports; and
£ whistleblowing incidents.
80
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
BOARD LEADERSHIP AND COMPANY PURPOSE
COMPANIES ACT 2006 SECTION 172 (s172) – BOARD STAKEHOLDER ENGAGEMENT
Each of the Directors is mindful of their
duties under s172 to run the Company for
the benefit of its shareholders, and in doing
so, to take into account the long term impact
of any decisions on stakeholder relationships
and the impact of its activities on its
reputation for high standards of business
conduct. The Company cannot operate
in a vacuum. We can only succeed if we
conduct ourselves in a responsible manner
and have positive relationships with all of
our stakeholders.
Although we have taken the matters set out
in s172 into consideration for many years,
the Code now requires us to provide more
specific information about how the Group
and the Directors have considered them.
Our s172 statement is on page 23. The areas
which are encompassed in s172 touch on
everything we do and our long-term vision,
our stakeholders, our responsibilities to
the environment and our desire for high
standards of business conduct are addressed
throughout this Annual Report. In the table
on page 23, we have signposted the other
places in this Annual Report where we have
provided information about these matters.
This year, the Board allocated time to discuss
specifically this new Code requirement.
Most of the day-to-day decision making and
stakeholder engagement is carried out at
the business level, but more material matters
require the Board’s attention.
Here we explain how, during this year, the
Board has considered the matters set out in
s172 and engaged with our stakeholders.
INVESTORS
CUSTOMERS
Our site visits often give the Board
an opportunity to meet some of our
customers and it is insightful to hear first
hand from them about their business,
why they have chosen a particular
location, or how we have met their
specific requirements.
From time to time, customers join us, for
formal and informal meetings, to provide
insights into their business, their priorities
and challenges and future trends, so we
can understand how we can continue
to meet their needs going forward.
These sessions are invaluable for us and
we always appreciate customers’ insights
and feedback.
Throughout the year, the Board receives
updates about customers as well as the
results of our annual customer satisfaction
survey. The KPIs on vacancy and customer
retention are also noted by the Board.
We have an extensive investor relations
programme, see page 63, and our Chair is
always available to meet with shareholders.
The Executive Directors update the Board
about their discussions with shareholders
on investor roadshows and presentations.
The Board receives from the investor
relations team a weekly commentary
about the share performance, together
with any analysts’ notes. The Company’s
brokers attend at least one meeting a year
to talk about shareholder feedback and
investor trends.
During 2019:
£ the Chair wrote to our largest
shareholders to remind them that he,
our Senior Independent Director and the
Chairs of our Audit and Remuneration
Committees were available to discuss
any governance, strategy or other
concerns they may have which contact
through the usual channels had failed
to resolve;
£ our Remuneration Committee Chair
consulted shareholders during the year
about our Remuneration Policy and
further details are set on page 97
of his report. There were more than
20 per cent of votes cast against the
2018 Remuneration Report at the
2019 AGM and the steps which we
took following this result, including
further consultation, are set out in
detail on page 97;
£ the Directors all attend the AGM.
They value the opportunity to meet with
shareholders to talk about the business
and understand their views; and
£ in considering the case for the
equity placing in February 2019, the
Company’s brokers and the investor
relations team provided an investor and
market perspective to the Board to the
proposed transaction.
FOR MORE DETAIL ON OUR
REMUNER ATION POLICY SEE PAGES 118-123
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
81
EMPLOYEES
ENVIRONMENT
INVESTING FOR THE LONG TERM
The Board takes a keen interest in the
welfare of our employees and in the
culture of the firm. Early in the year, the
Board considered the results of the 2018
Employee Engagement Survey which
again showed high levels of engagement.
The Executive Committee reported back
to the Board with proposals for responding
to areas for improvement (such as the
quality of the former London office) and
on measures to ensure that the high
engagement scores can be maintained.
The Board hears from our Head of
Sustainability and receives regular updates
on environmental matters.
Capital Approval requests for
developments and acquisitions always
include analysis of the environmental
impact on the land and the credentials of
the building to ensure that they are aligned
with our SEGRO 2025 targets and our
wider environmental performance metrics.
FOR MORE DETAIL ON HOW THE BOARD HAS
RESPONDED TO THE CODE’S PROVISION ON
WORKFORCE ENGAGEMENT SEE PAGE 78
SUPPLIERS
COMMUNITIES
The Board receives presentations from
time to time from the Company’s advisers
such as property agents, valuers and
lawyers. It approves the Slavery and
Human Trafficking Statement and how it
applies to our suppliers.
On tours of development sites, the
Directors often get the chance to meet with
the contractors and to see first hand the
Health and Safety measures in place.
We are keen to build partnerships with the
communities where we have a presence,
either through work with local government
or directly with community groups,
mainly focusing on helping unemployed
residents back into the workforce through
skills training and greater exposure to the
occupiers of our estates.
The Board hears about these initiatives
at least once a year from the Partnership
Development Director, when they are
visiting offices or on asset tours and when
they meet employees.
Much of the Board’s decision making
is focused around ensuring that the
Company is sustainable in the long
term. This is particularly relevant as we
celebrate our centenary.
£ Each year, the Board considers our
Medium Term Plan, which assesses
the opportunities and risks for the
Company over the following five
years, and forms the basis of our
Viability Statement.
£ Once a year, the Board takes two
days to consider the long-term
strategy of the business, incorporating
presentations and discussions on
longer-term opportunities and threats
to the business. In particular, this has
focused on emerging technologies
which have the potential to disrupt our
business model.
£ Throughout the year, the Board
reviews the Company’s approach to
Risk and takes a keen interest in how
risks rise and fall in importance and
what measures the Company is taking
to mitigate the near- and longer-term
risks to the business.
Real estate is an inherently long-term
business and the Board therefore takes a
long-term approach to all of its decision-
making. For example, in 2011, when the
Board approved the current strategy,
particularly the need to reposition the
portfolio, the results have been felt over
the past few years, and are reflected in
the strong share price performance, high
customer retention rates, low vacancy
and consistently strong employee
engagement scores.
To have survived in business for 100
years is testament to our reputation for
integrity, maintaining high standards
of business conduct and nurturing a
supportive culture, anchored by a strong
Purpose and set of Values.
82
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
BOARD LEADERSHIP AND COMPANY PURPOSE
CONTINUED
AGM
The Directors enjoy meeting with those
shareholders who attend the AGM as it
gives them the opportunity to talk about
the business and understand shareholders’
views in both a formal and informal setting.
The Board would like to extend its thanks
to those shareholders who are able to take
the time to attend our AGM and who ask
interesting and informative questions.
As in previous years, during the
2019 meeting, the Chief Executive gave a
presentation on the results of the Company
for 2018 as well as details on the business,
including the active development pipeline.
The highlights of the recently announced
Q1 2019 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.
IDENTIFYING AND MANAGING CONFLICTS
OF INTEREST
CODE OF ETHICS
The Board has taken an active interest
in ensuring that appropriate policies and
practices are in place, consistent with the
Company’s Purpose and Values. One such
policy is the Code of Ethics which is core
to the way in which our business is run, the
work we do, and to our reputation which
you will have read about on page 49.
The Code of Ethics reiterates that the
Company does not tolerate fraud,
dishonesty or wrong-doing of any kind
and instances of such behaviour would be
thoroughly investigated with appropriate
action taken. The Board receives regular
reports on compliance with the Code
of Ethics and the Company’s policy on
whistleblowing sets out the procedure by
which employees and any third parties
can use a confidential external third
party service to raise concerns. 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. Details of how
matters of concern can be reported, and
will be investigated are set out on page
49. No matters of concern were raised
during 2019.
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 duty to keep the Board
updated about any changes to these conflicts.
EFFECTIVE CONTROLS AND NECESSARY
RESOURCES
The Board has a responsibility to ensure
that appropriate controls and resources are
in place to enable the Company to achieve
its long-term goals. We have a schedule of
matters reserved for decision by the Board.
This includes financial decisions, such as the
annual budget and reviewing the Medium
Term Plan, major capital expenditure,
the approval of the financial statements,
the dividend policy and compliance with
the Code.
You will have read about the Company’s
approach to risk and risk management on
page 65 to 68, whilst page 95 contains further
details about the Audit Committee’s role in
ensuring that robust processes have been
put in place to ensure risks are identified,
evaluated and managed. The Board regularly
discusses the Company’s principal risks, along
with new and emerging risks and considers
how they may impact on the Company’s long-
term goals.
The Board is ever mindful of the need to
balance the pursuit of opportunities without
taking unacceptable or excessive risk and
ensures that the Company has the appropriate
resources, in terms of time, people and
funding, to do so.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
83
STR ATEGY DAY
Each year, the Board takes an opportunity
to step away from the routine of the
corporate calendar to spend some time
reflecting on strategy and the wider
business environment. This year, we started
this two-day session at our office in Rugby.
It was an opportune day to visit as it was
the first anniversary of our acquisition of
the Roxhill management platform, which
boosted our capability and expertise in the
development of big box warehousing in
the UK. The day started with the Directors
spending time with the employees based
in the office, talking about the projects that
they are working on and their transition
and integration into the SEGRO group. It
was great to see the positive dynamics in
the team which is a blend of both SEGRO
and former Roxhill people. The office was
decorated with plans and models of both
current and potential future development
sites which provided stimulus for plenty
of discussion. It gave us an excellent
insight into the work of the Business Unit,
reassurance about the quality of the senior
team and its ability to deliver some complex
projects as well as setting the context for
some of the capital investment requests
which would be presented to the Board in
the forthcoming months.
We heard from the Business Unit Director
for National Logistics and his senior team,
about the strategy for this Business Unit,
focusing in particular on the high-quality
and large-scale development programme
that they intend to deliver over the coming
years. This was followed by a tour of some
of the completed sites and development
sites. There was also a visit to SEGRO
Logistics Park East Midlands Gateway
(SLPEMG) to see the extraordinary progress
which had been made since the last Board
visit in 2017 when it was in the early stages
of the infrastructure work. This time the
Directors could not only see four completed
and occupied buildings but also had a tour
inside one of them, the Amazon fulfilment
centre. It was an opportunity to meet the
customer, hear first hand why they had
chosen SLPEMG for this pre-let and to
gain insight into its experience of using
the building.
Moving on to a private dinner and
continuing through the following day,
we shared our different perspectives
about the current macroeconomic and
political environment and specific property
investment and occupier markets. The
range of experience around the table, and
the insights from the other business and
sectors in which our Directors are involved,
are of great value.
We debated the assumptions, strategic
choices and outputs underlying the Group’s
Medium Term Plan and considered the
annual portfolio review which, alongside
our view of the property cycle, will form the
basis of our investment decisions in future
years. We concluded that our strategy
remains appropriate despite the macro and
geopolitical uncertainty.
Last year, the Board dedicated part of the
meeting to a presentation about PropTech
and broad trends and technologies which
may become disruptors to the Company
and its customers in the future. At this
meeting, we were updated on the progress
which had been made with PropTech
initiatives and there was strong support to
maintain the momentum and continue to
invest in this area.
GER ALD CORBET T
CHAIR
84
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
DIVISION OF RESPONSIBILITIES
GOVERNANCE FRAMEWORK
The Chair is responsible for the leadership
of the Board and its overall effectiveness in
directing the Company and promoting an
open environment for challenge and debate.
He is also responsible for encouraging
participation by all of the Directors, facilitating
constructive relations and creating the
right atmosphere to promote a culture of
open debate. Along with the other Non-
Executives, he is responsible for holding
the Executive to account against agreed
objectives. Further information about the
Directors is available on pages 74 and 75,
while pages 89 and 90 explain how the
Nomination Committee considers the skills
and diversity on the Board and Non-Executive
Director independence.
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 recently in September
2019. The Board has delegated a number of
its responsibilities to the Audit, Nomination
and Remuneration Committees. The Terms
of Reference of these Committees were also
updated in September 2019 and can be found
at www.SEGRO.com. Further details on the
roles and responsibilities of these Committees
can be found opposite.
The division of responsibilities of the Chair,
Chief Executive and Senior Independent
Director are clearly established in writing
and approved by the Board. These were
updated during the year to reflect new
provisions of the Code. Martin Moore, as
the Senior Independent Director provides a
sounding board for the Chair and serves as an
intermediary for Directors and shareholders
should communication through the normal
channels fail. Martin also leads the appraisal
of the Chair’s performance each year (see
page 88). For further information on the
responsibilities of each Board member, see the
Governance Framework chart opposite.
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 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.
GOVERNANCE FR AMEWORK
THE BOARD
CHAIR
GER ALD CORBET T
– Leads the Board and is responsible for its overall
effectiveness in directing 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.
CHIEF EXECUTIVE
DAVID SLEATH
EXECUTIVE DIRECTORS
SENIOR INDEPENDENT
INDEPENDENT
GROUP COMPANY SECRETARY
SOUMEN DAS
ANDY GULLIFORD
MARTIN MOORE
NON-EXECUTIVE DIRECTOR
NON-EXECUTIVE DIRECTORS
ELIZABETH BLEASE
MARY BARNARD
SUE CLAY TON
CAROL FAIRWEATHER
CHRISTOPHER FISHER
– Recommends the Group’s strategy to the Board
and is responsible for the implementation of that
strategy and for the Group’s overall performance.
– 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 which the Group’s
decisions may have on various stakeholder groups.
– Manage the business operations
– Acts as a sounding board to the
– Bring independent judgement and
– Responsible for advising the Board
within each Director’s area of
Chair and serves as an intermediary
scrutiny to the decisions taken by
on all governance matters.
responsibility in accordance with
for other Directors when necessary.
the Board.
the Group’s strategy.
– Ensures timely and appropriate
– Available to shareholders should the
– Monitor the success of management
information flows within the Board,
occasion arise where there is a need
in delivering the agreed strategy
the Board Committees and between
to convey concerns to the Board
within the risk appetite and control
the Directors and senior management.
other than through the Chair or the
framework set by the Board.
Chief Executive.
– Leads the annual appraisal of the
Chair by the Non-Executive Directors.
– Ensures compliance with 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.
MITTEE N O M I N AT I ON COMMITTEE R
B O A R D C OMMITTEES
E
M
U
N
E
R
A
T
I
O
N
C
O
M
M
I
T
T
E
E
E
E
T
T
I
M
M
O
V EST M ENT C
THE BOARD
RESPONSIBLE FOR CREATING
AND DELIVERING SUSTAINABLE
SHAREHOLDER VALUE
E
XECUTIVE C O M M I T
E E
T
M
A
T
E
NAGEMENT C O M M I T
E RISK COM M I T T E E
E
T
S
E
I N
M
O
DIT C
U
A
O
P
E
R
A
T
I
O
N
S
C
O
M
M
I
T
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
85
GOVERNANCE FR AMEWORK
THE BOARD
CHAIR
GER ALD CORBET T
– 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.
CHIEF EXECUTIVE
DAVID SLEATH
EXECUTIVE DIRECTORS
SOUMEN DAS
ANDY GULLIFORD
SENIOR INDEPENDENT
NON-EXECUTIVE DIRECTOR
MARTIN MOORE
INDEPENDENT
NON-EXECUTIVE DIRECTORS
MARY BARNARD
SUE CLAY TON
CAROL FAIRWEATHER
CHRISTOPHER FISHER
GROUP COMPANY SECRETARY
ELIZABETH BLEASE
– Leads the Board and is responsible for its overall
– Recommends the Group’s strategy to the Board
effectiveness in directing the Company.
– Sets the agenda, style and tone of Board
and effective decision making.
discussions to promote constructive debate
– Manages the business of the Group.
– Ensures that the corporate governance of
stakeholders are taken into account with regard
the Group is maintained in line with current
to the long-term impact which the Group’s
best practice.
decisions may have on various stakeholder groups.
– Ensures that the interests of the Group’s
and is responsible for the implementation of that
strategy and for the Group’s overall performance.
– Manage the business operations
within each Director’s area of
responsibility in accordance with
the Group’s strategy.
– Acts as a sounding board to the
Chair and serves as an intermediary
for other Directors when necessary.
– Bring independent judgement and
scrutiny to the decisions taken by
the Board.
– 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.
– Monitor the success of management
in delivering the agreed strategy
within the risk appetite and control
framework set by the Board.
– Responsible for advising the Board
on all governance matters.
– Ensures timely and appropriate
information flows within the Board,
the Board Committees and between
the Directors and senior management.
– Ensures compliance with 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.
BOARD COMMITTEES
AUDIT
NOMINATION
REMUNERATION
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.
Ensures that the Board, its
Committees and the Leadership
team have the appropriate
skills, knowledge, diversity and
experience to operate effectively
and to oversee the delivery of
the strategy.
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
RISK
INVESTMENT
Assists the Chief Operating
Officer to manage the operations
of the Group and to discharge
the responsibilities delegated to
him by the Chief Executive.
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.
86
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
DIVISION OF RESPONSIBILITIES
CONTINUED
The Executive Committee has its own Terms
of Reference. This Committee meets formally
each month and during the year there are
dedicated sessions to discuss strategy as
well as short ad hoc meetings to keep the
Committee up to date with day-to-day issues.
The Executive Committee delegates
some of its responsibilities to a further
three Committees:
£ the Investment Committee;
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:
£ market conditions and competitor activity;
£ future trends affecting our customers’
businesses and which may impact SEGRO;
£ the Operations Committee; and
£ interests of the Group’s stakeholders;
£ 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.
LEADERSHIP TEAM
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.
Whilst the day-to-day management of the
Group’s activities and the governance and
oversight of them are carried out under the
structures described on pages 84 and 85, the
Leadership team also meets periodically to
share market knowledge and to discuss areas
of cross-functional and cross-border interest.
£ horizon scanning for emerging topics
which might impact on our business in the
medium to long term;
£ 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.
All members of the Leadership team report
directly to one of the Executive Directors.
Further details on the gender balance of the
Leadership team are on page 46.
KEY ACTIVITIES OF THE BOARD DURING 2019
£ Approval of the redemption of a £250 million bond,
and approval of the extension of the maturity of both
syndicated and bi-lateral revolving credit facilities.
£ Presentations from the Business Unit Directors for
Southern Europe and National Logistics.
£ Various investment approvals including the
acquisition of the White Hart Lane site; the disposal
of the portfolio of UK big box warehouses; and the
acquisition of the entire interest in the Coventry JV.
£ An interactive event with a wide range of staff to
explore potentially disruptive future technologies.
STR ATEGY AND LEADERSHIP
£ 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 2018 Full year and 2019 Half
year valuation.
£ Approval of a £451 million equity placing.
£ 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.
£ Presentation from BAML Chief Economist Robert
Wood on the political and economic implications
of Brexit.
EFFECTIVE AND EFFICIENT FUNCTIONING
OF THE BOARD
During 2019, there were seven scheduled
meetings and one ad hoc Board meeting.
The Board has the flexibility to meet in person
or by telephone as the need arises on an
ad hoc basis. Each Director has committed
to attending 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. Directors receive accurate, timely
and clear information on the matters to
be considered. Electronic Board packs are
available to the Directors a week before
a meeting. During the Board evaluation
interviews, the Non-Executive Directors
commented positively on the quality of the
papers received from the Company and
agreed that the Board meetings were well run
and facilitated discussion of the appropriate
topics and focus areas. Regular meetings
between the Chair, the Chief Executive and
the Group Company Secretary help further
ensure that Board meetings contain the
appropriate mix of strategy, culture, regulatory
and financial matters.
Most Board meetings take place in London
but during the year meetings and asset tours
took place in Milan and Rugby. The Board
met with management teams in these
GOVERNANCE
£ Approval of the 2020 budget.
£ Approval of 2018 Full-year results and final dividend,
and the 2019 Half-year results and interim dividend.
£ Approval of Principal Risks and risk appetite.
£ Assess progress with the actions arising from the
2018 external Board evaluation and review the
conclusions of the 2019 internal evaluation.
£ Review of the annual Health and Safety report and
monthly incident report.
£ Approval of the appointment of Non-Executive
Directors and Committee membership.
£ Discuss culture, Purpose and Values.
£ Throughout the year, considered compliance with
the new requirements of the Code and received
updates on corporate and regulatory changes and
reporting requirements.
£ Approval of Tax Strategy.
STAKEHOLDER ENGAGEMENT
£ 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.
£ Annual report on the results of customer satisfaction survey.
£ Presentation from the Group Sustainability Manager on Technical Sustainability.
£ Asset tours in Milan and the East Midlands to meet customers to see how they use their space.
£ Review of people strategy, succession planning and talent management.
£ Approval of the Diversity Policy.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
87
2009
GROWING THROUGH
CORPOR ATE ACQUISITION
In 2009, SEGRO acquired Brixton plc,
bolstering its presence in the London
markets of Park Royal and Heathrow. In the
same year, it bought a 50 per cent stake
in the Airports Property Partnership which
owned the cargo centres at Heathrow
Airport. It took full ownership of the
portfolio in 2017.
FOR MORE INFORMATION, PLE ASE VISIT:
W W W.SEGRO.COM/ABOUT-US/2020
locations and had tours of the Group’s
property portfolios.
The Directors value 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: Marco Simonetti, the Business
Unit Director for Southern Europe; Eric
Veron, the General Manager for Vailog; and
Andrew Pilsworth, the Business Unit Director
for National Logistics, 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 carried out by the Company on
PropTech initiatives.
INDEPENDENCE AND COMMITMENTS 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 74 and
75. The Board comprises a Non-Executive
Chair, three Executive Directors, and five
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. By having a
majority of Independent Non-Executive
Directors, the Executive are held to account
and are not able to dominate Board decision
making, which is healthy for the Company.
For further details on how the Board has
reached its conclusions on Non-Executive
Director independence, see page 89
of the Composition, Succession and
Evaluation section.
As you will see on page 88, the Nomination
Committee has considered the commitments
of all of the Company’s Non-Executive
Directors and concluded that each of them
has sufficient time to commit to the Company,
and are not overboarded. Their individual
contributions are, and continue to be,
important to the Company’s long-term
sustainable success.
AVAILABILITY OF THE CHAIR, 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 should
they so wish.
KEY ACTIVITIES OF THE BOARD DURING 2019
STR ATEGY AND LEADERSHIP
GOVERNANCE
STAKEHOLDER ENGAGEMENT
£ Review and discussion of strategic objectives and
£ Approval of the redemption of a £250 million bond,
£ Approval of the 2020 budget.
£ Presentations from the Company’s brokers on shareholders’/analysts’ attitudes to the Company and investor feedback.
plans to achieve them.
£ Review of the Medium Term Plan.
and approval of the extension of the maturity of both
syndicated and bi-lateral revolving credit facilities.
£ Approval of 2018 Full-year results and final dividend,
and the 2019 Half-year results and interim dividend.
£ Presentation from the Company’s independent
valuers on the 2018 Full year and 2019 Half
year valuation.
£ Approval of a £451 million equity placing.
£ 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.
£ Presentation from BAML Chief Economist Robert
Wood on the political and economic implications
of Brexit.
£ Presentations from the Business Unit Directors for
Southern Europe and National Logistics.
£ Various investment approvals including the
acquisition of the White Hart Lane site; the disposal
of the portfolio of UK big box warehouses; and the
acquisition of the entire interest in the Coventry JV.
£ An interactive event with a wide range of staff to
explore potentially disruptive future technologies.
£ Approval of Principal Risks and risk appetite.
£ Assess progress with the actions arising from the
2018 external Board evaluation and review the
conclusions of the 2019 internal evaluation.
£ Review of the annual Health and Safety report and
monthly incident report.
£ Approval of the appointment of Non-Executive
Directors and Committee membership.
£ Discuss culture, Purpose and Values.
£ Throughout the year, considered compliance with
the new requirements of the Code and received
updates on corporate and regulatory changes and
reporting requirements.
£ Approval of Tax Strategy.
£ 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.
£ Annual report on the results of customer satisfaction survey.
£ Presentation from the Group Sustainability Manager on Technical Sustainability.
£ Asset tours in Milan and the East Midlands to meet customers to see how they use their space.
£ Review of people strategy, succession planning and talent management.
£ Approval of the Diversity Policy.
88
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
COMPOSITION, SUCCESSION AND EVALUATION
SKILLS, EXPERIENCE AND SIZE OF THE BOARD
GER ALD CORBET T
CHAIR OF NOMINATION COMMIT TEE
At its most recent review, the Committee
concluded that the Board was currently a
suitable size with the appropriate range of
skills and experience to lead the Company
and there was no current need to consider
refreshing it ahead of planned Non-Executive
Director retirements. It further concluded
that the Directors worked well together.
The Company’s strategy was well established
and its execution not dependent on any
one individual.
The performance of the Directors is
considered each year. The annual appraisal
of the Chair is led by the Senior Independent
Director, Martin Moore, who met with each
of the Directors to discuss his performance.
There was agreement that the Chair was
performing his role well. 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 his role with energy and
commitment and leads an effective executive
team. The performance of the other Non-
Executive Directors is appraised by the Chair,
whilst the Chief Executive gives feedback to
the Committee about the Executive Directors.
Following the appraisal processes, the
Nomination Committee concluded that
each of the Directors makes 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. In accordance with the Code,
each of the Directors will submit themselves
for re-election at the 2020 AGM.
The Board has established a Nomination
Committee which comprises the Non-Executive
Directors. In this section, ‘the Committee’ refers
to the Nomination Committee.
It is the Committee’s role to achieve the right
balance of skills, experience and diversity on
the Board and across the senior management
team to ensure that the Company is able to
deliver its strategy now and in the future.
Our leaders need to understand and reflect
the world in which we operate. Therefore,
the Committee needs to ensure that the
composition of the Board and the senior
management team adapt as the strategy
evolves and events unfold. The Committee will
have regard to these factors when recruiting
future Directors and when it considers talent
or succession planning.
The charts on page 89 and 90 summarise the
tenure and skills of the Directors and shows
the combination of experience and knowledge
across the Board. We have representation
from a range of backgrounds with real estate,
financial and commercial experience across
various industries. The biographies of each of
the Directors are set out on pages 74 and 75.
The 2018 external Board evaluation confirmed
that the Board was the right size and
composition. In the 18 months since this took
place, Margaret Ford, Mark Robertshaw and
Doug Webb have retired and Sue Clayton
and Mary Barnard have joined us. In addition,
Phil Redding has recently stepped down
from the Board. We have achieved the target
set by the 30% Club with regard to gender
diversity. We also meet the recommendations
of the Parker Review for each FTSE 100 Board
to have at least one Director from an ethnic
minority background by 2021. In accordance
with the Code, at least half of the Board
(excluding the Chair) comprises Independent
Non-Executive Directors.
Details of the internal Board evaluation which
was carried out during the year are set out in
the case study on page 91.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
89
In particular, the Committee noted that:
£ her experience is hugely useful and
important to the wide variety of topics
the Board considers and outweighs any
potential conflict; and
£ she brings a wealth of property experience
and knowledge and the Board values
the insights, and robust and effective
challenge she can bring to discussions
about, for example, the property market.
Her experience of transactions and market
cycles has proved invaluable to Board
debate, decision making and strategy.
As is the case with all newly appointed
Directors on joining the Company, Mary
participated in a comprehensive induction
programme and received information on
the Group and its governance structure.
She had a number of meetings with the other
Directors, as well as meeting with 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 KPMG internal audit partner and the
key relationship directors at the Company’s
brokers, UBS and BAML.
INDEPENDENCE
£ Chair
£ Independent Non-Executive Directors
£ Executive Directors
11%
56%
33%
For these reasons, the Nomination
Committee and the Board firmly believe Sue
is independent. Nevertheless, Sue decided
to step down from the Audit Committee in
March 2019.
INDEPENDENCE
APPOINTMENT OF MARY BARNARD
As part of a planned succession to replace
retiring Non-Executive Directors, the
Committee recruited Carol Fairweather
and Sue Clayton in 2018. In 2019, the
Committee looked to add a third new Non-
Executive Director.
The Committee agreed the role specification
and identified the required skills and
attributes. Russell Reynolds was appointed to
lead the search as it had undertaken previous
Non-Executive Director searches and had a
good understanding of the Company and
its culture. The first round of interviews was
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
Mary Barnard in March 2019 which completes
the Committee’s current work for the orderly
succession of Non-Executive Directors.
The Committee considers the Chair and
each of the Non-Executive Directors to be
independent, in accordance with the criteria
set out in the Code.
On her appointment to the Board in 2018,
the Committee had considered specifically
Sue Clayton’s independence, given her
role at CBRE Limited (CBRE) which is the
Company’s independent valuer. It had
concluded that, although there was a potential
conflict with her relationship with CBRE, this
would not compromise her independence.
The Committee noted that Sue had no
involvement in the preparation of the
Company’s valuation, nor did she hold any
line management responsibility, directly or
indirectly, over the CBRE valuation team.
Further, her role at CBRE was part-time and
she no longer carried out or supervised any
transactional work. The nature of Sue’s role
was confirmed by CBRE. It was agreed that
Sue should have no involvement in reviewing
CBRE’s performance or effectiveness, their
fees or their appointment.
In light of concerns raised by one proxy voting
agency, the Committee further considered
Sue’s independence in 2019 and continue
to be satisfied that Sue remains independent
in both character and judgement, and has
sufficient time to dedicate to the Company.
SUCCESSION PLANNING
Along with considering Board succession
regularly, the Committee also reviews the
quality of the senior management team as
it recognises the importance of creating
and developing a suitably talented diverse
pipeline of leaders ready to serve as the next
generation of Directors.
The Chief Executive, supported by the Group
HR Director, presents to the Committee on
senior management succession planning
and the talent development programme.
For Executive Directors and for roles in
the Leadership team, plans are in place for
both sudden, unforeseen absences, and
for longer-term succession. These form the
basis of development plans for our most
talented people and will 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 way of a Board
presentation, a tour of assets or a one-to-
one session with Non-Executive Directors to
discuss a specific issue.
TENURE
£ 1-3 years
£ 3-6 years
£ 6-9 years
45%
22%
33%
90
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
COMPOSITION, SUCCESSION AND EVALUATION
SKILLS, EXPERIENCE AND SIZE OF THE BOARD
CONTINUED
DIVERSITY
TR AINING
DIVERSITY
Ongoing training is provided to the Board on
both business related and regulatory matters
during the year. Directors may also request
training on specific issues with some attending
external courses (which is often provided by
the Company’s professional advisers) 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.
The Directors may also raise any training
needs with the Chair which helps to ensure
that the training programme meets the needs
of the Board, Directors and the business.
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 across the business. When running
the process to appoint the three most recent
Non-Executive Directors as described on page
89, the Committee recognised that how it
selected and briefed the executive search firm
and, in particular, how it described the skills
and experience needed for the roles were
important elements in attracting as wide a
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.
Further information about the Company’s
approach to diversity and inclusion, is on
page 47.
GENDER
Male
Female
67%
33%
ETHNICITY
Non-Ethnic Minority background
Ethnic Minority background
89%
11%
SKILLS
FTSE Listed
Executive
Real Estate
Industry
Banking/City
Finance
Experience in retail,
manufacturing and
distribution industries
International
£
£
£
£
£
5
£
£
£
£
£
5
£
£
£
3
£
£
£
£
£
5
£
£
£
£
£
£
£
£
£
£
4
6
THE BOARD
Gerald Corbett
David Sleath
Soumen Das
Andy Gulliford
Mary Barnard
Sue Clayton
Carol Fairweather
Christopher Fisher
Martin Moore
Total
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
91
COMPOSITION, SUCCESSION AND EVALUATION
INTERNAL BOARD EVALUATION
In 2018, Independent Audit conducted a triennial, externally
facilitated evaluation and so this year the Board undertook
an internal review. The process was divided into a number
of stages:
REVIEW OF THE CONCLUSIONS OF THE 2018 REVIEW
In July, the Board had revisited the conclusions of the 2018 review to
make sure that progress was being made on the all of the actions.
STAGE 1
Our General Counsel and Group Company Secretary,
Elizabeth Blease and I had an initial meeting to discuss how to
run the internal process. We consulted with the person who
managed the external process last year for her thoughts about
current best practice for internal reviews.
Following the meeting, and after consultation with the Chief
Executive, David Sleath and the Senior Independent Director,
Martin Moore, we decided that Martin should lead the
process, with support from Elizabeth. This would create an
environment for the Directors to speak freely to Martin, whilst
also having an opportunity for them to speak privately with
me should they wish to do so.
STAGE 2
Martin, Elizabeth and I agreed the themes that we would
like to cover. These were a combination of more standard
items, such as Board dynamics and relationships, individual
participation and contribution, along with more topical
matters such as progress with s172, stakeholder interests, ESG
and people strategy including culture. These themes were
circulated to the Directors ahead of their interviews.
STAGE 3
During October, Martin and Elizabeth had meetings with,
and collected feedback from, the Directors. The discussions
were based on the themes which we had identified but were
informal enough to give the Directors the freedom to say what
they wanted to and focus on the points that were important
to them.
STAGE 4
Following the Board strategy day in November, the Directors
were asked to provide any specific thoughts and feedback on
the day by email.
STAGE 5
Martin and Elizabeth collated the feedback they had gathered
from the interviews and the strategy day emails into a draft
report for me. Martin and I had a meeting to discuss the
conclusions and proposed next steps and he also had a
meeting to brief David.
STAGE 6
The final report was circulated at the December Board
meeting and time was allocated for an open discussion about
the conclusions and the list of recommendations, which are
set out below.
STAGE 7
During 2020, I will continue my practice of having regular
meetings with each of the Non-Executive Directors and base
some of my discussion around the feedback.
PROGRESS WITH ACTION POINTS AGREED IN 2018
What we said we’d do
What we’ve done
Change the composition of the
Nomination Committee.
Allocate more time for the Nomination
Committee to discuss succession
planning, leadership development
and talent management.
Ensure that new Directors are supported as
they get to know the business and have the
opportunity to spend some informal time
with the other Board members to accelerate
getting to know each other.
Create time for some
unscripted debate.
Ensure the Board had time to consider
compliance with the Code and to
discuss culture.
David Sleath stepped down from the
Committee in September 2019 so it
now comprises only the Non-Executive
Directors.
This Committee has a meeting each year
dedicated to these topics. Succession
planning was also discussed as part of the
Board evaluation process, during the annual
Non-Executive Directors’ dinner with the
Chief Executive and at one-to-one meetings
with the Chair.
Details about Mary Barnard’s induction is
set out on page 89. The Directors spent
some informal time together during the
Board tours in Milan and the East Midlands.
During the year, the Chair made sure there
were times for the Directors to have more
free ranging discussion. This is either at the
Board meetings or over dinner before the
Strategy day.
The Board had a presentation on culture
from the Group HR Director in June 2019.
It discussed culture on a more ad hoc basis
during the year as well as during the Board
evaluation meetings.
CONCLUSIONS OF THE 2019 REVIEW
The evaluation confirmed the conclusions of the 2018 external review that
the Board and its Committees continued to operate effectively. In particular, it
re-confirmed a good level of mutual trust and respect between members of
the Board, where everyone felt comfortable speaking openly and with no one
person dominating the proceedings. The Chair promoted an inclusive style
which maintained a good balance between support and challenge.
ACTIONS
As ever, these reviews provide an opportunity for the Directors to stand back
and consider how they work, how to maximise the Board’s strengths and
highlight areas for further development.
There was unanimous support to continue with visits to regional offices, to
meet the local teams, have tours of assets and meet customers. The Directors
also valued having some occasional time during the year to have some informal
time together for ‘unscripted debate’. There were a number of specific matters
that the Board would like to consider during 2020, which included more time
discussing ESG, technology and disruptors.
Finally, it was recognised that the business had enjoyed a few consecutive years
of strong performance but the Board should avoid becoming complacent.
It should stay focused on what is happening in the outside world, keep looking
out for disruptors and arrange for the Directors to be exposed to external
stimuli to help challenge convention and provoke new discussions and
perspectives as they look to the future.
GER ALD CORBET T
92
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
AUDIT, RISK AND INTERNAL CONTROLS
LETTER FROM THE CHAIR OF THE AUDIT COMMITTEE
CAROL FAIRWEATHER
CHAIR OF THE AUDIT COMMIT TEE
MEETINGS
We met three times during the year, twice to
discuss the financial statements and once to
focus more deeply on other areas including
internal audit and the risk management
process. Outside of the scheduled meetings,
we can also use time set aside for Board
meetings to discuss any matters that arise in
real time. As usual, our external and internal
auditors joined our meetings throughout the
year, together with a number of employees
from across the business. We find this
incredibly valuable as it allows us to see
the pool of talent within the Company, and
facilitates a greater depth of discussion and
debate on some specialist topics. In 2019,
we were joined by the Group Financial
Controller and Head of Financial Reporting
to consider the accounting judgements
and treatments that have been adopted for
particular transactions; the Director of Digital
& Technology and the Head of Technology,
to update the Committee on the work the
Company does to safeguard against cyber
security issues; and the Director of Tax and
the General Counsel to provide specialist legal
and regulatory updates.
AUDIT REFORM
As a Committee, we are following closely
the various reviews that have happened and
are in progress with respect to audit reform
and will respond to any regulation, guidance
and recommendations following these
reviews appropriately.
As Chair of the Audit Committee, I am
pleased to present the Committee’s report
for 2019. Over the following pages you will
see how the Committee has discharged its
responsibilities, as well as other key areas upon
which the Committee has focused.
2019 was my first year as Audit Committee
Chair. I assumed the role in April 2019, having
been a member since 2018. I would like to
extend my thanks to Doug Webb for his
effective stewardship of the Committee over
the years and his support during my transition
to Chair.
The Committee’s main role remains
unchanged – to provide independent
challenge and oversight of the Company’s
financial reporting, reviewing the Company’s
internal control and risk management
systems and monitoring the effectiveness of
the external audit process and internal audit
function. Our purpose and objectives are
set out in writing in our Terms of Reference,
available at www.SEGRO.com.
2019 saw new faces to the Committee.
We welcomed John Waters, the new lead audit
partner from PwC who was supported during
the year by a strong team already familiar with
the Company. The Committee has monitored
John’s transition throughout the year and is
satisfied that there has been a smooth and
effective transition of audit partners. We also
welcomed Stuart Wooldridge, as the new lead
internal audit partner from KPMG.
COMPOSITION
The Committee is made up entirely of
Independent Non-Executive Directors and
each Committee member has considerable
commercial knowledge and industry expertise.
I satisfy the requirement to bring recent and
relevant financial experience. Christopher,
who has spent his career in corporate finance,
also brings much financial acumen to the
Committee, whilst Martin brings a wealth of
property experience.
The Board is therefore satisfied that the
Committee as a whole has the relevant
competence to properly discharge its duties.
As you will have read on page 89, Sue Clayton
stepped down as a Committee member
during the year.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
93
ENSURING THE LONG-TERM SUCCESS OF THE
COMPANY AND OTHER SECTION 172
CONSIDERATIONS
The Company has long considered the views
of its wider stakeholders and section 172
considerations form a core part of what we do
as good business practice. We have welcomed
the Code’s increased emphasis on these topics
and the Committee continues to focus on the
long-term success of the Company through its
work, including:
WHAT THE COMMITTEE DID IN 2019
Throughout the year the Committee has acted in accordance with its Terms of Reference
which were updated in September 2019 and can be found at www.SEGRO.com. In
particular, during 2019, the Committee has had responsibility for:
££ reviewing and monitoring the integrity of the financial statements including reviewing
significant financial reporting judgements and estimates made by management, to ensure that
the quality of the Company’s financial reporting is maintained, 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 the process around the ‘fair,
££ ensuring compliance with applicable accounting standards, monitoring developments in
accounting regulations as they affect the Group, for example, in 2019 the adoption of IFRS16
Leases, and reviewing the appropriateness of accounting policies and practices in place;
££ the correspondence between the FRC and the Company, following the FRC’s review of the
Group’s presentation of service charge balances in the 2018 Financial Statements;
££ 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;
££ 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, 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.
balanced and understandable’ statement
on page 94 is appropriate, robust and
consistent, to allow shareholders and other
stakeholders to gain a clear picture of the
Company and its outlook;
£ making sure that the process put in place
to allow the Board to make the viability
statement on page 69, is robust, in line
with market practice and correctly and
properly followed, to ensure the long-term
sustainable success of the Company is
maintained; and
£ ensuring that appropriate risk management
processes are in place to both manage the
principal risks facing the Group and identify
those emerging risks which could have an
impact on the Group in the future, to help
safeguard the future of the Company for
the benefit of all.
FRC LETTER
During the year, the Company received a
letter from the Financial Reporting Council
(FRC) requesting information following a
routine review of the Group’s 2018 accounts.
The letter primarily focused on the Group’s
presentation of service charge balances in its
income statement. For 2019, we undertook
to amend this in accordance with the FRC’s
suggestions, following which they closed
their case. Please see page 96 for further
information on the letter and our response.
DISCHARGE OF RESPONSIBILITIES
It has been another successful year for the
Company highlighted by the strong set of
results you will have read about elsewhere
in this Annual Report. The quality of debate
and challenge between the Committee,
management and the internal and external
audit teams together with the comprehensive
information provided to the Committee has
assisted us in appropriately discharging our
responsibility. I would like to thank all those
who contribute to the Audit Committee.
CAROL FAIRWEATHER
AUDIT COMMIT TEE CHAIR
94
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
AUDIT, RISK AND INTERNAL CONTROLS
CONTINUED
THE SIGNIFICANT JUDGEMENTS MADE BY THE COMMITTEE IN 2019
Significant matter
Valuation of the property portfolio
The action taken
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 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 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 acquisitions, disposals and transactions
During the year, the Company made a number of property 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 2019 including the accounting treatment applied to the equity placing, and
acquisitions and disposals of various properties such as the portfolio of the UK big
box warehouses sold in December, by reviewing and challenging management’s
papers on accounting treatments 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, performance, business model and strategy.
The Committee reviewed the process that management had
undertaken to make the statement and confirmed to the Board that the
processes and controls around the preparation of the Annual Report
are appropriate, robust and consistent.
IS THE REPORT FAIR?
£ Is the whole story presented?
£ Have any sensitive material areas been omitted?
£ Is information in the Strategic Report and Governance Report consistent with that
in the Financial Statements?
IS THE REPORT BALANCED?
£ Is there a good level of consistency between the front and back sections of
the Report?
£ Is the Annual Report properly a document for shareholders and
other stakeholders?
IS THE REPORT UNDERSTANDABLE?
£ Is there an appropriate mix of statutory and adjusted measures and are any
adjustments explained clearly?
£ Is the Report presented in straightforward language and a user-friendly and easy to
understand manner?
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
95
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 2020 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.
REMUNERATION AND INDEPENDENCE
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.
In 2019, fees for audit services, (excluding
the SELP joint venture), amounted to
£880,000 and the non-audit fees amounted
to £110,000. The Committee has concluded
that PwC remains independent and objective,
and that the level of non-audit to audit fees is
acceptable for 2019.
The non-audit fee for 2019 equates to 14 per
cent of the average audit fees of the last three
years. The chart below sets out the ratio of
audit to non-audit fees for each of the past
three years.
AUDIT AND NON-AUDIT FEES PAID TO
PRICEWATERHOUSECOOPERS LLP
Audit fees (£m)
Non-audit fees (£m)
Ratio of non-audit fees
to audit fees (%)
2019
2018
2017
0.88
0.11
12
0.72
0.06
9
0.81
0.49
61
The above table excludes fees paid to PwC
in respect of joint ventures. If these were
included, the 2019 ratio of audit to non-audit
fees would have been unchanged.
Further details of the above 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. These are provided
for transparency, since they are additional
payments made to PwC. They do not form
part of the audit fees for SEGRO, as SELP is
not controlled by SEGRO.
In 2019, PwC informed the Company that
they would no longer be able to undertake
any non-assurance related non-audit work for
any FTSE 350 client, including the Company.
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.
RISK
Risk management is taken seriously by all at
SEGRO. The Board recognises that effective
risk management is key to the long-term
sustainable success and future growth of the
business and the achievement of the Group’s
strategic objectives (see pages 65 to 67). It is
ever aware of the need to ensure that new and
emerging risks, as well as the more established
principal risks, are adequately managed and
mitigated. Risk management is therefore
embedded in the Company’s decision making
and robust processes have been put in place
to ensure this remains the case. There is an
ongoing process for identifying, evaluating
and managing the principal risks faced by the
Group, which has been in place during the
year, together with a process for identifying
those emerging risks which may impact
the Group in the future. These emerging
risks are discussed throughout the business
by the appropriate working groups, at
both a granular level and a more horizon
scanning style discussion. 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 regularly
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.
VIABILITY STATEMENT
The Committee is responsible for ensuring
that the process put in place to allow the
Board to make the viability statement, on
page 69, remains robust, in line with market
practice and is 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 continued to enjoy
a constructive working relationship with
PricewaterhouseCoopers LLP (PwC) to ensure
that the external audit, a key area of oversight,
has operated effectively throughout the year.
The Committee welcomed John Waters as
the lead audit partner in 2019 and have been
encouraged to see how he has got to know
the business, visiting key assets throughout
the countries we operate in, as well as
the financial and property teams in those
countries. The Committee Chair has face-to-
face meetings and telephone calls with John
or his colleagues to discuss matters as they
arise throughout the year. The Committee
also regularly meets privately with John to
discuss their work and PwC’s observations
on the Company. No areas of concern have
been raised.
OVERSIGHT
PwC presented their audit plan for the
year which the Committee considered and
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 probed and challenged
the work undertaken and the findings and
the key assumptions made, with particular
attention to the areas of audit risk identified.
EFFECTIVENESS
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.
96
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
AUDIT, RISK AND INTERNAL CONTROLS
CONTINUED
INTERNAL AUDIT
£ reviewing the effectiveness of the risk
FRC LETTER
The Committee believes that given the
Company’s size and structure using a third
party to perform the internal audit function
continues to be the most appropriate model.
This provides independent challenge of
management and gives access to a wide
range of expertise. KPMG has performed
the role since its appointment in 2007 and
reappointment in 2014 following a tender.
During their tenure, there have been a
number of rotations of lead partners and audit
managers (including both during 2019) to
ensure that a fresh perspective is given, and
their independence and scrutiny maintained.
Topics included in the internal audit plan for
2019 were selected based on a review of
the Group’s principal risks and the timing of
previous internal audits. The proposed internal
audit programme for 2019 was considered
and approved by the Committee in December
2018, although it could be adapted during the
year to incorporate any new or increased risks
which may 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 2019 confirmed
that no significant control issues were
identified. However, a number of process and
control improvement points were identified
with follow up actions and timelines which
were regularly monitored by the Committee.
Feedback on each internal audit is given by
the Company and 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.
The Committee is satisfied that the internal
audit function continues to perform effectively.
INTERNAL CONTROLS
The Committee is responsible for reviewing
the adequacy and effectiveness of internal
control systems, (covering all material controls
including financial, operational and compliance
controls and risk management systems) on
behalf of the Board.
The Committee has reviewed the adequacy
and effectiveness of the Group’s internal
control systems regularly through various
activities including:
management process;
£ reviewing and challenging management’s
self assessment of the internal
controls framework;
£ the work undertaken by the internal and
external auditor, in relation to internal
controls; and
£ the regular reporting on any control or
fraud-related whistleblowing issues.
On the basis of the Committee’s work, it
confirms that it has not been advised of, or
identified, any failings or weaknesses which
it regards to be significant in relation to the
Group’s internal control systems.
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 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 receives 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.
During the year, the Group received a letter
from the Financial Reporting Council (FRC)
confirming that the 2018 Annual Report had
been subject to a review by its Corporate
Reporting Review Team, which is responsible
for reviewing the annual accounts, strategic
reports and directors’ reports of public and
large private companies for compliance with
reporting requirements. The main focus of the
correspondence was in regard to the Group’s
presentation of service charge balances
in the Income Statement. Following this
correspondence, the presentation of the
Income Statement has been changed to
include ‘Costs’, incorporating service charge
costs and removal of line items including
‘Gross rental income’, ‘Net rental income’
and ‘Joint venture fee income’. The prior
year comparatives have been represented
to reflect this change. There is no change
in ‘Operating profit’, ‘Profit before tax’ or
‘Profit after tax’ as a result of these changes.
Further information including changes to the
wording to clarify the accounting for service
charges, is detailed in Note 1 of the Financial
Statements. The Group has made additional
enhancements to the disclosures from other
points raised, which are included in this
Annual Report. The related correspondence
has been subsequently closed.
The FRC’s review was based on the Group’s
Annual Report and does not benefit from
detailed knowledge of its business or an
understanding of the underlying transactions
entered into. Their correspondence provides
no assurance that the report and accounts
are correct in all material respects; the
FRC’s role is not to verify the information
provided but to consider compliance with
reporting requirements.
COMMITTEE EFFECTIVENESS
The review of the Committee’s effectiveness
was included as part of the Board evaluation
process (detailed on page 91) 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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
97
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
LETTER FROM THE CHAIR OF THE REMUNERATION COMMITTEE
CHRISTOPER FISHER
CHAIR OF THE REMUNER ATION COMMIT TEE
The role of the Remuneration Committee is to
determine remuneration policies and practices
which promote the long-term sustainable
success of the Company and which are
aligned with the Company’s Purpose and
Values and strategy.
On behalf of the Board, I am pleased to
present our Remuneration Report for 2019.
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. During the
year, Mary Barnard and Carol Fairweather,
who is also our serving Audit Committee
Chair, joined the Committee, Doug Webb
completed his time on the Committee, while
Martin Moore, our Senior Independent
Director, remained a member.
To remind you, the fundamentals which
underpin our Remuneration Policy (the Policy)
are:
£ alignment with our strategy and the
success of the business in the short and the
long term;
£ performance orientation;
£ ease of understanding;
£ consistency of application; and
£ transparency to the executives, the
workforce and shareholders.
Our remuneration framework for both 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, and this is set out in the
charts on pages 108 and 109.
REMUNER ATION POLICY AND
REMUNER ATION REPORT 2019
As I explained in my Report last year, following
an extensive consultation with the Company’s
larger shareholders, the Remuneration
Committee proposed a new Remuneration
Policy and a package of associated measures
with the aim of ensuring that the Executive
Directors’ remuneration arrangements
properly served the best interests of the
Company and its shareholders.
Shareholders will recall that four material
elements were proposed: an uplift in base
salary for two of our Executive Directors and
a two stage increase for the Chief Executive,
which would subsume their normal annual
reviews; an increase in the LTIP opportunity,
alongside a new performance metric; a
reduction in the Chief Executive’s pension
benefits; and increases in shareholding
requirements. There were no proposed
changes to the arrangements for the
annual bonus.
I am pleased that the new Remuneration
Policy and amendments to the Long Term
Incentive Plan were passed with over 80 per
cent of votes in favour but the Remuneration
Report itself was only approved by a small
majority, which we had not expected.
In the light of this outcome, it was natural that
we continued to engage with shareholders
to ensure that we fully understood and
considered their views. We invited the
Company’s largest shareholders to provide
any further feedback and I spoke to, or had
meetings with, those shareholders who had
specifically raised concerns.
While our proposals had been seen to be
broadly acceptable, it was apparent that two
areas would benefit from further consideration
to meet shareholders’ concerns.
Accordingly, when we came to make the
LTIP awards in May 2019, based on the
enhanced opportunity under the new Policy,
we decided that certain performance targets
should be further stretched such that the Total
Accounting Return (TAR) stretch target was
increased from Benchmark plus 2 per cent
per annum to Benchmark plus 2.5 per cent
per annum and the Total Shareholder Return
(TSR) target was increased from Benchmark
plus 5 per cent per annum to Benchmark
plus 6 per cent per annum. Together with the
maintained Total Property Return (TPR) target,
we believe that this set of measures is amongst
the most challenging of any UK listed REIT.
Secondly, while we duly implemented the
salary increases approved for April 2019
for three of the Executive Directors, the
further exceptional increase in salary for the
Chief Executive in April 2020 will no longer
be implemented and he will revert to our
normal policy of an increase in line with the
workforce. At the same time, the further
reduction in his pension entitlement to 20
per cent of salary will still be implemented in
April 2020.
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GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
For completeness as part of the Policy review,
we also implemented changes to the malus
and clawback provisions in our variable pay
schemes and introduced post cessation
shareholding guidelines.
In keeping with the Policy, the 2019 base
salary increase for Soumen Das, whose salary
was not part of the review, was in line with
(and did not exceed) the average increases for
employees across the Group.
The Policy also provides that a new Executive
Director joining the Board will receive a
pension benefit in line with the UK workforce.
The Committee is mindful of the on-going
discussions about aligning existing Executive
Directors’ pension benefit with the workforce
and the Committee is currently considering
how best to respond to this but recognises the
expected direction of travel.
2016 AND 2017 LTIP AWARDS
In 2017, shareholders approved a
Remuneration Policy which included changes
to the operation of the LTIP to enable the
Committee to impose a mandatory two-year
post-vesting holding period on Executive
Directors whose awards had vested (save
to the extent required to discharge any tax
liabilities arising on vesting), coupled with an
amended performance period of three years
in line with best practice given the two year
holding period. Previously, there had been a
four-year performance period and no post-
vesting holding requirement.
As a result, and as foreseen at the time, both
the 2016 and 2017 LTIP awards are vesting
this year with a corresponding one-off impact
on the reported remuneration of Executive
Directors on page 100 and on the CEO Pay
Ratio on page 107.
COMPANY PERFORMANCE
AND OUTTURNS
During 2019, the Company has continued to
deliver sustained and very healthy returns to
shareholders. As illustrated on page 106, an
investment of £100 in SEGRO shares at the
start of 2012 would have generated a gain
(including reinvestment of the dividend) of
just over £620 in eight years compared to the
FTSE 350 REIT index of a gain of just over
£250. This outperformance 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 2019, we delivered another year of strong
operating and financial performance, as
reviewed by David Sleath on pages 12 to 15.
Adjusted profit before tax is up 10.7 per cent
to £267.5 million and adjusted earnings per
share are up 4.2 per cent. EPRA NAV per
share has risen by 8.9 per cent to 708 pence.
The balance sheet remains in very good shape
with a loan-to-value ratio of 24 per cent.
The Board is recommending a final dividend
of 14.4 pence per share, making the full year
dividend 20.7 pence per share, an increase of
10.1 per cent.
Over the four-year LTIP vesting period for
the 2016 LTIP, the scale of the business
has increased significantly mainly through
the profitable and accretive development
programme. This has added 2.6 million sq m
of new space with additional headline rent of
£124 million, an increase of 41 per cent over
the period.
Taking account of these strong results and
our continuing outperformance of the peer
group over the year, with a TSR of +50.5 per
cent verses the FTSE 350 Real Estate index of
+18.3 per cent, the Committee has approved
(subject to the final TPR data being available)
the following performance-related payments
to the Executive Directors this year:
£ the Bonus payments will be 83 per cent of
their maximum award (see page 102); and
£ the 2016 and the 2017 LTIP awards will
each pay out 100 per cent (see pages 104
and 105).
When the 2016 LTIP award was made the
share price was 420.70 pence and this has
risen 102 per cent over the vesting period
to 850.29 pence, based on the three-
month average share price ending on
31 December 2019.
When the 2017 LTIP award was made the
share price was 493.0 pence and this has risen
72 per cent over the vesting period to 850.29
pence, based on the three-month average
share price ending 31 December 2019.
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 will pay 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, and was satisfied
that they clearly do.
PHIL REDDING
On 28 January 2020 we announced that Phil
Redding would be stepping down from the
Board following a management reorganisation.
Details of the payments which will be made
to him in respect of the termination of his
employment due to redundancy are set out
on page 116. The Committee approved these
payments which will be made in accordance
with the Policy.
LOOKING AHEAD
The key areas of focus for the Committee in
2020 will be:
£ finalising the practical application of the post
cessation shareholding guidelines;
£ once the Board has concluded its ESG
strategic review, considering ways in which
this might be reflected in the remuneration
framework (see page 77);
£ monitoring the emerging trends in
corporate governance;
£ considering how the pension benefits
of existing Executive Directors might be
modified in future; and
£ reflecting on the impact of the management
restructuring announced on 28 January
2020 on executive responsibilities
and remuneration.
CONCLUSION
In bringing forward to last year’s AGM a
package of changes to our Remuneration
Policy, we recognised the inherent sensitivity
of the subject. Nevertheless, we felt this
was desirable in order to create a reward
opportunity for Executive Directors better
aligned to the future needs of the Company,
to be seen at an early stage to recognise
the desirability of reducing certain pension
benefits and to be an early adoptee of
new best practice shareholding guidelines.
Accordingly, we undertook a significant
consultation exercise, for which I would like to
thank all participants, and took into account
the feedback received in developing a final set
of proposals for consideration at the AGM.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
99
While this new Policy and associated
amendments to the LTIP were duly
adopted with satisfactory majorities, we
must take responsibility for the lower than
anticipated support for the Remuneration
Report itself. My reflection is to recognise
that even with the best of intentions such
consultation exercises have some inherent
limitations. We have endeavoured to respond
constructively to this outcome, and I believe
that the measures we have since adopted
should be seen to be sufficiently responsive to
the concerns which informed the vote on last
year’s Report.
I commend this Report to you, and very much
hope it attracts widespread support from
shareholders at this year’s AGM.
If you have any questions about
remuneration generally, or the contents
of this Report, 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
WHAT THE COMMITTEE DID IN 2019
Throughout the year the Committee has acted in accordance with its Terms of Reference
which were updated in September 2019 and can be found at www.SEGRO.com.
In addition to the Policy review and shareholder consultation, other key areas of focus of the
Committee were:
£ reviewing the changing trends in corporate governance, the UK Corporate Governance
Code 2018 and associated guidance;
£ the approval of the Executive Directors’ annual salary increases, the approval of the 2018
Bonus payments and the outturn of the 2015 LTIP award, along with the approval of the
2019 Bonus and 2019 LTIP targets;
£ the approval of the 2019 SIP and GSIP awards and approval of the new targets for these
schemes in 2020;
£ a review of Gerald Corbett’s fee, as foreshadowed in last year’s report;
£ a review of workforce pay to ensure that it continues to be aligned with the structure of
remuneration for the Executive Directors;
£ the approval of amendments to the Bonus scheme and LTIP rules to incorporate malus
and clawback provisions;
£ noting the group-wide all employee 2019 salary review and the salary increases, bonus
and LTIP awards for the Leadership team;
£ the review and updating of the Terms of Reference for the Committee to reflect changes
in the Code and the Policy;
£ receiving a governance update from Korn Ferry on emerging themes and best practice;
and
£ considering the remuneration arrangements on the termination of Phil Redding’s employment.
100
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GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
The following section provides details of how the Company’s Remuneration Policy was applied during the financial year ended 31 December 2019.
BREAKDOWN OF EXECUTIVE DIRECTORS’ TOTAL REMUNER ATION IN 2019
David Sleath
Soumen Das
Andy Gulliford
Phil Redding
0
£1,000,000
£2,000,000
£3,000,000
£4,000,000
£5,000,000
£6,000,000
£7,000,000
Salary, Taxable Benefits and Pension
2019 Bonus
2016 LTIP
2017 LTIP
Short term
Long term
Fixed
Variable
The vesting of both the 2016 and 2017 LTIP in 2020 is a one-off, exceptional event and is explained further on pages 104 and 105.
EXECUTIVE DIRECTORS’ SINGLE TOTAL FIGURE OF REMUNER ATION (AUDITED)
CHART 1: EXECUTIVE DIRECTORS’ SINGLE TOTAL FIGURE OF REMUNERATION FOR 2019
SALARY
TA X ABLE BENEFITS
PENSION BENEFITS
TOTAL FIXED
SINGLE YEAR VARIABLE 2
– BONUS, INCLUDING DSBP
David Sleath
Soumen Das
Andy Gulliford
Phil Redding1
TOTAL
2019
£000
2018
£000
678
20
178
876
862
633
20
190
843
902
2019
£000
486
20
97
603
611
2018
£000
470
20
94
584
670
2019
£000
444
20
89
553
563
2018
£000
414
20
83
517
590
2019
£000
444
20
89
553
563
2018
£000
2019
£000
2018
£000
414
2,052
1,931
20
83
517
590
80
453
80
450
2,585
2,461
2,599
2,752
MULTIPLE YEAR VARIABLE2,3 – LTIP
4,885
2,198
3,930
659
3,198
1,439
3,198
1,439
15,211
5,735
OTHER – SIP AND SHARESAVE
TOTAL VARIABLE
TOTAL
4
5,751
6,627
4
3,104
3,947
4
4,545
5,148
4
1,333
1,917
4
3,765
4,318
4
2,033
2,550
4
3,765
4,318
4
16
16
2,033
2,550
17,826
20,411
8,503
10,964
1 Phil Redding stepped down from the Board with effect from 31 January 2020.
2 The Single Year Variable and Multiple Year Variable figures for 2018 have been updated since the 2018 Annual Reports as some values were estimated. For further information, see pages 103 and
105 respectively.
3 As explained further in the Chair’s letter on page 98 and on pages 104 and 105, the 2019 Multiple Year Variable figure comprises both the 2016 and 2017 LTIP Awards which will both vest in 2020.
For further information on the 2019 Multiple Year Variable figure and share price appreciation on the 2016 and 2017 LTIP Awards, see Charts 6i and 6ii on page 105.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
101
SALARY (AUDITED)
On 1 April 2019, the Chief Executive’s base salary was £692,000 the Chief Financial Officer’s base salary was £490,383, and the base salaries of
the Chief Investment Officer and the Chief Operating Officer were each £452,532.
From 1 April 2020, David Sleath, Soumen Das and Andy Gulliford will receive an increase to salary of 3 per cent.
TA X ABLE BENEFITS
Taxable benefits include 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.
PENSION BENEFITS
In 2019, each of the Executive Directors received cash in lieu of pension as detailed in Chart 1.
In April 2019, the Chief Executive’s cash in lieu of pension entitlement was reduced from 30 per cent of base salary to 25 per cent, and will be
further reduced to 20 per cent of base salary in April 2020. The other Executive Directors received a cash allowance of 20 per cent of base salary.
Further information on Executive Directors’ pension benefits can be found in the Chair’s letter on page 97.
Future Executive Directors will receive a pension or cash allowance in line with the UK workforce.
EXECUTIVE DIRECTORS’ PENSION ARR ANGEMENTS (AUDITED)
CHART 2: DEFINED BENEFIT SCHEME
Andy Gulliford2
Phil Redding2
Pension input amount, net of Directors’
contributions, in the year ending 31.12.2019
Defined benefit pension
accrued at 31.12.20191
n/a
n/a
£46,000
£62,000
1 Pensions are payable from normal retirement age, which is 62, and can be taken earlier with appropriate reductions.
2 Andy Gulliford and Phil Redding left the SEGRO Pension Scheme on 31 March 2016 and receive a cash payment in lieu of pension contribution.
David Sleath left the SEGRO Pension Scheme on 17 April 2011. During 2018, he transferred his pension to an external pension arrangement and has no further entitlement under the SEGRO
Pension Scheme.
Soumen Das has never been a member of the SEGRO Pension Scheme.
There are no contractual arrangements that would guarantee a pension with limited or no abatement on severance or early retirement.
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GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
SINGLE YEAR VARIABLE – BONUS, INCLUDING DSBP (AUDITED)
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 Remuneration Policy, 50 per cent of any Bonus earned in 2019 will be deferred into shares under the DSBP.
Vesting of shares is dependent on continued employment or good leaver status.
2019 BONUS
For the Executive Directors, the 2019 Bonus comprised three equally weighted components: Adjusted Profit Before Tax (PBT); rent roll growth
(RRG); and relative TPR, each accounting for one third of Executive Directors’ Bonus.
CHART 3i: PROFIT – ADJUSTED PBT
AGAINST TARGET
CHART 3ii: RENT ROLL GROWTH (RRG)
AGAINST TARGET
CHART 3iii: TPR – RELATIVE TPR AGAINST
THE MSCI BENCHMARK
100%
100%
49%
For this element, a Bonus is earned for Adjusted PBT
performance against target. 50 per cent is earned
on achieving the threshold target (£252.2 million
for 2019), rising to 100 per cent for achieving the
maximum target (£271.1 million for 2019). 100
per cent of this element was achieved in 2019, with
Adjusted PBT performance for bonus purposes of
£275.5 million.
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 (£54.9 million in 2019). In
2019, RRG from standing stock was positive, thus
ensuring the threshold was achieved. Total RRG
including the contribution from developments was
£55.9 million for Bonus purposes and, accordingly,
100 per cent of this element was achieved.
Bonus targets for Adjusted PBT and RRG are set on 1 January. The outturns were calculated using a consistent
exchange rate and also include adjustments for specific items (including acquisitions and disposals made during the
year) in accordance with the Bonus scheme rules as approved by the Committee.
The Adjusted PBT and RRG element of the 2019 Bonus are expected be paid in April 2020, less a 50 per cent
deferral for the DSBP.
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.
The actual TPR performance for the Company’s
assets for bonus purposes in 2019 was 12.6 per cent,
being 8.3 per cent for the UK and 12.2 per cent for
Continental Europe. At the date of this report the MSCI
Benchmark was only available for the UK, at 6.8 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 49 per cent of the
overall TPR will be achieved for 2019 Bonus payments.
The TPR figures stated above are different to those
stated in the KPls on page 40, which relate to standing
investments only.
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 in Summer 2020, once the European MSCI Benchmarks become available and final Bonus figures can be calculated.
Any payments under the 2019 Bonus and any awards made under the DSBP will be made in accordance with the Policy. Bonus payments are
calculated as a percentage of Executive Directors’ salaries as at 31 December of the previous year.
The vesting of the 2019 DSBP will be in April 2023, the third anniversary of the payment of the profit and RRG element of the 2019 Bonus.
Details of the DSBP awards granted to Executive Directors are set out in Chart 13 on page 112.
Any payments under the 2020 Bonus, payable in 2021, will be made in accordance with the Policy and will be consistent with the targets set
out above.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
103
2018 BONUS (ESTIMATED IN 2018 ANNUAL REPORT)
As the MSCI Benchmark data was not available at the date of publication of the 2018 Annual Report, the 2018 Bonus figure in Chart 1 has
been re-presented to reflect the actual achievement of 82.8 per cent (estimate: 65 per cent) of the TPR element.
CHART 4i: BONUS PAYMENT 2018 – ESTIMATED
CHART 4ii: BONUS PAYMENT 2018 – ACTUAL
65%
65%
83%
83%
PBT
TPR
PBT
TPR
PBT
TPR
PBT
TPR
100%
RRG
100%
RRG
100%
100%
100%
RRG
100%
RRG
100%
100%
104
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
MULTIPLE YEAR VARIABLE – LTIP
LTIP awards made from 2017 onwards are subject to a three-year performance period and a compulsory two-year holding period for
Executive Directors.
LTIP AWARD IN 2020
LTIP awards made after the 2019 AGM are subject to three equally-weighted performance conditions: TSR, TPR and TAR. LTIP awards made
before the 2019 AGM were subject to equally weighted TSR and TPR performance conditions only.
Total Shareholder Return (TSR)
Total Property Return (TPR)
Total Accounting Return (TAR)
This benchmark is based on the weighted mean TSR
of other FTSE 350 REITs.
20 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 6
per cent per year.
This benchmark is based on the MSCI All Industrial
Country benchmarks weighted to reflect the
approximate geographical mix of the Group’s portfolio.
20 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.
This benchmark is based on the market capitalisation
weighted TAR of other FTSE 350 REITs.
20 per cent of this element vests if the Company’s TAR
over the performance period is in line with benchmark
TAR, rising on a straight-line basis to 100 per cent vesting
if the benchmark is exceeded by 2.5 per cent per year.
Any awards made under the LTIP in 2020 will be made in accordance with the Policy and will be consistent with the targets set out above.
LTIP awards are calculated as a percentage of Executive Directors’ salaries as at 31 December of the previous year. Details of the LTIP awards
granted to the Executive Directors are set out in Chart 14 on page 113.
Dividends will accrue on LTIP shares which are released on vesting and the Committee has the right to decide that this payment may be made in
cash or shares.
LTIP AWARDS VESTING IN 2020
In 2017, shareholders approved the reduction of the performance period for LTIP awards from four years to three years, with the addition of a
two-year post-vesting holding period for Executive Directors. As a result, both the 2016 and 2017 LTIP awards will vest in 2020.
The 2016 and 2017 LTIP Awards will vest on 7 April 2020 and 28 April 2020 respectively, subject to relative TSR and TPR over the four and
three-year performance periods to 31 December 2019.
CHART 5i: 2016 LTIP
CHART 5ii: 2017 LTIP
100%
100%
TSR
TPR
TSR
TPR
100%
100%
£ The Company’s TSR over the performance period for the 2016
£ The Company’s TSR over the performance period for the 2017 LTIP
LTIP was 132.7 per cent and the benchmark TSR was -7.0 per cent.
£ The Company’s TSR outperformance of 25.8 per cent per annum
compared with the benchmark will lead to 100 per cent of the
TSR element vesting for this award.
was 125.2 per cent and the benchmark TSR was 10.0 per cent.
£ The Company’s TSR outperformance of 27.0 per cent per annum
compared with the benchmark will lead to 100 per cent of the TSR
element vesting for this award.
£ The estimated TPR calculation is based on the Company’s actual
annualised TPR between 2016 and 2019 of 14.8 per cent and an
estimated MSCI Benchmark over the same period of 12.9 per cent.
£ On this basis, the Company’s four-year TPR to 31 December
2019 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.
£ The estimated TPR calculation is based on the Company’s actual
annualised TPR between 2017 and 2019 of 16.5 per cent and an
estimated MSCI Benchmark over the same period of 14.8 per cent.
£ On this basis, the Company’s three-year TPR to 31 December 2019
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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
105
As with the Bonus, the complete TPR data will not be available until after the date of this Report. For the purpose of the Executive Directors’
single figure calculations (Chart 1), the performance for the TPR element has been estimated.
Vesting of the TPR element of both the 2016 and 2017 LTIP will be deferred until Summer 2020, when the European MSCI Benchmarks become
available. Accordingly, the actual number of shares which will vest, may differ from the amount disclosed in Chart 1 of this Report. The vesting
share price of these awards has been estimated at 850.29 pence, based on the three-month average share price ending 31 December 2019.
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. The Committee assessed the underlying performance of the business and
concluded that no such discretion should be exercised in respect of the vesting of the 2016 or 2017 Awards.
Once vested, the 2017 LTIP will be subject to a further two-year compulsory holding period. During this holding period, the Executive Directors
will be the beneficial owners of the shares and will be entitled to any dividend payments and have voting rights at any general meeting of the
Company. However, they will not be able to sell or transfer these shares until the end of the holding period. The Company has measures in place
to prevent these shares from being sold or transferred until the end of the holding period.
CHART 6i: 2016 LTIP AWARD
David Sleath
Andy Gulliford
Phil Redding
Soumen Das
Share price
on award
(pence)
420.7
434.0
Percentage of
salary awarded
Number of
shares vesting
Percentage of
award vesting
Estimated share price
on vesting (pence)1
Estimated share price
appreciation (%)
Value in Chart 1
attributable to share
price appreciation
Dividend
(pence per share)2
200
200
200
n/a4
290,152
189,916
189,916
153,674
100
850.29
+ 102.11
+ 95.92
£1,246,458
£815,856
£815.856
£639,726
71.78
56.103
1 The vesting share price has been estimated at 850.29 pence, based on the three-month average share price ending 31 December 2019.
2 The figure in Chart 1 includes a cash value of 71.78 pence per share for David Sleath, Andy Gulliford and Phil Redding, equivalent to the dividends that they would have received on the 2016 LTIP
shares from the award date.
3 As Soumen Das’ replacement LTIP award was granted on 2 May 2017, he is only eligible to receive cash in lieu of dividends from this date. Therefore, the figure in Chart 1 includes a cash value of
56.10 pence per share.
4 In order to recruit Soumen Das it was necessary to buy out the share awards he forfeited on leaving his previous employer. Further details are available on page 96 of the 2016 Annual Report.
CHART 6ii: 2017 LTIP AWARD
Share price
on award
(pence)
493.0
David Sleath
Soumen Das
Andy Gulliford
Phil Redding
Percentage of
salary awarded
Number of
shares vesting
Percentage of
award vesting
Estimated share price
on vesting (pence)1
Estimated share price
appreciation (%)
Value in Chart 1
attributable to share
price appreciation
Dividend
(pence per share)3
200
3002
200
200
243,813
279,918
159,634
159,634
100
850.29
+ 72.47
£871,114
£1,000,113
£570,353
£570,353
56.10
1 The vesting share price has been estimated at 850.29 pence, based on the three-month average share price ending 31 December 2019.
2 As part of his recruitment package, Soumen Das was awarded 300 per cent of salary in respect of the 2017 LTIP. Further details are available on page 96 of the 2016 Annual Report.
3 The figure in Chart 1 includes a cash value of 56.10 pence per share, equivalent to the dividends that all the Executive Directors would have received on the 2017 LTIP shares from the award date.
LTIP VESTING IN 2019 (ESTIMATED IN 2018 ANNUAL REPORT)
The 2015 LTIP Award vested on 22 May 2019, subject to the TSR and TPR performance conditions over the four-year performance period to
31 December 2018. As previously reported, 100 per cent of the TSR element vested. The 2018 Remuneration Report estimated that the TPR
element would vest at 100 per cent. The Company’s actual TPR over the performance period was 16.3 per cent and the benchmark was 13.7
per cent. The Company’s TPR outperformance of 2.3 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 2015 LTIP Award as estimated in the 2018 Annual Report.
In the 2018 Annual Report the estimated vesting share price for the 2015 LTIP, was 612.96 pence, and the figure in Chart 1 has been
re-presented to reflect the actual vesting share price of 717.77 pence.
106
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
OTHER – SIP AND SHARESAVE
The ‘other’ figure in Chart 1 comprises SIP, based on the number of shares awarded to Executive Directors 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 Executive Directors’ annual savings.
SIP
SHARESAVE (SAYE)
During the year, Share Incentive Plan (SIP) awards of £3,000 were made to all eligible
UK employees.
All eligible UK employees are invited to join the SAYE annually, and can save up to a
maximum of £500 a month across all open schemes.
The number of shares awarded was calculated using a share price of 681.92 pence,
based on the five-day average share price prior to the date of award.
Eligible employees based outside of the UK also received awards of £3,000 under the
Global Share Incentive Plan (GSIP).
All eligible employees received 439 shares in respect of the 2019 SIP and GSIP.
At the end of the three-year savings period they can purchase shares at the Option
Price, based on a 20 per cent discount to the share price on award. The Option Price
for the 2019 SAYE was 529.60 pence.
CHIEF EXECUTIVE
CHART 7: COMPOSITE TEN-YEAR TSR CHART AND TEN-YEAR CHIEF EXECUTIVE SINGLE TOTAL FIGURE OF REMUNERATION
2010
20111
2012
2013
2014
2015
2016
2017
2018
2019
Year
SEGRO
FTSE 100
FTSE 350 REITs
500
400
300
200
100
Chief Executive single figure
of remuneration
£000
Short-term incentive
payout against maximum
opportunity
%
Long-term incentive
payout against maximum
opportunity
%
Chief Executive
David Sleath
Ian Coull
David Sleath
Ian Coull
David Sleath
Ian Coull
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
–
1,896
860
411
1,194
1,370
2,043
2,388
3,788
4,125
3,9472
6,627
–
–
–
–
–
–
–
–
–
100.0
56.7
75.4
66.7
100.0
99.2
100.0
94.3
83.0
97.3
100.0
–
–
19.1
21.6
26.0
26.0
–
–
0.0
–
–
–
–
–
–
–
42.9
42.3
100.0
100.0
100.0
100.0
–
–
–
–
–
–
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 2018 Annual Report as some values were estimated. For further information see Chart 1.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
107
CHART 8: PERCENTAGE INCREASE IN CHIEF EXECUTIVE’S REMUNERATION COMPARED TO AVERAGE EMPLOYEE
Chief Executive
Average per employee1
Salary received during the year
Taxable benefits received during the year
Annual variable pay received during the year
(Bonus and DSBP)
2019
£000
678
20
862
2018
£000
633
20
902
Total
1,560
1,555
Increase
%
7
0
(4)
0
2019
£000
89
9
45
143
2018
£000
85
8
46
139
Increase
%
5
4
(1)
3
1 Average per employee is based on UK employees who have been continually employed for the entirety of 2018 and 2019 and entitled to receive annual variable payment. UK employees represent
approximately 56 per cent of the workforce.
As explained in the Chair’s letter on page 97, shareholders approved a salary rise for David Sleath of 8.5 per cent from 1 April 2019 while the
average all-employee increase was 3.5 per cent.
CEO PAY R ATIO
SEGRO believes in transparency which is why, despite falling below the threshold of 250 UK employees determined by the legislation, we have
voluntarily reported the CEO Pay Ratio since its introduction in 2018. We have again opted for Option A as the preferred method of calculation
as it is the most statistically accurate method as recommended by the legislation.
CHART 9: CEO PAY RATIO
Year
2019
2018
Method
A
A
25th percentile
pay ratio
Median pay ratio
75th percentile
pay ratio
111:1
65:1
70:1
41:1
40:1
24:1
The Chief Executive’s single total figure of remuneration for 2019, detailed further in Chart 1, has been used for the purposes of this calculation.
The above increases to the CEO Pay Ratio can, for the most part, be attributed to the vesting of both the 2016 and 2017 LTIP Awards in 2020,
which is an exceptional event with a subsequent one-off impact.
If the 2017 LTIP was excluded from these calculations, the median pay ratio would be 47:1, compared with 41:1 in 2018, with this increase
largely reflecting the share price appreciation for the 2016 LTIP Award, which has been estimated at 102 per cent and is explained on Chart 6i
on page 105.
Whilst this growth in share price has created benefit for shareholders, is it recognised that it also has an implication when comparing the
remuneration of the Chief Executive with that of employees who do not all receive a variable, long-term element of remuneration.
The shareholder-approved changes to the Chief Executive’s remuneration package detailed in the 2018 Remuneration Report have had a minimal
impact on the increase in the CEO Pay Ratio between 2018 and 2019.
SEGRO’s median CEO Pay Ratio remains below the FTSE 100 2018 average of 114:1 (source: CIPD).
CHART 10: RELATIVE IMPORTANCE OF SPEND ON PAY
Total dividend pay
Total employee expenditure
2019
(£m)
212.6
44.7
2018
(£m)
169.9
39.5
Increase
(%)
25
13
108
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
REMUNER ATION AND STR ATEGY
The below chart shows how the variable remuneration was aligned with the KPIs on pages 40 and 41 that measure performance against our strategy:
OUR GOAL AND STR ATEGIC PILLARS
HOW OUR PERFORMANCE MEASURES ALIGN TO OUR STR ATEGY
1. O UR 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. D ISCIPLINED CAPITAL
ALLOCATION
3. OPER ATIONAL
EXCELLENCE
4. E FFICIENT 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
BONUS (SEE PAGES 102-103)
Adjusted PBT (33.3%)
Rent roll growth (33.3%)
Relative TPR over 1 year (33.3%)
LTIP (SEE PAGES 104-105)
Relative TSR over 3 years (33.3%)
Relative TPR over 3 years (33.3%)
Relative TAR over 3 years (33.3%)
SIP (SEE PAGE 106)
PBT v budget
All performance measures feed directly into both Executive Directors’ and employees’ remuneration, which is aligned as shown opposite.
TOTAL PROPERTY RETURN PERFORMANCE MEASURE
Shareholders have asked us occasionally 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.
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 in 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.
ESG TARGETS
Each year, the Company offers all employees the opportunity to receive SEGRO shares. The shares are awarded on the basis of achievement of
a profit target, with the maximum award of £3,000 for achieving at least 105 per cent of the PBT budget. The shares are held for at least three
years in either the UK, HMRC approved SIP scheme or the GSIP scheme in Continental Europe.
As explained in the Chair’s letter, the Committee is aware of increased demand for investors to introduce ESG targets in the remuneration
arrangements and this will be an area of focus in 2020. Our employees are also keen to support the ESG agenda. This year, we have changed the
SIP and GSIP targets to encourage our employees to reduce their paper usage. For 2020, these awards will be calculated by the achievement of
both financial and non-financial elements. The maximum award has been increased to £3,600. The payout will be based on a sliding scale of PBT
performance against budget and a reduction in paper use. The maximum pay out will only be achieved if PBT exceeds budget by 102 per cent
and paper use is reduced by 50 per cent compared with 2019.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
109
WORKFORCE REMUNER ATION
EXECUTIVE DIRECTORS
ALL EMPLOYEES
Pay rise in line with employee pay
Max 150%
Targets: TPR, RRG, Profit
50%
Deferred for 3 years
Max 250%
3 years, 2 year holding period
Targets: TSR, TPR, TAR
SALARY
BONUS
Increases approved by the
Remuneration Committee
All employees are eligible for a bonus
Targets: TPR, RRG, Profit, Personal performance
DEFERRED SHARE BONUS PLAN
Leadership team 25%
Deferred for 3 years
LONG TERM INCENTIVE PLAN
20% cash
PENSION BENEFIT
Max £3,000
Min 3 year hold
£500/month
3 year savings period
EMPLOYEE SHARE OWNERSHIP
SHARE INCENTIVE PLAN
SHARESAVE
Leadership team and senior managers
3 years, No holding period
Targets: TSR, TPR, TAR
(UK)
12% matched contribution or
10% cash
Max £3,000
Min 3 year hold
(UK)
£500/month
3 year savings period
SEGRO is proud to operate two types of all-employees share scheme which encourage employees to own shares in the Company and aligns
the interests of employees with shareholders. As at 31 December 2019, 83 per cent of the workforce participate in one or more all-employee
share scheme.
In 2019, all eligible employees across the Group received the maximum award of £3,000 worth of shares in SEGRO through the SIP or GSIP.
A total of 121,164 shares were awarded to 276 employees under these schemes, representing 98 per cent of the eligible workforce at the time
of award.
In the UK, Sharesave is offered on an annual basis and employees can save up to £500 across all open schemes. After three years, they can use
their savings to buy SEGRO shares at a 20 per cent discount to the share price when they started saving. 66 per cent of UK employees participate
in Sharesave, saving on average £317 per month.
As at 31 December 2019, 8,515,522 shares were under award in employee share schemes, representing 0.78 per cent of SEGRO’s issued
share capital.
110
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
STAKEHOLDER ENGAGEMENT
The Committee has three primary stakeholders:
£ shareholders;
£ Directors whose pay and benefits are within its remit; and
£ the Company’s workforce.
SHAREHOLDERS
DIRECTORS
THE COMPANY’S WORKFORCE
The Chair is committed to ensuring that there is
always an open dialogue with our shareholders. The
Committee values shareholder engagement and the
Chair is available should shareholders wish to discuss
the Company’s approach to remuneration or share
their views on current practice or emerging issues.
Further information on shareholder engagement
during the recent consultation exercise on the Policy
can be found in the Chair’s letter on page 97.
After each meeting of the Remuneration Committee, the
Chair reports to the Board on any significant decisions
which will impact on the Company generally or on the
principles of remuneration for the Directors.
The Committee is conscious that the remuneration
environment continues to change and, this year, the
Chair has committed to increasing his efforts to make
sure that the Executive Directors in particular are kept
up to date with the evolving trends.
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 all-employee share schemes to
encourage employee share ownership. See page 109
for further information.
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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
111
EXECUTIVE DIRECTORS’ SHAREHOLDINGS
POLICY ON SHAREHOLDING GUIDELINES (AUDITED)
The Chief Executive is expected to build a shareholding in the Company equivalent to 300 per cent of the value of his base salary calculated
by reference to the share price as at 31 December 2019. The other Executive Directors are expected to hold shares equivalent to 250 per cent
of their base salaries.
All Executive Directors are required to retain half of their LTIP and DSBP shares post vesting until the above guidelines have been met
and maintained.
In 2019 the shareholding guidelines were updated to include a post-cessation element requiring Executive Directors to retain their shareholding,
up to the amount required by the guidelines, for two years after leaving the Company.
CHART 11: EXECUTIVE DIRECTORS’ SHAREHOLDING AND SHAREHOLDING REQUIREMENTS
DAVID SLEATH
CHIEF EXECUTIV E OFFICER
810,441 shares
VALUE: £7,271,278
SHARES REQUIRED TO MEET POLICY: 231,101
ACTUAL
POLICY
SOUMEN DAS
CHIEF FI NAN CIAL OFFICER
POLICY MET
205,495 shares
VALUE: £1,843,705
SHARES REQUIRED TO MEET POLICY: 136,643
1,051%
ACTUAL
376%
300%
POLICY
250%
ANDY GULLIFORD
CHIEF OPER ATIN G OFFICER
582,738 shares
VALUE: £5,228,326
SHARES REQUIRED TO MEET POLICY: 126,096
PHIL REDDING
CHIEF INVESTMENT OF FICER
POLICY MET
446,023 shares
VALUE: £4,001,719
SHARES REQUIRED TO MEET POLICY: 126,096
POLICY MET
POLICY MET
ACTUAL
POLICY
250%
POLICY
250%
1,155%
ACTUAL
884%
Value of shares calculated using a share price of 897.2 pence, as at 31 December 2019.
CHART 12: EXECUTIVE DIRECTORS’ OVERALL INTEREST IN SHARES
Beneficial interests1
(including SIP shares)
as at 01.01.2019
Beneficial interests1
(including SIP shares)
as at 31.12.2019
Subject to deferral
under DSBP
Subject to achievement
of performance
conditions under LTIP
Options outstanding
under Sharesave
Total overall interest in
shares as at
31.12.2019
Shares which contribute
to shareholding
guidelines as at
31.12.20192
David Sleath
Soumen Das
Andy Gulliford
Phil Redding
691,854
153,345
481,809
345,094
692,293
145,581
511,647
374,932
222,921
113,046
134,134
134,134
961,537
751,320
629,499
629,499
4,914
4,914
4,265
3,616
1,881,665
1,014,861
1,279,545
1,142,181
810,441
205,495
582,738
446,023
1 Beneficial interests in Chart 12 above represent shares beneficially held by each Executive Director, including any shares beneficially held by spouses as well as shares held on their behalf by the
Trustees of the SIP. Between 31 December 2019 and 13 February 2020, there were no changes in respect of the Executive Directors’ shareholdings. The Trustees of the SIP held a non-beneficial
interest in 472,175 shares as at 1 January 2019, 454,256 shares as at 31 December 2019 (2018: 472,175) and 453,940 shares as at 13 February 2020. The Trustees of the SEGRO plc Employees’
Benefit Trust held 432,924 shares as at 1 January 2019 and 345,210 shares as at 31 December 2019 (2018: 432,924). There was no change in their holdings between 31 December 2019 and
13 February 2020. As with other employees, Executive Directors are deemed to have a potential interest in these shares, being beneficiaries under these two Trusts.
2 The numbers of shares which contribute to towards the shareholding requirement in Chart 11 comprise beneficial interests (including SIP shares) and shares subject to deferral under DSBP, net of
income tax and National Insurance, but excludes shares subject to achievement of performance conditions under LTIP and options outstanding under Sharesave.
112
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
EXECUTIVE DIRECTORS’ SHARE SCHEME HOLDINGS (AUDITED)
CHART 13: DSBP AWARDS OUTSTANDING
No. of shares
over which
awards were
granted during
the year1
No. of shares
under award
01.01.19
Share price
on grant
(pence)2
Face value
of award
made in 2019
(£)
Date of Grant
No. of shares
released during
the year
Share price on
date of release
(pence)
No. of shares
under award
31.12.19
End of
holding period
26.05.16
28.06.17
28.06.18
28.06.19
02.05.17
02.05.17
28.06.17
28.06.18
28.06.19
26.05.16
28.06.17
28.06.18
28.06.19
26.05.16
28.06.17
28.06.18
28.06.19
105,935
90,271
69,920
–
–
–
–
62,730
266,126
31,577
72,999
14,474
51,957
–
–
–
–
–
46,615
171,007
55,471
47,283
45,779
–
–
–
–
41,072
148,533
55,471
47,283
45,779
–
–
–
–
41,072
148,533
431.1
495.5
664.0
718.6
434.0
434.0
495.5
664.0
718.6
431.1
495.5
664.0
718.6
431.1
495.5
664.0
718.6
–
–
–
450,778
–
–
–
–
334,975
–
–
–
295,143
–
–
–
295,143
105,935
685.5
–
28.04.19
–
–
–
31,577
72,999
–
–
–
–
–
–
661.0
661.0
–
–
–
90,271
69,920
62,730
222,921
–
–
14,474
51,957
46,615
113,046
28.04.20
28.04.21
28.04.22
01.03.19
01.03.19
28.04.20
28.04.21
28.04.22
55,471
685.5
–
28.04.19
–
–
–
–
–
–
47,283
45,779
41,072
134,134
28.04.20
28.04.21
28.04.22
55,471
685.5
–
28.04.19
–
–
–
–
–
–
47,283
45,779
41,072
134,134
28.04.20
28.04.21
28.04.22
DAVID SLEATH
2015 DSBP
2016 DSBP
2017 DSBP
2018 DSBP4
TOTAL
SOUMEN DAS3
Replacement Award
Replacement Award
2016 DSBP
2017 DSBP
2018 DSBP4
TOTAL
ANDY GULLIFORD
2015 DSBP
2016 DSBP
2017 DSBP
2018 DSBP4
TOTAL
PHIL REDDING
2015 DSBP
2016 DSBP
2017 DSBP
2018 DSBP4
TOTAL
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 he 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. These awards are subject to the same performance conditions as the other LTIP Awards.
4 Executive Directors were awarded 141 per cent of salary in respect of the 2018 Bonus, 50 per cent of which was deferred into shares under the 2018 DSBP.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
CHART 14: LTIP AWARDS OUTSTANDING
No. of shares
over which
awards were
granted during
the year1
No. of shares
under award
01.01.19
Date of Grant
Share price
on grant
(pence)2
Face value
of award
made in 2019
(£)
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
31.12.19
22.05.15
280,500
290,152
243,813
196,892
DAVID SLEATH
2015 LTIP
2016 LTIP
2017 LTIP
2018 LTIP
2019 LTIP6
TOTAL
SOUMEN DAS3
2015 LTIP
2016 LTIP
2017 LTIP
2018 LTIP
2019 LTIP6
TOTAL
ANDY GULLIFORD
2015 LTIP
2016 LTIP
2017 LTIP
2018 LTIP
2019 LTIP6
TOTAL
PHIL REDDING
2015 LTIP
2016 LTIP
2017 LTIP
2018 LTIP
2019 LTIP6
TOTAL
07.04.16
28.04.17
26.04.18
29.05.19
02.05.17
02.05.17
28.04.17
26.04.18
29.05.19
07.04.16
28.04.17
26.04.18
29.05.19
07.04.16
28.04.17
26.04.18
29.05.19
–
230,680
1,011,357
87,498
153,674
279,9184
146,310
–
–
–
–
–
171,418
667,400
22.05.15
183,600
–
151,036
662,063
22.05.15
183,600
189,916
159,634
128,913
189,916
159,634
128,913
–
151,036
662,063
–
–
–
–
–
–
–
–
–
–
–
–
422.5
420.7
493.0
628.8
691.0
434.0
434.0
493.0
628.8
691.0
422.5
420.7
493.0
628.8
691.0
422.5
420.7
493.0
628.8
691.0
–
–
–
–
1,593,999
–
–
–
–
1,184,498
–
–
–
–
1,043,659
–
–
–
–
1,043,659
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
280,500
717.8
–
–
–
–
–
–
–
–
–
290,152
243,813
196,892
230,680
961,537
87,498
717.8
–
–
–
–
–
–
–
–
–
183,600
717.8
–
–
–
–
–
–
–
–
183,600
717.8
–
–
–
–
–
–
–
–
153,674
279,918
146,310
171,418
751,320
–
189,916
159,634
128,913
151,036
629,499
–
189,916
159,634
128,913
151,036
629,499
113
End of
performance
period
over which
performance
conditions have
to be met
31.12.18
31.12.19
31.12.195
31.12.20
31.12.21
31.12.18
31.12.19
31.12.195
31.12.20
31.12.21
31.12.18
31.12.19
31.12.195
31.12.20
31.12.21
31.12.18
31.12.19
31.12.195
31.12.20
31.12.21
1 Awards are granted in the form of 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 he 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 2017 Remuneration Policy at the 2017 AGM, LTIP awards made after the 2017 AGM are subject to a three-year performance period and two-year holding period.
Awards made before the 2017 AGM were subject to a four-year performance period.
6 Executive Directors were awarded 250 per cent of salary in respect of the 2019 LTIP.
114
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
CHART 15: SHARESAVE OPTIONS OUTSTANDING
Date of grant
No. of shares
under option
01.01.19
Options granted
during the year
Option price
(pence)
Options
exercised during
the year
Options lapsed
during the year
No. of shares
under option
31.12.19
Period in which
options can be
exercised
DAVID SLEATH
2017 Sharesave
TOTAL
SOUMEN DAS
2017 Sharesave
TOTAL
ANDY GULLIFORD
2017 Sharesave
2018 Sharesave
TOTAL
PHIL REDDING
2018 Sharesave
TOTAL
02.05.17
4,914
4,914
02.05.17
4,914
4,914
02.05.17
2,457
18.04.18
1,808
4,265
18.04.18
3,616
3,616
–
–
–
–
–
366.24
366.24
366.24
497.76
497.76
–
–
–
–
–
–
–
–
–
–
01.06.20 –
31.11.20
01.06.20 –
31.11.20
01.06.20 –
31.11.20
01.06.21 –
31.11.21
01.06.21 –
31.11.21
4,914
4,914
4,914
4,914
2,457
1,808
4,265
3,616
3,616
CHART 16: SIP SHARES HELD IN TRUST
David Sleath
Soumen Das
Andy Gulliford
Phil Redding
No. of shares in trust
01.01.19
Shares awarded
during the year
No. of shares in trust
31.12.19
7,887
468
8,704
7,840
439
439
439
439
8,326
907
9,143
8,279
Further information about the share schemes can be found in Note 19 to the Financial Statements on pages 178 to 179.
HIGHEST AND LOWEST SHARE PRICES
The highest and lowest share prices during the year were 899.60 pence and 597.60 pence respectively.
DILUTION HEADROOM
As the LTIP, SIP and Sharesave schemes are approved by shareholders, they may be satisfied by the issue of new shares in the Company, up to
the dilution limits set by the Investment Association (IA):
CHART 17: DILUTION HEADROOM
Executive schemes
All schemes
0.60%
0.66%
Actual
IA limit
5%
10%
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
115
CHAIR AND NON-EXECUTIVE DIRECTORS
NON-EXECUTIVE DIRECTORS’ SINGLE TOTAL FIGURE OF REMUNERATION (AUDITED)
CHART 18: INDEPENDENT NON-EXECUTIVE DIRECTORS’ SINGLE TOTAL FIGURE OF REMUNERATION FOR 2019 (AUDITED)
Gerald Corbett
Mary Barnard1
Sue Clayton2
Chair
Carol Fairweather3
Chair of the Audit Committee (since 18 April 2019)
Christopher Fisher
Chair of the Remuneration Committee
Martin Moore
Doug Webb4
Senior Independent Director (since 19 April 2018)
Chair of the Audit Committee (until 18 April 2019)
1 Mary Barnard was appointed as a Director on 1 March 2019.
2 Sue Clayton was appointed as a Director on 1 June 2018.
TOTAL FEES
2019
£000
250
50
60
71
75
75
50
2018
£000
250
–
35
60
75
70
75
3 Carol Fairweather was appointed as a Director on 1 January 2018 and succeeded Doug Webb as Chair of the Audit Committee on 18 April 2019.
4 Doug Webb stepped down as Chair of the Audit Committee on 18 April 2019 and retired as a Director on 30 September 2019.
Non-Executive Directors do not receive taxable benefits.
NON-EXECUTIVE DIRECTORS’ FEES (AUDITED)
The fees paid to the Chair are within the remit of the Committee, whilst the Non-Executive Directors’ fees are a matter for the Board in the
absence of the Non-Executive Directors. Both the fees for the Chair and the Non-Executive Directors were reviewed during 2019.
The Chair’s fee was reviewed for the first time since his appointment in 2016, and from 1 January 2020 he will receive £275,000 per annum
(2019: £250,000 per annum).
From 1 January 2020, the Non-Executive Directors will receive a base fee of £63,600 per annum (2019: £60,000 per annum), with an additional
£15,900 per annum (2019: £15,000 per annum) for chairing a Board Committee or for filling the role of Senior Independent Director.
Non-Executive Directors’ fees were last increased in January 2018.
The increase in the fees paid to the Chair and the Non-Executive Directors represents a rise of three per cent per annum which is aligned with
the annual average all-employee salary increase over the same time period. Future fee increases will be reviewed annually, taking account of the
average all-employee increase.
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 scheme.
Chart 18 above shows the total remuneration received by each of the Chair and the Non-Executive Directors during the year.
NON-EXECUTIVE DIRECTORS’ SHAREHOLDING GUIDELINES
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 2019.
CHART 19: NON-EXECUTIVE DIRECTORS’ BENEFICIAL INTERESTS IN SHARES AND SHAREHOLDING REQUIREMENTS
Beneficial Interests
Shareholding Requirements
Gerald Corbett
Mary Barnard1
Sue Clayton
Carol Fairweather
Christopher Fisher
Martin Moore
31.12.2019
Ordinary 10p shares
01.01.2019
Ordinary 10p shares
Value of shares held
31.12.20192
(£)
63,960
–
7,000
12,000
20,592
17,442
63,960
–
–
12,000
20,592
17,442
573,849
–
62,804
107,664
184,751
156,490
Shareholding
as a percentage
of annual fees
as at 31.12.2019
(%)
230
–
105
144
246
209
Shareholding
requirements met
–
1 Mary Barnard was appointed as a Director on 1 March 2019.
2 Value of shares calculated using share price of 897.2 pence as at 31 December 2019.
There was no change in Directors’ holdings between 31 December 2019 and 13 February 2020.
116
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
DIRECTORS’ REMUNERATION REPORT
CONTINUED
EXTERNAL APPOINTMENTS
David Sleath was appointed as a Non-Executive Director of Electrocomponents Plc on 1 June 2019. During the year, he received a fee of £39,166
for his role.
EXIT PAYMENTS AND ARR ANGEMENTS (AUDITED)
No exit payments were made to Directors during the year.
REMUNER ATION STATEMENT IN RELATION TO PHIL REDDING PURSUANT TO SECTION 430(2B) COMPANIES ACT 2006
Further to the RNS announcement made on 28 January 2020, and in accordance with section 430(2B) Companies Act 2006, the following
remuneration arrangements will apply in respect of Phil Redding ceasing to be a director of SEGRO plc and the termination of his employment
due to redundancy.
Mr Redding stepped down from the Board on 31 January 2020 and his employment will end on 30 April 2020. The remuneration aspects of his
departure are in line with the Policy approved by shareholders at the 2019 AGM.
£ Salary and benefits
Mr Redding will be paid salary and provided with his contractual benefits (including car allowance and cash payments in lieu of pension
contributions) until his leaving date of 30 April 2020.
Following the termination of his employment, Mr Redding will receive a payment in lieu of the remaining nine months of his notice
period in the amount of £422,409. This amount will be paid in monthly instalments over the period from 1 May 2020 until 31 January
2021. The monthly instalments will be reduced by any income Mr Redding earns from alternative employment or self-employment in the
relevant period.
Mr Redding will also receive a Statutory Redundancy Payment of £13,125.
£ Bonus and DSBP
Mr Redding will be eligible for consideration for a payment of bonus in respect of the 2019 financial year, subject to achievement of the
performance conditions as approved by the Committee. In accordance with the Policy, 50 per cent of any cash bonus award will be deferred in
shares for three years under the rules of the DSBP.
In accordance with the DSBP rules, he will be entitled to receive shares awarded under the DSBP in 2016, 2017 and 2018, together with any
DSBP award made for his 2019 bonus, in full on their respective vesting dates.
Any shares awarded under the DSBP will continue to accumulate dividends and remain subject to malus and clawback provisions. Mr Redding
will not be eligible for a bonus for 2020.
£ LTIP
Mr Redding will be treated as a good leaver under the rules of the LTIP. He will be eligible to receive shares, subject to the satisfaction of the
performance conditions, and approval by the Committee, for his 2016, 2017, 2018 and 2019 awards. When these awards vest, they will be pro-
rated up to the date that Mr Redding ceased to be an employee of the Company. The awards will continue to accumulate dividends until they
are released and will be subject to the malus and clawback provision in the LTIP rules.
Mr Redding will not be eligible for an LTIP award in 2020.
£ All employee share scheme awards
In line with other employees, Mr Redding will be treated as a good leaver in accordance with the HMRC and shareholder approved Sharesave
scheme and SIP rules.
£ Further information
Mr Redding will receive a maximum contribution of £5,000 (plus VAT) towards his legal fees in connection with the termination of his
employment. The Company will also offer outplacement services. He will be required to hold shares in the Company to the value of 250 per
cent of his salary for a period of two years from 31 January 2020. Any payments made to Mr Redding will be subject to deductions for income
tax and national insurance where applicable.
No other remuneration payments or payment for loss of office has been or are due to be made.
FORMER DIRECTORS (AUDITED)
Ex gratia payments totalling £29,242 (2018: £44,930) were made during the year to two 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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
117
REMUNER ATION 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 in 2018, following a competitive tender process, Korn Ferry was appointed.
During 2019, Korn Ferry continued to assist with the shareholder consultation on the Remuneration Policy, provided advice on Executive
Directors’ remuneration, market and best practice guidance, including the new provisions of the Code. Its total fees for advice to the Committee
in 2019 were £85,413 (2018: £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 2019 were £5,000 (2018: £18,820), 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 20 below shows the results of the advisory vote on the 2018 Remuneration Report and the binding vote on the Remuneration Policy at the
Company’s AGM on 18 April 2019.
CHART 20: SHAREHOLDER VOTING AT THE AGM
To approve the Directors’ Remuneration Report for the
financial year ended 31 December 2018
To approve the Directors’ Remuneration Policy contained
in the Directors’ Remuneration Report for the financial year
ended 31 December 2018
Votes for
(including
discretionary)
% For
Votes against
% Against
Total votes cast
Votes withheld1
437,531,605
53.30
383,403,396
46.70
820,935,001
41,305,324
713,030,591
82.92
146,916,256
17.08
859,946,847
2,293,478
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.
A statement was made 18 April 2019 with respect to the votes cast against the 2018 Directors’ Remuneration Report at the 2019 AGM and, in
October 2019, a further update was published on our website, www.SEGRO.com. Further information is available in the Chair’s letter on page 97.
This report was approved by the Board on 13 February 2020 and signed on its behalf by
CHRISTOPHER FISHER
CHAIR OF THE REMUNER ATION COMMIT TEE
118
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
DIRECTORS’ REMUNERATION POLICY – EXTRACT
The Remuneration Policy was approved by Shareholders at the Annual General Meeting held on 18 April 2019 and became effective from
this date. It applies to incentive awards with performance periods beginning on 1 January 2019.
The following is an extract from the 2018 SEGRO Annual Report and Accounts. Chart 5, which outlined the potential remuneration in 2019
has been removed.
The full Remuneration Policy as approved by shareholders is available at www.SEGRO.com.
REMUNER ATION 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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
119
CHART 1: REMUNERATION 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.
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.
Performance metrics
Not applicable.
None.
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.
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.
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.
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.
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.
120
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GOVERNANCE
DIRECTORS’ REMUNERATION POLICY – EXTRACT
CONTINUED
Element
Strategic purpose
Operation
Maximum potential value
Performance metrics
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.
Share Incentive
Plan (‘SIP’) and
Global Share
Incentive Plan
(‘GSIP’)
To provide a
market competitive
remuneration package
and to encourage
employee share
ownership across the
Group.
Other benefits
To provide a
market competitive
remuneration package.
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.
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 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.
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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
121
CHART 2: REMUNERATION 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.
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 CONTRACTUAL 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.
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
122
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
DIRECTORS’ REMUNERATION POLICY – EXTRACT
CONTINUED
POLICY ON RECRUITMENT
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
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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
123
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.
124
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
GOVERNANCE
DIRECTORS’ REPORT
SHARE CAPITAL
The issued share capital for the year is set out on page 178.
There is one class of shares 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 2020 AGM, a final dividend of 14.4 pence per share will be paid (2018: 13.25 pence) bringing the
total dividend for 2019 to 20.7 pence (2018: 18.8 pence). The final dividend will be paid as a Property Income Distribution. The Board proposes
to offer a scrip dividend option for the 2019 final dividend.
The ex-dividend date for the final dividend will be 19 March 2020, the record date will be 20 March 2020 and the payment date will be
1 May 2020.
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.
SECTION 172: STAKEHOLDER ENGAGEMENT
Please see page 23 for details of how the Directors have:
£ engaged with employees;
£ had regard to employee interests and the effect of that regard, including on the principal decisions taken by the Company during the year; and
£ had regard to the need to foster the Company’s business relationships with suppliers, customers and others, and the effect of that regard,
including on the principal decisions taken by the Company during the year.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
125
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
ABP (Algemen Burgerlijk PSF)
State Street Corporation
The Vanguard Group, Inc
Legal & General Group
Affiliated Managers Group
As at 31 December 2019
Number of
shares
116,496,919
68,893,654
54,981,456
47,961,017
37,054,791
35,249,821
Percentage of Issued
Share Capital
%
10.62
6.28
5.01
4.37
3.38
3.21
No further announcements were made to the Company between 31 December 2019 and 13 February 2020.
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 AND INSUR ANCE
The Company maintains directors’ and officers’ liability insurance which is reviewed annually and is permitted under the Company’s Articles
of Association and the Companies Act 2006. During the year, the Company agreed to indemnify each Director under a Deed of Indemnity
against any liability incurred in relation to acts or omissions arising in the ordinary course of their duties. The indemnity applies only to the extent
permitted by law.
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 2020 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
13 FEBRUARY 2020
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SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
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; and
£ 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 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
13 FEBRUARY 2020
SOUMEN DAS
CHIEF FINANCIAL OFFICER
13 FEBRUARY 2020
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
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
NOTES TO THE FINANCIAL STATEMENTS
FIVE-YEAR FINANCIAL RESULTS
FINANCIAL INFORMATION
ANALYSIS OF SHAREHOLDERS
SHAREHOLDER INFORMATION
GLOSSARY OF TERMS
127
128
135
135
136
137
139
140
199
200
200
201
202
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SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
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 2019 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 2019 (the “Annual Report”), which comprise: the Group
and Company Balance Sheets as at 31 December 2019; 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 2019 to 31 December 2019.
Our audit approach
Overview
– Overall Group materiality: £100.9 million (2018: £91.7 million), based on 1% of total assets.
– Overall Company materiality: £76.4 million (2018: £72.6 million), based on 1% of total assets.
Materiality
– Specific materiality: £13.3 million (2018: £12.1 million), based on 5% of adjusted profit before tax, for items within
adjusted profit before tax.
– Audit procedures on Rental Income and Valuation of Investment Properties are performed centrally by the
Audit scope
Group audit team from the UK.
– Full scope audit of the SELP Joint Venture by local auditors.
– Specified procedures performed by local auditors.
– Over 86% coverage of Assets, Liabilities, Income and Expenditure of the Group.
Key audit
matters
– Valuation of investment properties – Group and Company.
– Large and/or complex transactions – Group and Company.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
129
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.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the Group and 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 157 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, and we considered the extent to which non-
compliance might have a material effect on the Financial Statements. 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 so that they could include appropriate audit procedures 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.
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FINANCIAL STATEMENTS
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 and Company
Refer to page 94 (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). The Group’s investment properties
were carried at £8,401.7 million as at 31 December 2019 and
a total (realised and unrealised) property gain of £489 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 development properties, 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 Institution 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.
The valuation of investment properties also impacts the
carrying value of investment in the subsidiaries within the
financial statements of the Company.
Given the inherent subjectivity involved in the valuation of investment properties, the need for deep
market knowledge when determining the most appropriate assumptions, and the technicalities of
valuation methodology, we engaged our internal valuation experts (qualified chartered surveyors)
to assist us in our audit of this matter.
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.
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 development properties,
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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
131
Key audit matter
How our audit addressed the key audit matter
Large and/or complex transactions
Refer to page 94 (Audit Committee Report) and the Financial
Statements (including notes to the Financial Statements;
Note 1, Significant accounting policies; Note 13, Properties;
and Note 19, Share capital and share-based payments).
Group
There was a large disposal of a portfolio of big box warehouse
assets in the UK. This was the largest property transaction in
the current year. This warranted additional audit focus due to
the magnitude of the transaction.
Group and Company
The equity placement during the year warranted additional
audit focus due to the magnitude of the transaction and
proceeds generated.
For each large and/or complex transaction identified, 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.
Significant disposal
We tested the disposal of this portfolio of UK big box warehouses by examining:
– Sale and Purchase Agreements and completion statements;
– Bank statements to agree consideration received; and
– Examined the accounting treatment surrounding the transaction.
Equity placement
We tested the equity placement by examining:
– Placement Agreement;
– Submissions to the London Stock Exchange and Companies House;
– Bank statements to agree funds received
Overall outcome
No material issues were identified as a result of our testing.
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
99% coverage
99% coverage
99% coverage
86% 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.
132
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FINANCIAL STATEMENTS
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
£100.9 million (2018: £91.7 million).
How we determined it
1% of total assets.
Group financial statements
Company financial statements
£76.4 million (2018: £72.6 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 £50 million and £85 million. In addition, we set a specific overall materiality level of £13.3 million
(2018: £12.1 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 147 and 148 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 £5 million (Group audit)
(2018: £4.6 million) and £3.8 million (Company audit) (2018: £3.6 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.
As 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. For example, the terms
of the United Kingdom’s withdrawal from the European Union
are not clear, and it is difficult to evaluate all of the potential
implications on the Group’s and Company’s trade, customers,
suppliers and the wider economy.
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).
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
133
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 2019 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 73 to 126) 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 73 to 126) 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 67 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 69 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 126, 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 92 to 96 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)
134
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
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 126, 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 4 years, covering the
years ended 31 December 2016 to 31 December 2019.
JOHN WATERS (SENIOR STATUTORY AUDITOR)
FOR AND ON BEHALF OF PRICEWATERHOUSECOOPERS LLP
CHARTERED ACCOUNTANTS AND STATUTORY AUDITORS
LONDON
13 FEBRUARY 2020
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
GROUP INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2019
Revenue
Costs
Administration expenses
Pension buy-out costs
Share of profit from joint ventures after tax
Realised and unrealised property gain
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
Notes
4
5
6
2, 18
7
8
9
9
10
12
12
135
20181,2
£m
369.0
(76.5)
292.5
(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
2019
£m
432.5
(123.9)
308.6
(51.5)
–
203.1
489.2
949.4
65.3
(112.7)
902.0
(41.4)
860.6
857.9
2.7
79.3
78.9
105.4
104.8
1 The prior period comparatives have been re-presented to reflect the presentation adopted in the current period. See Note 1.
2 The Group adopted IFRS 16 ‘Leases’ on 1 January 2019 using the modified retrospective approach to transition and in accordance with the standard the Group’s financial results for the prior
periods have not been restated. See Note 1.
GROUP STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2019
Profit for the year
Items that will not be reclassified subsequently to profit or loss
Actuarial gain 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 (expense)/income
Other comprehensive (expense)/income
Total comprehensive income for the year
Attributable to equity shareholders
Attributable to non-controlling interests
Notes
18
2019
£m
860.6
–
–
(110.2)
57.6
(52.6)
–
(52.6)
808.0
804.7
3.3
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
136
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
BALANCE SHEETS
AS AT 31 DECEMBER 2019
Assets
Non-current assets
Intangible assets
Investment properties
Other interests in property
Property, plant and equipment
Investments in subsidiaries
Investments in joint ventures
Other investments
Other receivables
Derivative financial instruments
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
2019
£m
2018
£m
COMPANY
2019
£m
2018
£m
Notes
2.5
8,401.7
28.3
23.0
–
1,121.4
27.5
110.6
59.7
9,774.7
20.2
146.6
8.7
132.5
308.0
10,082.7
1,943.5
53.2
102.9
–
2,099.6
298.6
1.7
5.2
305.5
2,405.1
7,677.6
109.6
2,554.3
113.9
(2.6)
199.5
4,056.9
857.9
(211.9)
4,702.9
7,677.6
–
7,677.6
700
697
13
7
7
14
17
13
14
17
16
16
10
15
17
15
17
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
–
–
–
1.0
7,516.5
–
–
–
59.7
7,577.2
–
7.7
8.7
60.7
77.1
7,654.3
1,940.9
–
1,747.4
–
3,688.3
29.0
1.7
–
30.7
3,719.0
3,935.3
109.6
2,554.3
113.9
(2.6)
226.1
818.5
328.8
(213.3)
934.0
3,935.3
–
3,935.3
–
–
–
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
The Financial Statements of SEGRO plc (registered number 167591) on pages 135 to 192 were approved
by the Board of Directors and authorised for issue on 13 February 2020 and signed on its behalf by:
DJR SLEATH DIRECTOR S DAS DIRECTOR
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
137
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
Attributable to owners of the parent
Ordinary
share
capital
£m
Share
premium
£m
Capital
redemption
reserve2
£m
Own
shares
held
£m
Other reserves
Share-
based
payments
reserves
£m
Translation,
hedging
and other
reserves
£m
Merger
reserve
£m
Retained
earnings
£m
Total equity
attributable
to owners of
the parent
£m
Non-
controlling
interests3
£m
Total
equity
£m
Group1
Balance at 1 January 2019
101.3 2,047.7
113.9
(2.0)
22.3
54.8
169.1 4,056.9
6,564.0
Profit for the year
Other comprehensive income
Total comprehensive income for the
year
Transactions with owners of the
Company
Issue of shares
Own shares acquired
Equity-settled share-based transactions
Dividends
Movement in non-controlling interest3
Total transaction with owners of the
Company
–
–
–
–
–
–
7.3
436.7
–
–
1.0
–
–
–
69.9
–
8.3
506.6
–
–
–
–
–
–
–
–
–
Balance at 31 December 2019
109.6 2,554.3
113.9
–
–
–
–
(3.4)
2.8
–
–
(0.6)
(2.6)
–
–
–
–
–
6.5
–
–
6.5
28.8
–
(53.2)
(53.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
857.9
–
857.9
(53.2)
– 6,564.0
2.7
0.6
860.6
(52.6)
857.9
804.7
3.3
808.0
–
–
3.1
(212.6)
(2.4)
(211.9)
444.0
(3.4)
12.4
(141.7)
(2.4)
–
–
–
–
444.0
(3.4)
12.4
(141.7)
(3.3)
(5.7)
308.9
7,677.6
(3.3)
305.6
–
7,677.6
1.6
169.1 4,702.9
1 The format of the statement of changes in equity has been changed from that disclosed in the Annual Report & Accounts 2018 for better presentation and to reconcile total comprehensive income
for the year.
2 See Note 20.
3 Non-controlling interests relate to Vailog S.r.l.
FOR THE YEAR ENDED 31 DECEMBER 2018
Attributable to owners of the parent
Ordinary
share
capital
£m
Share
premium
£m
Capital
redemption
reserve2
£m
Own
shares
held
£m
Other reserves
Share-
based
payments
reserves
£m
Translation,
hedging
and other
reserves
£m
Merger
reserve
£m
Retained
earnings
£m
Group1
Balance at 1 January 2018
100.3
1,998.6
113.9
(3.3)
18.7
37.9
169.1
3,150.2
Profit for the year
Other comprehensive income
Total comprehensive income for the
year
Transactions with owners of the
Company
Issue of shares
Own shares acquired
Equity-settled share-based transactions
Dividends
Movement in non-controlling interest3
Total transaction with owners of the
Company
–
–
–
0.2
–
–
0.8
–
1.0
–
–
–
0.4
–
–
48.7
–
49.1
–
–
–
–
–
–
–
–
–
Balance at 31 December 2018
101.3
2,047.7
113.9
–
–
–
–
(1.1)
2.4
–
–
1.3
(2.0)
–
–
–
–
–
3.6
–
–
3.6
22.3
Total equity
attributable
to owners of
the parent
£m
Non-
controlling
interests3
£m
Total
equity
£m
5,585.4
1,062.6
27.9
(1.2)
3.5
(0.1)
5,584.2
1,066.1
27.8
1,062.6
11.0
1,073.6
1,090.5
3.4
1,093.9
–
–
3.0
(169.9)
–
0.6
(1.1)
9.0
(120.4)
–
–
–
–
–
(2.2)
0.6
(1.1)
9.0
(120.4)
(2.2)
(166.9)
(111.9)
(2.2)
(114.1)
–
16.9
16.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
54.8
169.1
4,056.9
6,564.0
–
6,564.0
1 The format of the statement of changes in equity has been changed from that disclosed in the Annual Report & Accounts 2018 for better presentation and to reconcile total comprehensive income
for the year.
2 See Note 20.
3 Non-controlling interests relate to Vailog S.r.l.
138
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
STATEMENTS OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2019
Company1
Balance at 1 January 2019
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners of the Company
Issue of shares
Own shares acquired
Equity-settled share-based transactions
Dividends
Total transaction with owners of the Company
Ordinary
share
capital
£m
Share
premium
£m
Capital
redemption
reserve2
£m
101.3 2,047.7
113.9
–
–
–
–
–
–
7.3
436.7
–
–
1.0
8.3
–
–
69.9
506.6
–
–
–
–
–
–
–
–
Balance at 31 December 2019
109.6 2,554.3
113.9
Other reserves
Share-
based
payments
reserves
£m
Translation,
hedging and
other reserves
£m
Merger
reserve
£m
Retained
earnings
£m
Total equity
attributable
to equity
shareholders
£m
7.3
47.4
169.1
–
–
–
–
–
2.3
–
2.3
9.6
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
47.4
169.1
818.5
328.8
–
3,303.2
328.8
–
328.8
328.8
–
–
(0.7)
(212.6)
(213.3)
934.0
444.0
(3.4)
4.4
(141.7)
303.3
3,935.3
Own
shares
held
£m
(2.0)
–
–
–
–
(3.4)
2.8
–
(0.6)
(2.6)
1 The format of the statement of changes in equity has been changed from that disclosed in the Annual Report & Accounts 2018 for better presentation and to reconcile total comprehensive income
for the year.
2 See Note 20.
FOR THE YEAR ENDED 31 DECEMBER 2018
Company1
Balance at 1 January 2018
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Transactions with owners of the Company
Issue of shares
Own shares acquired
Equity-settled share-based transactions
Dividends
Total transaction with owners of the Company
Ordinary
share
capital
£m
Share
premium
£m
Capital
redemption
reserve2
£m
Own
shares
held
£m
Other reserves
Share-
based
payments
reserves
£m
Translation,
hedging and
other reserves
£m
Merger
reserve
£m
Retained
earnings
£m
Total equity
attributable
to equity
shareholders
£m
100.3
1,998.6
113.9
(3.3)
6.8
47.4
169.1
–
–
–
0.2
–
–
0.8
1.0
–
–
–
0.4
–
–
48.7
49.1
–
–
–
–
–
–
–
–
–
–
–
–
(1.1)
2.4
–
1.3
(2.0)
–
–
–
–
–
0.5
–
0.5
7.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
47.4
169.1
866.9
108.8
11.0
119.8
–
–
1.7
(169.9)
(168.2)
818.5
3,299.7
108.8
11.0
119.8
0.6
(1.1)
4.6
(120.4)
(116.3)
3,303.2
Balance at 31 December 2018
101.3
2,047.7
113.9
1 The format of the statement of changes in equity has been changed from that disclosed in the Annual Report & Accounts 2018 for better presentation and to reconcile total comprehensive income
for the year.
2 See Note 20.
GROUP
COMPANY
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
CASH FLOW STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
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
Notes
26(i)
Cost of early close out of debt
Tax paid
Net cash received from operating activities
Cash flows from investing activities
Purchase and development of investment properties
Sale of investment properties
Acquisition of other interest in property
Purchase of plant and equipment and intangibles
Acquisition of other investments
Investment in subsidiary undertakings
Loan advances paid to subsidiary undertakings
Investment and loans to joint ventures
Divestment and repayment of loans from joint ventures
Net cash used in investing activities
Cash flows from financing activities
Dividends paid to ordinary shareholders
Proceeds from borrowings
Repayment of borrowings
Principal element of lease payments
Settlement of foreign exchange derivatives
Purchase of non-controlling interest
Proceeds from issue of ordinary shares
Purchase of ordinary shares
Net cash generated from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the year
Effect of foreign exchange rate changes
2019
£m
291.6
47.1
33.3
(91.7)
(11.4)
6.9
(18.6)
(46.9)
210.3
(602.9)
412.4
(13.3)
(2.7)
(1.2)
–
–
(148.6)
136.4
(219.9)
(141.7)
10.2
(251.1)
(0.9)
26.9
(7.9)
444.0
(3.4)
76.1
66.5
66.5
(0.5)
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
Cash and cash equivalents at the end of the year
16
132.5
139
2018
£m
(5.8)
140.2
145.8
(99.2)
–
–
(5.7)
–
175.3
–
–
–
(0.9)
–
(132.4)
(121.0)
–
–
2019
£m
(9.5)
145.9
210.3
(88.7)
(11.4)
6.9
(18.6)
–
234.9
–
–
–
(1.0)
–
(46.7)
(244.1)
–
–
(291.8)
(254.3)
(141.7)
10.2
(250.5)
–
26.9
–
444.0
(3.4)
85.5
28.6
32.3
(0.2)
60.7
(120.4)
264.1
(102.0)
–
(6.4)
–
0.6
(1.1)
34.8
(44.2)
76.4
0.1
32.3
140
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 DECEMBER 2019
1. SIGNIFICANT ACCOUNTING POLICIES
General information
SEGRO plc (the Company) is a public limited 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 20 to 23.
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 for a period of at least 12 months from the date of approval of the
Financial Statements. This is discussed in the Financial Review on page 35.
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.
Following recent discussions with the Financial Reporting Council’s (“FRC”) Corporate Reporting Review team, the format of the Group Income
Statement has been changed to improve the presentation of the Financial Statements. The sub headings ‘Gross rental income’, ‘Net rental
income’ and ‘Joint venture fee income’ previously presented have been removed from the Group Income Statement. The line item ‘Costs’ is now
presented. A breakdown of ‘Costs’ is shown in Note 5 where a reconciliation to ‘Property operating expenses’ as reported in the 2018 Group
Income Statement is provided. The prior-year comparatives have been represented to reflect this change. There is no change in ‘Operating profit’,
‘Profit before tax’ or ‘Profit after tax’ as a result of the change in presentation.
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 2019.
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 2019:
• IFRS 16, ‘Leases’
• IFRIC 23, ‘Uncertainty over income tax’
• Annual improvements to IFRSs 2015-2017 Cycle
• Amendments to IFRS 9, ‘Financial instruments’ relating to prepayment features
• Amendments to IAS 28, ‘Investment in associates’ relating to long-term interests
• Amendments to IAS 19, ‘Employee benefits’ relating to plan amendments, curtailment or settlement
The impact of the adoption of the IFRS 16 leasing standard on the Group as a lessee is disclosed further below. There is no significant impact on
the Group as a lessor.
The other standards and 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 16 Leases – as a lessee
The Group has applied IFRS 16, ‘Leases’ on 1 January 2019. In accordance with the transition provisions in IFRS 16, the new rules have been
adopted retrospectively, with the cumulative effect of initially applying the new standard recognised on 1 January 2019. Comparatives for the
2018 financial year have not been restated. The Group and the Company had to update its Leases and Investment properties accounting policies
following the adoption of IFRS 16.
On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under
the principles of IAS 17. Until the 2019 financial year, the payments made under the operating leases (net of any incentives received from the
lessor) were charged to profit or loss on a straight-line basis over the period of the lease.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
141
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
The Group holds two types of significant ‘operating leases’:
• Head leases: A small proportion of the investment properties held by the Group are situated on land held through leasehold arrangements,
as opposed to the Group owning the freehold. The remaining lease terms for the leasehold arrangements range between 11 and 47 years.
Under the lease terms with tenants the head lease payments are directly recoverable.
• Office leases: Office space occupied by the Group’s operations.
Upon initial recognition the lease liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s
incremental borrowing rate as of 1 January 2019. The associated right-of-use (“ROU”) assets were measured equal to the lease liability. As a result
there is no impact on opening retained earnings at 1 January 2019.
In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:
• the use of a single discount rate to the portfolio of offices leases with reasonably similar characteristics;
• the accounting for operating leases with a remaining lease term of less than 12 months as at 1 January 2019 as short-term leases;
• the exclusion of initial direct costs for the measurement of the right-of-use asset at the date of initial application; and
• the use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.
The Group has also elected not to reassess whether a contract is, or contains, a lease at the date of initial application. Instead, for contracts entered
into before the transition date the Group relied on its assessment made applying IAS 17 and IFRIC 4 Determining whether an Arrangement
contains a Lease.
Whilst judgement and estimates were required in applying IFRS 16, these were not deemed to be significant. The potential exposure to future
cash outflows not reflected in the measurement of the lease liabilities are not expected to be significant.
The Balance Sheet impact of recognising the lease liabilities and associated ROU asset upon adoption at 1 January 2019 and subsequently at
31 December 2019 is set out below.
Head leases*:
Balance Sheet caption
Investment property (ROU asset)
Non-current Trade and other Payables (lease liabilities)
Current Trade and other Payables (lease liabilities)
1 January 2019
£m
31 December 2019
£m
75.2
74.8
0.4
70.2
69.8
0.4
* The head leases are held in the Southern Europe Business Unit and are denominated in euros.
As the head leases meet the definition of investment property, they are initially recognised in accordance with IFRS 16, and then subsequently
accounted for as investment property in accordance with IAS 40 and the Group’s accounting policy. After initial recognition the ROU head lease
asset is subsequently carried at fair value and the valuation gains and losses recognised within ‘Realised and unrealised property gain’ in the
Income Statement.
The incremental borrowing rate applied to lease liabilities on 1 January 2019 has been estimated on an individual lessee basis and range from 3
per cent to 4 per cent. The weighted average lessees incremental borrowing rate on 1 January 2019 was 3.9 per cent.
Office leases:
The impact upon recognition was not significant. As at 31 December 2019, a lease liability of £7.6 million has been recognised within non-current
and current trade and other payables, and a ROU asset of £7.5 million recognised within Property, plant and equipment.
142
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Measurement of lease liabilities:
Below sets out a reconciliation between the operating lease commitments presented under IAS 17 at 31 December 2018 (see Note 24) and the
opening lease liability recognised under IFRS 16 on 1 January 2019 at the date of application.
Office lease commitments as at 31 December 2018
Head lease commitments as at 31 December 2018
Total lease commitments based on gross cash flows as at 31 December 2018
Discounted using lessee’s incremental borrowing rate at the date of initial application
(Less): short-term leases not recognised as a liability
(Less): low-value leases not recognised as a liability
IFRS 16 lease liability recognised as at 1 January 2019
£m
4.9
156.3
161.2
79.6
(2.5)
(1.9)
75.2
Impact on earnings per share from the adoption of IFRS 16:
Profit after tax for the year ended 31 December 2019 decreased by £0.05 million following the adoption of IFRS 16 and Adjusted profit after tax
increased by £0.4 million following the adoption. There was no impact on EPS or Adjusted EPS.
New standards and amendments not yet adopted
Certain new accounting amendments are effective for annual periods beginning after 1 January 2019, and have not been applied in preparing
these Financial Statements:
• Amendments to IFRS 3, ‘Business combinations’, definition of a business
• Amendments to IAS 1, ‘Presentation of financial statements’, and IAS 8, ‘Accounting policies, changes in accounting estimated and errors’,
definition of material
• Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7)
• Amendments to References to the Conceptual Framework in IFRS Standards
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.
The Group is assessing the recent IFRS IC conclusion on determining the lease term under IFRS 16, which is not expected to have a
material impact.
The other amendments that are not yet effective are not 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.
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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
143
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 2019 are:
Balance Sheet: £1 = €1.18 (31 December 2018: £1 = €1.11). Income Statement: £1= €1.14 (2018: £1 = €1.13).
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. Lease liabilities associated
with leasehold properties are accounted for under IFRS 16, see Leases accounting policy. If a valuation obtained for a property held under a lease
is net of all payments expected to be made, any related lease liability recognised separately in the Balance Sheet is added back to arrive at the
carrying value of the investment property for accounting purposes. 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 the asset is available
for immediate sale in their present condition and the sale is highly probable.
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.
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 include 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.
144
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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
At inception, the Group assesses whether a contract is or contains a lease. This assessment involves the exercise of judgement about whether
the Group obtains substantially all the economic benefits from the use of that asset, and whether the Group has the right to direct the use of
the asset.
The Group recognises a right-of-use (“ROU”) asset and the lease liability at the commencement date of the lease.
Lease liabilities include the present value of payments which generally include fixed payments and variable payments that depend on an index
(such as an inflation index). When the lease contains an extension or purchase option that the Group considers reasonably certain to be exercised,
the cost of the option is included in the lease payments.
Each lease payment is allocated between the liability and finance cost. The lease payments are discounted using the interest rate implicit in the
lease if that rate can be readily determined or if not, the incremental borrowing rate is used. The finance cost is charged to profit or loss over the
lease period so as to produce a constant rate of interest on the remaining balance of the liability for each period.
Cash payments relating to the principal portion of the lease liabilities are presented as cash flows from financing activities and cash payments for
the interest portion are presented as cash flows from operating activities.
The ROU asset is measured at a cost based on the amount of the initial measurement of the lease liability, plus initial direct costs and the cost of
obligations to refurbish the asset, less any incentives received.
The ROU asset (other than the ROU assets that relate to land or property that meets the definition of investment property under IAS 40) is
depreciated over the shorter of the lease term or the useful life of the underlying asset. The ROU asset is subject to testing for impairment if there
is an indicator of impairment. ROU assets are included in the heading Property, plant and equipment, and the lease liability in included in the
headings current and non-current Trade and other payables on the Balance Sheet.
Where the ROU asset relates to land or property that meets the definition of investment property under IAS 40, after initial recognition the ROU
asset is subsequently accounted for as investment property and carried at fair value (see Investment properties accounting policy). Valuation gains
and losses in a period are taken to the Income Statement. The ROU assets are included in the heading Investment properties, and the lease
liability in the headings current and non-current Trade and other payables on the Balance Sheet.
The Group has elected not to recognise ROU assets and liabilities for leases where the total lease term is less than or equal to 12 months, or for
low value leases. The payments for such leases are recognised in the Income Statement on a straight-line basis over the lease term.
Revenue
Revenue includes gross rental income, joint venture management and performance fee income, income from service charges and other
recoveries from tenants 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. The Group generally
acts as the principal in service charge transactions as it directly controls the delivery of the services at point they are provided to the tenant.
Where the Group acts as a principal, service charge income is presented gross within revenue and service charge expense presented gross
within costs.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
145
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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 based on the
joint venture’s performance over the performance period and payable subject to meeting certain criteria and hurdle rates at the end of the period
(further details are given in Note 7). 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.
Property, plant and equipment
Plant and equipment are 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.
Property relates to the right-of-use asset (“ROU”) recognised for office leases entered into by the Group. The ROU is initially measured based
on the present value of lease payments, plus initial direct costs and the cost of obligations to refurbish the asset, less any incentives received.
The ROU asset is depreciated over the shorter of the lease term or the useful life of the underlying asset.
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 ECLs.
146
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
1. SIGNIFICANT ACCOUNTING POLICIES CONTINUED
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.
Share capital
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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
147
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 considers 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.
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. No non-EPRA adjustments to underlying profit were made in 2019. 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 year, were excluded from the calculation of Adjusted profit, see Note 18 for further details. There was no tax effect of
this item in the period to 31 December 2018.
148
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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
Realised and unrealised property gain
Gain on sale of trading properties
Cost of early close out of debt
Net fair value gain/(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.
Notes
4
5
4
6
7
9
7
8
13
9
9
18
10
10
2019
£m
362.0
(80.7)
281.3
20.4
(51.5)
54.0
304.2
(36.7)
267.5
149.1
489.2
6.9
(18.6)
7.9
–
634.5
902.0
(3.2)
(38.2)
(41.4)
860.6
(0.2)
(2.5)
857.9
264.1
593.8
857.9
2018
£m
323.2
(75.6)
247.6
44.9
(44.1)
39.0
287.4
(45.9)
241.5
85.2
852.6
–
(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
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
149
3. SEGMENTAL ANALYSIS
The Group’s reportable segments are the geographical Business Units: Greater London, Thames Valley, National Logistics, 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.
31 December 2019
Thames Valley
National Logistics
Greater London
Northern Europe
Southern Europe
Central Europe
Other1
Total
31 December 2018
Thames Valley
National Logistics
Greater London
Northern Europe
Southern Europe
Central Europe
Other1
Total
Gross
rental
income
£m
78.9
40.2
142.6
26.9
61.9
11.5
–
362.0
Gross
rental
income
£m
71.2
31.4
134.0
24.2
51.2
11.2
–
323.2
Net
rental
income
£m
Share of joint
ventures’
Adjusted
profit
£m
Total directly
owned
property
assets
£m
Adjusted
PBIT²
£m
Investments
in joint
ventures
£m
Capital
expenditure3
£m
72.8
36.8
129.7
15.6
35.7
4.5
(13.8)
281.3
Net
rental
income
£m
65.1
29.2
118.7
14.0
30.8
4.8
(15.0)
247.6
–
0.5
–
21.8
24.4
19.6
(12.3)
54.0
Share of joint
ventures’
Adjusted
profit
£m
–
(0.2)
–
22.7
20.3
18.8
(22.6)
39.0
70.9
37.8
127.0
42.4
64.1
27.3
(65.3)
304.2
Adjusted
PBIT2
£m
65.1
29.0
118.3
41.3
53.3
28.2
(47.8)
287.4
1,752.4
871.6
4,001.0
573.4
1,085.6
137.9
–
8,421.9
–
3.9
–
604.3
735.9
435.9
(658.6)
1,121.4
38.4
50.1
199.5
53.3
254.8
8.2
2.7
607.0
Total directly
owned
property
assets
£m
Investments
in joint
ventures
£m
Capital
expenditure3
£m
1,638.5
999.0
3,724.5
505.7
837.2
148.2
–
7,853.1
–
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
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 A reconciliation of total Adjusted PBIT to the IFRS profit before tax is provided in Note 2.
3 Capital expenditure includes additions and acquisitions of investment and trading properties but does not include tenant incentives, letting fees and rental guarantees. The ‘Other’ category
includes non-property related spend, primarily IT.
Revenues from the most significant countries within the Group were UK £312.4 million (2018: £236.8 million), France £47.9 million
(2018: £31.5 million), Germany £29.1 million (2018: £25.7 million) and Poland £15.8 million (2018: £16.3 million).
150
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
4. REVENUE
Rental income from investment and trading properties
Rent averaging
Service charge income*
Management fees*
Surrender premiums and dividend income from property related investments
Gross rental income1
Joint venture fees – management fees
– performance fees
Joint venture fee income*
Proceeds from sale of trading properties*
Total revenue
2019
£m
306.9
25.1
27.6
1.4
1.0
362.0
20.4
–
20.4
50.1
432.5
2018
£m
282.8
12.5
25.5
1.3
1.1
323.2
18.7
26.2
44.9
0.9
369.0
* The above income streams reflect revenue recognition under IFRS 15 Revenue from Contracts with Customers and total £99.5 million (2018: £72.6 million).
1 Net rental income of £281.3 million (2018: £247.6 million) is calculated as gross rental income of £362.0 million (2018: £323.2 million) less total property operating expenses of £80.7 million
(2018: £75.6 million) shown in Note 5.
5. COSTS
Vacant property costs
Letting, marketing, legal and professional fees
Loss allowance and impairment of receivables
Service charge expense
Other expenses
Property management expenses
Property administration expenses1
Costs capitalised2
Total property operating expenses
Trading properties cost of sales
Total costs
2019
£m
4.8
8.5
1.0
27.6
10.5
52.4
35.6
(7.3)
80.7
43.2
123.9
2018
£m
5.1
8.0
0.3
25.5
10.3
49.2
31.0
(4.6)
75.6
0.9
76.53
1 Property administration expenses predominantly relate to the employee staff costs of personnel directly involved in managing the property portfolio.
2 Costs capitalised primarily relate to internal employee staff costs directly involved in developing the property portfolio.
3 Total 2018 Costs of £76.5 million consists of: Property operating expenses of £50.1 million which was reported and presented as a line item in the 2018 Group Income Statement, service charge
expense of £25.5 million and trading properties costs of sales of £0.9 million.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
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:
Other
Total other fees
Total fees in relation to audit and other services
2019
£m
9.2
3.4
38.9
51.5
2019
£m
0.6
0.3
0.9
0.1
1.0
–
–
1.0
In addition to the above, the Group’s auditors were paid £0.7 million being £0.6 million in respect of the audit of SEGRO European
Logistics Partnership (SELP) for the year ended 31 December 2019 (2018: £0.5 million) and £0.1 million of other fees in respect of SELP
(2018: £0.2 million).
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
Total
Average number of Group employees
– Direct property
– Indirect property and administration
2019
£m
38.7
6.0
1.5
12.5
58.7
323
208
115
151
2018
£m
9.0
2.9
32.2
44.1
2018
£m
0.5
0.2
0.7
0.1
0.8
–
–
0.8
2018
£m
34.0
5.5
1.4
11.1
52.0
308
195
113
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 97 to 117 in the Remuneration
Report and form part of these Financial Statements.
152
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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 SEGRO European Logistics Partnership (“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 material joint ventures.
Revenue1
Gross rental income
Property operating expenses:
– underlying property operating expenses
– vacant property costs
– property management fees
– service charge expense
– performance fees
Net rental income
Administration expenses
Finance costs (including adjustments)
EPRA profit/(loss) before tax
Tax
Adjusted profit/(loss) after tax
Adjustments:
(Loss)/profit on sale of investment properties
Valuation surplus on investment properties
Impairment of other interests in properties
Profit on sale of trading properties
Tax in respect of adjustments
Total adjustments
Profit/(loss) after tax
Other comprehensive income
Total comprehensive income/(expense) for the year
SELP
£m
213.0
213.0
(8.4)
(2.1)
(17.1)
(44.1)
–
141.3
(3.3)
(19.9)
118.1
(10.9)
107.2
(1.1)
437.0
–
–
(130.2)
305.7
412.9
–
412.9
Roxhill
£m
7.2
1.1
–
–
–
–
–
1.1
–
–
1.1
–
1.1
–
–
(9.7)
–
–
(9.7)
(8.6)
–
(8.6)
Other
£m
3.3
–
(0.1)
–
–
–
–
(0.1)
–
(0.2)
(0.3)
–
(0.3)
–
–
–
2.1
–
2.1
1.8
–
1.8
At 100%
2019
£m
223.5
214.1
At 100%
2018
£m
195.1
195.1
At 50%
2019
£m
111.8
107.1
At 50%
2018
£m
97.6
97.6
(8.5)
(2.1)
(17.1)
(44.1)
–
142.3
(3.3)
(20.1)
118.9
(10.9)
108.0
(1.1)
437.0
(9.7)
2.1
(130.2)
298.1
406.1
–
406.1
(8.1)
(1.8)
(13.9)
(44.2)
(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
(4.2)
(1.1)
(8.6)
(22.1)
–
71.1
(1.6)
(10.0)
59.5
(5.5)
54.0
(0.6)
218.6
(4.9)
1.1
(65.1)
149.1
203.1
–
203.1
(4.1)
(0.9)
(7.0)
(22.1)
(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
1 Total revenue at 100% of £223.5 million (2018: £195.1 million) includes: Gross rental income £214.1 million (2018: £195.1 million) and proceeds from sale of trading properties £9.4 million
(2018: £nil). Proceeds from sale of trading properties is presented net of cost of sale and shown in the line item ‘Profit on sale of trading properties’ in the table above.
Trading properties held by joint ventures were externally valued resulting in no increase in provision (2018: £nil). Based on the fair value at
31 December 2019, the Group’s share of joint ventures’ trading property portfolio has unrecognised surplus of £0.9 million (2018: £0.9 million).
There was no other comprehensive income included in the Group Statement of Comprehensive Income (2018: £nil).
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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
153
7. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES CONTINUED
7(ii) – Summarised Balance Sheet information in respect of the Group’s joint ventures
Investment properties
Other interests in property
Total non-current assets
Trading properties
Other receivables
Cash and cash equivalents
Total current assets
Total assets
Borrowings
Deferred tax
Total non-current liabilities
Borrowings
Other liabilities
Total current liabilities
Total liabilities
Net assets
SELP
£m
Roxhill
£m
Other
£m
3,796.7
–
3,796.7
–
118.9
37.6
156.5
3,953.2
(1,338.4)
(243.2)
(1,581.6)
(50.1)
(90.5)
(140.6)
(1,722.2)
2,231.0
–
16.6
16.6
1.9
5.9
2.9
10.7
27.3
–
–
–
–
(19.5)
(19.5)
(19.5)
7.8
–
–
–
–
2.5
1.5
4.0
4.0
–
–
–
–
–
–
–
4.0
At 100%
2019
£m
3,796.7
16.6
At 100%
2018
£m
3,133.9
10.9
At 50%
2019
£m
At 50%
2018
£m
1,898.3
1,566.9
8.3
5.4
3,813.3
3,144.8
1,906.6
1,572.3
1.9
127.3
42.0
171.2
3,984.5
(1,338.4)
(243.2)
(1,581.6)
(50.1)
(110.0)
(160.1)
(1,741.7)
2,242.8
4.8
159.9
47.6
212.3
3,357.1
(1,120.4)
(123.5)
(1,243.9)
–
(113.4)
(113.4)
(1,357.3)
1,999.8
1.0
63.7
21.0
85.7
1,992.3
(669.2)
(121.6)
(790.8)
(25.1)
(55.0)
(80.1)
(870.9)
1,121.4
2.4
80.0
23.8
106.2
1,678.5
(560.2)
(61.8)
(622.0)
–
(56.6)
(56.6)
(678.6)
999.9
On 13 June 2019 SELP issued a 7.5 year, €500 million unsecured bond at an annual coupon of 1.5 per cent as discussed further in the Finance
Review on page 34.
The external borrowings of the joint ventures are non-recourse to the Group. At 31 December 2019, the fair value of £1,388.5 million
(2018: £1,120.4 million) of borrowings was £1,427.4 million (2018: £1,104.3 million). This results in a fair value adjustment decrease in EPRA triple
net asset value of £38.9 million (2018: £16.1 million increase), at share £19.4 million (2018: £8.0 million increase), 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.
No additional performance fee has been recognised by SEGRO in the 2019 Income Statement (and no additional performance fee expense
has been recognised by SELP). In the prior year SELP paid a £52.4 million performance fee including the amount subject to clawback. Only
£26.2 million, representing the 50 per cent of the performance fee paid not subject to future clawback, was recognised by SEGRO in the 2018
Income Statement (see Note 4). The 50 per cent subject to clawback (which is denominated in euros) has been recognised as a contract liability
within Trade and other payables at 31 December 2019 and 31 December 2018 (see Note 15).
154
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
7. INVESTMENTS IN JOINT VENTURES AND SUBSIDIARIES CONTINUED
7(iii) – Investments by the Group
Cost or valuation at 1 January
Exchange movement
Net investments1
Disposals
Dividends received2
Share of profit after tax
Cost or valuation at 31 December
1 Net investments represent the net movement of capital injections, loans and divestments with joint ventures during the period.
2 Dividends received from SELP.
7(iv) – Investments by the Company
Cost or valuation of subsidiaries at 1 January
Exchange movement
Additions
Loan movement
Decrease in provision for investments in and loans to subsidiaries
Cost or valuation at 31 December
2019
£m
999.9
(65.2)
16.9
–
(33.3)
203.1
1,121.4
2018
£m
792.0
17.4
99.2
(4.3)
(28.6)
124.2
999.9
2019
£m
2018
£m
7,188.1
6,672.9
(51.6)
46.7
304.1
29.2
12.2
132.4
339.9
30.7
7,516.5
7,188.1
Included in cost or valuation of subsidiaries at 31 December 2019 are investments of £2,691.7 million (2018: £2,484.2 million) and non-current
loans of £4,824.8 million (2018: £4,703.9 million).
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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
155
8. REALISED AND UNREALISED PROPERTY GAIN
Profit on sale of investment properties
Valuation surplus on investment properties¹
Decrease in provision for impairment of trading properties
Increase in provision for impairment of other interests in property
Valuation surplus on other investments
Total realised and unrealised property gain
2019
£m
7.2
476.7
1.4
(0.4)
4.3
489.2
2018
£m
56.5
791.4
–
–
4.7
852.6
1 Includes £477.1 million valuation surplus on investment properties (2018: £791.4 million) less £0.4 million valuation loss on head lease ROU asset (2018: £nil).
Total valuation surplus on investment and trading properties total £696.7 million (2018: £884.9 million). This comprises £476.7 million from
investment properties (2018: £791.4 million), £1.4 million from trading properties (2018: £nil) and £218.6 million from joint ventures at share
(2018: £93.5 million).
Details of realised gains on sale of trading properties are given in Note 13.
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 pension 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
Interest on lease liabilities
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
2019
£m
32.0
33.1
–
0.2
65.3
2019
£m
(71.8)
(18.6)
(2.3)
(3.0)
(95.7)
8.2
(87.5)
(25.2)
–
(112.7)
(47.4)
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)
Net finance costs (including adjustments) in Adjusted profit (Note 2) are £36.7 million (2018: £45.9 million). This excludes net fair value gains
and losses on interest rate swaps and other derivatives of £7.9 million gain (2018: £22.0 million loss) and the cost of early close out of debt of
£18.6 million (2018: £6.4 million).
The interest capitalisation rates for 2019 ranged from 1.8 per cent to 2.3 per cent (2018: 2.5 per cent to 3.0 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.
156
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
10. TAX
10(i) – Tax on profit
Tax:
On Adjusted profit
In respect of adjustments
Total tax charge
Current tax
United Kingdom
Current tax credit
Total UK current tax credit
Overseas
Current tax charge
Adjustments in respect of earlier years
Total overseas current tax charge
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 (charge)/credit
Total tax charge on profit on ordinary activities
10(ii) – Factors affecting tax charge for the year
The tax charge is lower than (2018: 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 (2018: 19.0 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
2019
£m
(3.2)
(38.2)
(41.4)
0.3
0.3
(12.0)
(0.3)
(12.3)
(12.0)
(6.1)
4.7
(39.2)
(40.6)
11.2
(29.4)
(41.4)
2019
£m
902.0
(242.4)
659.6
(125.3)
71.0
–
38.6
(23.6)
(0.3)
(1.8)
(41.4)
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)
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)
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
157
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 – 2019
Valuation surpluses and deficits on properties/accelerated tax allowances
Deferred tax asset on revenue losses
Others
Total deferred tax liabilities
Group – 2018
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
25.2
(1.4)
3.1
26.9
(2.3)
–
(0.2)
(2.5)
(0.6)
–
–
(0.6)
29.1
0.9
(0.6)
29.4
51.4
(0.5)
2.3
53.2
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
The Group has recognised revenue tax losses of £0.5 million (2018: £1.4 million) available for offset against future profits. Further unrecognised
tax losses of £734.2 million also exist at 31 December 2019 (2018: £790.9 million) of which £37.5 million (2018: £41.3 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. The Directors do not consider it probable that there will be sufficient future taxable profit for the relevant
losses to be utilised and so no deferred tax asset has been recognised for unused tax losses.
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.
158
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
11. DIVIDENDS
Ordinary dividends paid
Interim dividend for 2019 @ 6.30 pence per share
Final dividend for 2018 @ 13.25 pence per share
Interim dividend for 2018 @ 5.55 pence per share
Final dividend for 2017 @ 11.35 pence per share
Total dividends
2019
£m
68.9
143.7
–
–
212.6
2018
£m
–
–
56.1
113.8
169.9
The Board recommends a final dividend for 2019 of 14.4 pence which is estimated to result in a distribution of up to £157.9 million. The total
dividend paid and proposed per share in respect of the year ended 31 December 2019 is 20.7 pence (2018: 18.8 pence).
The total dividend in 2019 of £212.6 million (2018: £169.9 million) was paid; £141.7 million as cash (2018: £120.4 million) and £70.9 million in
scrip dividends (2018: £49.5 million). For details on scrip dividends see Notes 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 0.4 million shares (2018: 0.7 million) being the average
number of shares held on trust for employee share schemes and net assets per share calculations exclude 0.6 million shares (2018: 0.7 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 Basic EPS
Adjusted Diluted EPS
1 Details of adjustments are included in Note 2.
2019
2018
Earnings
£m
Shares
million
Pence
per share
Earnings
£m
Shares
million
Pence
per share
857.9
1,081.3
79.3
1,062.6
1,008.6
105.4
–
857.9
857.9
(634.5)
38.2
2.5
264.1
264.1
5.8
1,087.1
1,081.3
1,081.3
1,087.1
(0.4)
78.9
79.3
(58.7)
3.6
0.2
24.4
24.3
–
1,062.6
1,062.6
(857.6)
28.6
2.9
236.5
236.5
5.8
1,014.4
1,008.6
1,008.6
1,014.4
(0.6)
104.8
105.4
(85.0)
2.8
0.2
23.4
23.3
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
159
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
–
6.0
7,677.6
1,102.1
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
EPRA NAV1
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
(50.5)
–
0.9
51.9
121.1
7,801.0
(233.3)
(19.4)
50.5
(51.9)
(121.1)
1,102.1
EPRA triple net NAV (NNNAV)1
7,425.8
1,102.1
2019
2018
Equity
attributable
to ordinary
shareholders
£m
Shares
million
Pence
per share
Equity
attributable
to ordinary
shareholders
£m
Shares
million
Pence
per share
7,677.6
1,096.1
700
6,564.0
1,012.8
648
(4)
644
(3)
–
–
3
6
–
5.9
6,564.0
1,018.7
(35.0)
2.2
0.9
26.4
61.8
6,620.3
1,018.7
650
(17.4)
8.0
35.0
(26.4)
(61.8)
(1)
1
3
(3)
(6)
6,557.7
1,018.7
644
(3)
697
(5)
–
–
5
11
708
(21)
(2)
5
(5)
(11)
674
1 EPRA NAV and NNNAV is an alternative metric that is calculated in accordance with the Best Practices Recommendations of the European Public Real Estate Association (EPRA) to provide a
transparent and consistent basis to enable comparison between European property companies. See Table 1 of the Supplementary Notes for further details.
160
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
13. PROPERTIES
13(i) – Investment properties
At 1 January 2018
Exchange movement
Property acquisitions
Additions to existing investment properties
Disposals
Transfers on completion of development
Transfers to trading properties
Revaluation surplus during the year
At 31 December 2018
Add tenant lease incentives, letting fees and rental guarantees
Total investment properties at 31 December 2018
At 1 January 2019
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 2019
Add tenant lease incentives, letting fees and rental guarantees
Investment properties excluding head lease ROU assets at 31 December 2019
Add head lease liabilities (ROU assets)
Total investment properties at 31 December 2019
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
Completed
£m
Development
£m
6,827.8
(75.4)
98.6
25.2
(467.3)
625.8
–
372.5
7,407.2
116.4
7,523.6
70.2
7,593.8
888.7
(22.6)
135.3
336.8
(6.0)
(625.8)
(3.1)
104.6
807.9
–
807.9
–
807.9
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
Total
£m
7,716.5
(98.0)
233.9
362.0
(473.3)
–
(3.1)
477.1
8,215.1
116.4
8,331.5
70.2
8,401.7
Investment properties are stated at fair value as at 31 December 2019 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 two assets 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.
CBRE Ltd also undertakes some professional and agency work on behalf of the Group, although this is limited relative to the activities provided
by other advisors 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 2019 a plot of land with a carrying value of £3.1 million was transferred to trading properties following the agreement in the year which
led to the development of the asset with a view to sell the asset on completion (2018: £19.3 million). No trading properties were transferred to
investment properties during 2019 (2018: £nil).
At 31 December 2019 the carrying value of investment properties was adjusted by £70.2 million to reflect head lease liabilities (2018: £nil) which
have been recognised upon adoption of IFRS 16 on 1 January 2019. Head lease liabilities are held within Trade and other payables. See Note
1 for further details. The carrying value of investment properties situated on land held under leaseholds is £151.5 million (excluding head lease
ROU assets) (2018: £120.3 million).
Further details on property valuation techniques and related quantitative information is set out in Note 27.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
13. PROPERTIES CONTINUED
13(ii) – Trading properties
At 1 January
Exchange movement
Additions
Disposals¹
Decrease in provision for impairment during the year
Transfer from investment properties
At 31 December
161
2018
£m
12.5
0.3
20.5
(0.9)
–
19.3
51.7
2019
£m
51.7
(1.2)
8.4
(43.2)
1.4
3.1
20.2
1 Gain on sale of trading properties of £6.9 million in the year (2018: £nil) have been generated from total proceeds of £50.1 million (2018: £0.9 million), see Note 4, less costs of £43.2 million
(2018: £0.9 million), see Note 5.
Trading properties were externally valued, as detailed in Note 13(i), resulting in a decrease in the provision for impairment of £1.4 million
(2018: £nil). Based on the fair value at 31 December 2019, the portfolio has unrecognised surplus of £nil million (2018: £2.2 million).
Further information on valuation techniques and related quantitative information is given in Note 27.
14. TR ADE AND OTHER RECEIVABLES
Current
Trade receivables¹
Other receivables2
Prepayments
Amounts due from related parties
Total current trade and other receivables
Non-current
Other receivables3
Total non-current other receivables
Group
2019
£m
33.3
75.7
23.1
14.5
146.6
110.6
110.6
2018
£m
25.6
75.8
12.5
14.8
128.7
26.8
26.8
Company
2019
£m
–
7.5
0.2
–
7.7
–
–
2018
£m
–
5.0
0.2
–
5.2
–
–
1 Note 17 (vi) details of the Group’s credit risk management and loss allowances held for trade receivables.
2 Group other current receivables mainly includes VAT recoverable and tenant deposits. Also included is tax recoverable of £2.7 million (2018: £0.3 million).
3 Group non-current other receivables relate to an advance payment for the future acquisition of land of £35.2 million (2018: £26.8 million) and deferred proceeds from the disposal of investment
properties of £75.4 million (2018: £nil). The receivable from the disposal of investment properties of £75.4 million is guaranteed by an irrecoverable standby letter of credit of matched duration,
issued by a bank with an AA credit rating.
162
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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
Lease liabilities2
Group
2019
£m
2.7
62.0
65.0
97.3
70.1
1.5
2018
£m
2.0
47.9
59.7
94.5
57.8
–
Company
2019
£m
–
2.4
26.6
–
–
–
2018
£m
–
2.2
23.9
–
–
–
Total trade and other payables due within one year
298.6
261.9
29.0
26.1
Due after one year
Contract liabilities4
Other payables
Lease liabilities2
Loans due to subsidiaries3
Total other payables due after one year
25.0
1.6
76.3
–
102.9
26.2
–
–
–
26.2
–
–
–
–
–
–
1,747.4
1,747.4
1,688.6
1,688.6
1 Includes accrued interest payable on borrowings for Group and Company of £19.5 million (2018: £21.0 million).
2 Lease liabilities recognised upon adoption of IFRS 16 on 1 January 2019, see Note 1 for details.
3 Loans due to subsidiaries are unsecured and incur interest at market rates.
4 Contract liabilities primarily 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
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
Group
2019
£m
2.6
2.6
–
79.3
39.1
81.9
346.8
198.6
395.2
2018
£m
3.2
3.2
250.0
79.3
39.1
81.7
346.4
198.5
394.8
Company
2019
£m
–
–
–
79.3
39.1
81.9
346.8
198.6
395.2
2018
£m
–
–
250.0
79.3
39.1
81.7
346.4
198.5
394.8
1,140.9
1,389.8
1,140.9
1,389.8
338.4
84.4
126.9
84.6
168.7
803.0
(3.0)
1,940.9
1,943.5
(132.5)
1,811.0
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
338.4
84.4
126.9
84.6
168.7
803.0
(3.0)
1,940.9
1,940.9
(60.7)
1,880.2
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
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
163
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
2019
£m
–
79.3
120.6
896.5
847.1
1,943.5
1,943.5
(132.5)
1,811.0
2018
£m
–
250.0
115.9
533.8
1,343.8
2,243.5
2,243.5
(66.5)
2,177.0
2019
£m
–
79.3
118.0
896.5
847.1
1,940.9
1,940.9
(60.7)
1,880.2
2018
£m
–
250.0
115.4
531.1
1,343.8
2,240.3
2,240.3
(32.3)
2,208.0
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 34.
Bank loans and overdrafts include capitalised finance costs on committed facilities which were undrawn at both year ends.
During the year the Group undertook a debt refinancing exercise and redeemed £250 million of sterling bonds due 2020 at a cost of
£18.6 million above carrying value (see Note 9). The debt refinancing is discussed in more detail in the Finance Review on page 34.
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
2019
£m
8.5
–
1,032.2
1,040.7
2018
£m
14.0
–
1,097.3
1,111.3
2019
£m
8.5
–
1,032.2
1,040.7
2018
£m
9.0
–
1,097.3
1,106.3
164
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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
Total borrowings
Cash and cash equivalents
Sterling
Euros
US dollars
Total cash and cash equivalents
Net borrowings
Fixed
rate
%
4.36
1.90
2.59
Fixed
rate
%
4.72
1.91
3.02
Fixed
period
years
Fixed
debt
£m
2019
Capped
strike
%
Capped
debt
£m
Variable
debt/cash
£m
Total
£m
Weighted average after derivative instruments
57.6
9.2
23.0
212.9
551.4
764.3
2.00
1.33
1.46
150.0
635.6
785.6
(178.2)
571.8
393.6
184.7
1,758.8
1,943.5
764.3
785.6
(125.7)
(125.7)
(6.7)
(0.1)
(132.5)
261.1
(6.7)
(0.1)
(132.5)
1,811.0
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
964.1
375.2
228.7
675.5
904.2
(59.4)
(6.6)
(0.5)
(66.5)
837.7
Total
£m
759.6
1,483.9
2,243.5
(59.4)
(6.6)
(0.5)
(66.5)
2,177.0
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
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
Total borrowings
Cash and cash equivalents
Sterling
Total cash and cash equivalents
Net borrowings
Fixed
rate
%
4.36
1.90
2.59
Fixed
rate
%
4.72
1.91
3.02
Fixed
period
years
Fixed
debt
£m
2019
Capped
strike
%
Capped
debt
£m
Variable
debt/cash
£m
Weighted average after derivative instruments
57.6
9.2
22.7
212.9
551.4
764.3
2.00
1.33
1.46
150.0
635.6
785.6
764.3
785.6
(178.2)
569.2
391.0
(60.7)
(60.7)
330.3
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
964.1
375.2
228.7
672.3
901.0
(32.3)
(32.3)
868.7
165
Total
£m
184.7
1,756.2
1,940.9
(60.7)
(60.7)
1,880.2
Total
£m
759.6
1,480.7
2,240.3
(32.3)
(32.3)
2,208.0
166
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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 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
Fair value of forward foreign exchange and currency swap contracts – 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
2019
£m
2.5
6.2
–
8.7
42.5
5.5
11.7
59.7
Group
2019
£m
0.3
1.4
1.7
–
–
2018
£m
9.3
2.0
0.4
11.7
24.5
1.2
–
25.7
2018
£m
2.2
0.6
2.8
2.9
2.9
Company
2019
£m
2.5
6.2
–
8.7
42.5
5.5
11.7
59.7
Company
2019
£m
1.7
–
1.7
–
–
2018
£m
9.3
2.4
–
11.7
24.5
1.2
–
25.7
2018
£m
2.8
–
2.8
2.9
2.9
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
167
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
2019
£m
2018
£m
Company
2019
£m
2018
£m
Notes
7
14
14
14
16
17
17
15
16
17
17
–
33.3
65.2
110.6
132.5
27.5
–
68.4
437.5
–
25.6
57.2
26.8
66.5
23.6
0.4
37.0
237.1
4,824.8
4,703.9
–
7.5
–
60.7
–
–
–
5.0
–
32.3
–
–
68.4
4,961.4
37.4
4,778.6
329.8
1,943.5
230.3
2,243.5
1,776.4
1,940.9
1,714.7
2,240.3
1.4
0.3
0.6
5.1
–
1.7
–
5.7
2,275.0
2,479.5
3,719.0
3,960.7
1 Group excludes non-financial assets of £48.1 million (2018: £45.9 million) included within total other receivables per Note 14 and non-financial liabilities of £71.7 million (2018: £57.8 million)
included within total trade and 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 2019, the fair value of £1,140.9 million of unsecured bonds
issued was £1,311.4 million (2018: £1,389.8 million compared with £1,463.0 million fair value). At 31 December 2019, the fair value of
£803.0 million of unsecured US Private Placement notes was £865.8 million (2018: £853.5 million compared with £797.7 million fair value).
This results in a fair value adjustment decrease in EPRA triple net asset value of £233.3 million (2018: £17.4 million decrease), see Note 12.
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.
168
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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 are not routinely hedged. The Group does not have any
significant 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 35.
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
2019
2018
Euros
£m
US Dollars
£m
Total
£m
Euros
£m
US Dollars
£m
Total
£m
3,064.8
(1,989.3)
1,075.5
1,047.2
(2,023.2)
(976.0)
–
–
–
–
–
–
3,064.8
(1,989.3)
1,075.5
1,047.2
(2,023.2)
(976.0)
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)
2019 Group gross currency liabilities include €1,151.7 million (£976.0 million) designated as net investment hedges.
2018 Group gross currency liabilities include €758.0 million (£682.9 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 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 appreciation in the value of
sterling against the euro is £97.8 million (2018: £83.6 million). The sensitivity of the Group to a 10 per cent depreciation in the value of sterling
against the euro is £119.5 million (2018: £102.2 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 euro. A 10 per cent appreciation in the value of sterling against the euro would decrease the Group’s profit for the year ended
31 December 2019 by £42.8 million (2018: decrease £25.6 million). A 10 per cent depreciation in the value of sterling against the euro would
increase the Group’s profit for the year ended 31 December 2019 by £52.3 million (2018: increase £31.3 million).
For the Company, the sensitivity of the net assets to a 10 per cent appreciation in the value of sterling against the euro is £88.7 million
(2018: £62.1 million). The sensitivity of the net assets to a 10 per cent depreciation in the value of sterling against the euro is £108.4 million
(2018: £75.9 million).
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
169
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
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 £52.2 million
exchange loss (2018: £11.7 million gain) arising on intercompany debt funding arrangements discussed above resulting in a gain on exchange
differences of £0.2 million gain (2018: £0.2 million loss) within net finance costs in Note 9.
The Group seeks to limit its exposure to volatility in foreign exchange rates by hedging its foreign gross assets using either borrowings or
derivative instruments. The Group targets a hedging range of between the last reported LTV ratio (24 per cent at December 2019) and 100
per cent. At 31 December 2019, the Group had gross foreign currency assets, which were 65 per cent hedged by gross foreign currency
denominated liabilities (31 December 2018: 67 per cent). 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 35.
The following table details the forward foreign exchange and currency swap contracts outstanding as at the year end:
Average exchange rates
2019
2018
Currency contract
(local currency)
Contract value
2019
m
2018
m
2019
£m
2018
£m
Fair value
2019
£m
2018
£m
Group
Economic cash flow
hedges
Sell euros (buy sterling)
Buy euros (sell sterling)
Net investment hedges
Sell euros (buy sterling)
Total
Company
Economic cash flow
hedges
Sell euros (buy sterling)
Buy euros (sell sterling)
Total
1.15
1.17
1.19
1.16
1.17
1.12
1.12
1.11
1.12
1.12
963.3
40.1
638.4
215.9
837.4
34.2
571.1
193.3
201.7
273.7
169.6
246.4
1,165.0
40.1
912.1
215.9
1,007.0
34.2
817.4
193.3
17.8
(0.2)
(1.4)
16.2
16.4
(0.2)
16.2
(4.3)
1.2
(0.2)
(3.3)
(4.5)
1.2
(3.3)
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 euro denominated forward foreign exchange contracts as net investment hedges during 2019 (2018: US dollar and euro
denominated contracts).
There was no ineffectiveness to be recorded from net investments in foreign entity hedges in 2019 and 2018 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.
170
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
17. FINANCIAL INSTRUMENTS AND FAIR VALUES CONTINUED
Euro forward foreign exchange
Carrying amount
Notional amount
Maturity date
Hedge ratio
Change in discounted spot value of hedging instruments since 1 January – gain/(loss)
Change in value of hedged item used to determine hedge effectiveness – (loss)/gain
Weighted average hedged rate for the year (including forward points)
US dollar forward foreign exchange
Carrying amount
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
2019
£m
–
–
–
–
5.8
(5.8)
1.13
Group
2019
£m
–
–
–
–
–
–
–
2018
£m
–
–
–
–
(5.5)
5.5
1.13
2018
£m
–
–
–
–
(1.0)
1.0
1.33
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 2019 and 2018 from currency swap contracts
is shown in the table below.
Euro currency swaps
Carrying amount – (liability)
Notional amount
Maturity date
Hedge ratio
Change in discounted spot value of hedging instruments since 1 January – gain/(loss)
Change in value of hedged item used to determine hedge effectiveness – (loss)/gain
Weighted average hedged rate for the year (including forward points)
Group
2019
£m
(1.4)
169.6
Jun 2020
1.1
12.1
(12.1)
1.12
2018
£m
(0.2)
246.4
Jan and Jun
2019
1:1
(2.4)
2.4
1.13
US private placement notes
There was no ineffectiveness to be recorded from net investments in foreign entity hedges in 2019 and 2018 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 – gain/(loss)
Change in value of hedged item used to determine hedge effectiveness – (loss)/gain
Weighted average hedged rate for the year (including forward points)
Group
2019
£m
803.0
803.0
1:1
39.7
(39.7)
1.14
2018
£m
853.5
436.5
1:1
(3.7)
3.7
1.12
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
171
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
2019 would decrease/increase by £8.8 million (2018: decrease/increase by £10.7 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
2019
%
2018
%
2019
£m
2018
£m
2019
£m
2018
£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
5.63
6.75
2.57
2.19
5.63
6.75
2.57
2.19
6.41
5.63
2.61
2.19
6.41
5.63
2.61
2.19
250.0
100.0
578.0
254.2
181.0
250.0
578.0
270.3
1,182.2
1,279.3
250.0
100.0
578.0
254.2
181.0
250.0
578.0
270.3
1,182.2
1,279.3
2.5
5.8
12.3
24.4
45.0
2.5
5.8
12.3
24.4
45.0
9.3
3.5
18.8
2.2
33.8
9.3
3.5
18.8
2.2
33.8
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.
172
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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
2019
%
–
–
1.41
1.50
–
–
1.41
1.50
2018
%
–
–
1.40
–
–
–
1.40
–
2019
£m
2018
£m
2019
£m
2018
£m
–
–
361.9
423.7
785.6
–
–
361.9
423.7
785.6
–
–
375.2
–
375.2
–
–
375.2
–
375.2
–
–
0.1
5.4
5.5
–
–
0.1
5.4
5.5
–
–
1.2
–
1.2
–
–
1.2
–
1.2
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 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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
173
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 2019 and at 31 December
2018. 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 gross trade receivables and the carrying amount net of loss allowances were as follows:
0–30 days
30–60 days
60–90 days
90–180 days
>180 days
Past due
Not due
Total trade receivables
2019
2018
Gross amount
£m
Loss allowance
£m
Net carrying
amount
£m
Gross amount
£m
Loss allowance
£m
Net carrying
amount
£m
0.8
0.5
0.7
1.1
0.1
3.2
33.1
36.3
(0.1)
–
–
(0.5)
(0.1)
(0.7)
(2.3)
(3.0)
0.7
0.5
0.7
0.6
–
2.5
30.8
33.3
1.6
0.8
0.7
0.9
1.1
5.1
23.0
28.1
(0.1)
–
(0.2)
(0.1)
(0.7)
(1.1)
(1.4)
(2.5)
1.5
0.8
0.5
0.8
0.4
4.0
21.6
25.6
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. 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. 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 2019 of £3.0 million (2018: £2.5 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 2019 and 2018 (see Note 5).
The other financial assets held by the Group have been considered for impairment and no material loss allowances are held against these
assets at 31 December 2019 (2018: £nil). The non-current receivable relating to deferred proceeds from the disposal of investment properties
of £75.4 million (see Note 14) is guaranteed by an irrecoverable standby letter of credit of matched duration, issued by a bank with an AA
credit rating.
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 34.
174
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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.
2019
2018
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
Lease liabilities
Fixed rate debt instruments
Derivative financial
instruments:
Gross settled foreign exchange
– Forward and currency swap
contracts
– Inflowing
– Outflowing
Total
Company
Non-derivative
financial liabilities:
207.5
4.8
61.0
3.9
3.1
–
4.9
25.0
14.8
–
129.6
232.5
154.1
139.7
278.7 1,806.3 2,285.7
183.1
–
76.1
–
3.4
–
–
26.2
–
–
–
209.3
–
325.2
288.9
1,975.5
2,665.7
(279.7)
280.3
273.9
–
–
–
–
–
–
(279.7)
280.3
144.6
318.5
1,935.9 2,672.9
(536.6)
542.8
265.4
–
–
–
–
–
–
(536.6)
542.8
325.2
315.1
1,975.5
2,881.2
2019
2018
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 payables2
9.5
1,747.4
–
–
1,756.9
5.1
1,688.6
–
–
1,693.7
Fixed rate debt instruments
3.1
61.0
139.7
276.0 1,806.3 2,283.0
3.4
76.1
325.1
288.2
1,972.5
2,661.9
Derivative financial
instruments:
Gross settled foreign exchange
– Forward and currency swap
contracts
– Inflowing
– Outflowing
Total
(279.7)
280.3
–
–
–
–
–
–
(279.7)
280.3
(536.6)
542.8
–
–
–
–
–
–
(536.6)
542.8
71.1
1,887.1
276.0 1,806.3 4,040.5
87.4
2,013.7
288.2
1,972.5
4,361.8
1 Group trade and other payables disclosed as financial liabilities in Note 17(ii) of £329.8 million, (2018: £230.3 million) includes accrued interest of £19.5 million (2018: £21.0 million) and lease
liabilities of £77.8 million (2018: £nil). Accrued interest is shown in fixed rate debt instruments in the table above.
2 Company trade and other payables disclosed as financial liabilities in Note 17(ii) of £1,776.4 million (2018: £1,714.7 million) includes accrued interest of £19.5 million (2018: £21.0 million).
Accrued interest is shown in fixed rate debt instruments in the table above.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
175
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
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 Scheme, 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 and have been substantially removed now as described below, 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 fully insured members’ benefits with a third party
specialist insurance company (often referred to as a “pension buy-out”), and the terms and conditions of the insurance policy were agreed on
6 December 2018. As is usual following such transactions, a data verification exercise is in progress which is expected to be completed during
2020. At this point a final true up payment may be due from the Group to the insurer (or vice versa) and a process to wind-up the Scheme will
begin. The transaction, which was funded from the assets of the Scheme and did not require any additional cash contributions from the Group,
substantially reduced the risk to the Group and the administrative burden of managing it. In 2018, pension buy-out costs of £51.8 million were
recognised in the Income Statement in conjunction with this process, as shown in Note 2. There were no additional buy-out costs recognised in
the Income Statement for the year ended 31 December 2019.
The IAS 19 valuation of the Scheme has been based on the most recent actuarial valuation at 31 March 2016, updated to the accounting date by
an independent qualified actuary in accordance with IAS 19. Given the transaction described above a further actuarial valuation is not anticipated
as the Scheme is expected to commence winding up.
Following the transaction described above, the Scheme’s assets solely comprise Insured Pensions and in line with the accounting standard their
value is equal to the corresponding value of the benefit obligation. As such, the assets do not have quoted prices in an active market.
By undertaking a buy-out process to fully insure member benefits, the Company has sought to mitigate the requirement to make any additional
contributions to the Scheme.
176
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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 Scheme’s assets
Insured Pensions
TOTAL
The life expectancies at age 65 are as follows:
Current pensioners
Future pensioners (in 20 years’ time)
2019
%
2.0
2018
%
2.8
3.2/2.1
3.4/2.3
4.2
3.1
2.1
Analysis
of assets
2019
£m
262.0
262.0
2019
Male
24.9
27.1
Female
26.0
28.3
2018
Male
24.8
27.0
4.3
3.2
2.1
Analysis
of assets
2018
£m
235.6
235.6
Female
25.9
28.2
Both life expectancy estimates use the standard S2PA (2018: S2PA) base tables with a scaling factor of 80 per cent for males and 90 per cent
for females (2018: 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. (2018: CMI 2014 projections with an assumed long-term rate of
improvement of 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 income: Net interest income
Net charge to the Group Income Statement
Credit to Group Statement of Comprehensive Income
2019
£m
–
–
–
–
–
–
2018
£m
–
–
(51.8)
0.9
(50.9)
11.0
All actuarial gains and losses are recognised immediately and relate to continuing operations. The cumulative recognised actuarial losses are
£19.3 million (2018: £19.3 million).
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
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
31 December
Movement in liabilities
1 January
Interest cost
Actuarial losses/(gains) • changes in demographic assumptions
• changes in financial assumptions
• changes due to liability experience
Benefits paid
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 £36.0 million (2018: £nil).
2019
£m
235.6
6.5
29.5
–
(9.6)
–
262.0
235.6
6.5
–
31.3
(1.8)
(9.6)
262.0
262.0
262.0
–
177
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
–
The average duration of the benefit obligations at the end of the reporting period is 18 years (2018: 18 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 35 per cent (2018: 32 per cent) to
deferred and 65 per cent (2018: 68 per cent) to retired members.
The expected employer’s contributions to be paid in the year ending 31 December 2020 are £nil (2019: £nil).
The Group also has a number of defined contribution schemes for which £1.5 million has been recognised as an expense (2018: £1.4 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 and so there would be no change to the nil pension asset.
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 (£21.7m)/£24.9m
Increase/(decrease) by £13.0m/(£13.0m)
Increase/(decrease) by £9.8m/(£9.1m)
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.
178
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
19. SHARE CAPITAL AND SHARE-BASED PAYMENTS
Share capital
GROUP AND COMPANY
Issued and fully paid
Ordinary shares of 10p each at 1 January 2019
Issue of shares – placing
Issue of shares – scrip dividend
Issue of shares – other
Ordinary shares of 10p each at 31 December 2019
Number
of shares
million
1,013.5
71.0
10.3
1.9
Par value
of shares
£m
101.3
7.1
1.0
0.2
1,096.7
109.6
On 15 February 2019 the Company announced the placing of 71 million ordinary shares of 10 pence each in the capital of the Company at a
price of 635 pence per share. The Company raised £450.9 million, before £7.5 million expenses and as a result the Company’s share capital
increased by £7.1 million and share premium by £436.3 million (see Note 20).
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 119. 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
Shares vested
Shares lapsed
At 31 December
2019
number
2018
number
1,297,793
1,169,064
296,546
(500,375)
(7,222)
478,295
(324,592)
(24,974)
1,086,742
1,297,793
The 2018 DSBP grant was made on 28 June 2019, based on a 27 June 2019 closing mid-market share price of 718.6 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 page 120.
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
Shares vested
Shares expired/lapsed
At 31 December
2019
number
6,711,683
1,565,907
2018
number
7,860,391
1,382,474
(1,713,915)
(2,190,430)
(30,836)
(340,752)
6,532,839
6,711,683
The 2019 LTIP award was made on 29 May 2019. The calculation of the award was based on a share price of 691.0 pence, the closing mid-
market share price on 28 May 2019. No consideration was paid for the grant of any award.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
179
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
19(iii) – Other share schemes
The Group also operates the following all-employee share schemes.
• Share Incentive plan (SIP)
• Global Share Incentive Plan (GSIP)
• Sharesave
22 May 2015
7 April 2016
28 April 2017
26 April 2018
29 May 2019
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
691.0
0.6%
2.7%
15.7%
3 years
482.1p
Further details of these schemes are set out in the Remuneration Report on page 120. The total share-based payment charge for the schemes
recognised in the 2019 Income Statement was £0.6 million (2018: £0.5 million). The total number of outstanding options for the schemes as at
31 December 2019 was 895,941 (2018: 923,006).
20. SHARE PREMIUM AND OTHER RESERVES
Share premium
GROUP AND COMPANY
Balance at 1 January
Premium arising on the issue of shares – equity placing
Premium arising on the issue of shares – scrip dividend
Premium arising on the issue of shares – other
Balance at 31 December
2019
£m
2,047.7
436.3
69.9
0.4
2018
£m
1,998.6
–
48.7
0.4
2,554.3
2,047.7
Other reserves
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 Group translation, hedging and other reserves of £1.6 million (2018: £54.8 million) 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.
180
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
21. OWN SHARES HELD
Balance at 1 January
Shares purchased
Disposed of on exercise of options
Balance at 31 December
Group
Company
2019
£m
2.0
3.4
(2.8)
2.6
2018
£m
3.3
1.1
(2.4)
2.0
2019
£m
2.0
3.4
(2.8)
2.6
2018
£m
3.3
1.1
(2.4)
2.0
These represent the cost of shares in SEGRO plc bought in the open market and held by Estera 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
2019
£m
222.6
2018
£m
189.1
In addition, commitments in the Group’s joint ventures at 31 December 2019 (at share) amounted to £41.6 million (2018: £36.6 million).
The Group also has a £6.5 million commitment to a property related investment fund at 31 December 2019 (2018: £7.8 million).
23. CONTINGENT LIABILITIES
The Group has given performance guarantees to third parties amounting to £63.5 million (2018: £32.2 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 and joint ventures are subject to claims and litigation generally and provides guarantees, representations and warranties arising in
the ordinary course of its business. Provision is made when liabilities are considered likely to arise and the expected quantum of the exposure
is estimable. The risk in relation to such items are monitored on an ongoing basis and provisions amended accordingly. It is not expected that
contingent liabilities existing at 31 December 2019 will have a material adverse effect on the Group’s financial position.
24. LEASES
The Group as a lessor
The investment properties are leased to tenants under operating leases with rentals payable on a monthly or quarterly basis. Lease payments for
some contracts include inflationary index increases, but there are no significant levels of variable lease payments that do not depend on an index
or a rate. Where considered necessary to reduce credit risk, the Group may obtain bank guarantees or tenant deposits for the term of the lease.
The Group is exposed to changes in the residual value of properties at the end of current lease agreements. The residual value risk born by the
Group is mitigated by active management of its property portfolio and discussed further in the Active Asset Management section on page 26.
The Group does not hold significant finance leases 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.
Group
£m
280.1
824.6
1,263.0
2,367.7
Joint ventures
at share
£m
80.6
243.7
135.9
460.2
2019
£m
360.7
1,068.3
1,398.9
2,827.9
2018
£m
333.7
991.8
1,268.2
2,593.7
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
181
24. LEASES CONTINUED
The Group as lessee
As set out in Note 1 the Group leases various offices under non-cancellable operating leases. From the 1 January 2019, under IFRS 16 Leases,
the Group has recognised a right-of-use asset for these leases, except for short-term and low value leases. The future aggregate minimum lease
payments on non-cancellable operating leases at 31 December 2018 under IAS 17 were:
Not later than one year
Later than one year but not later than five years
Total
2019
£m
–
–
–
2018
£m
2.5
2.4
4.9
The above table excludes head lease payments which are directly recovered from the tenant. The ground rent charge for year ended
31 December 2018 was £3.4 million and the expiry of the leases are between 11 to 47 years. The following additional IAS 17 disclosure has
been given this year: The total future aggregate minimum payments on non-cancellable head leases at 31 December 2018 under IAS 17 were
£156.3 million, of which £3.4 million was due not later than one year, £14.0 million was due later than one year but not later than five years and
£138.9 million was due later than five years.
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
2019
£m
33.3
221.0
20.4
2018
£m
28.6
242.0
44.9
1 During the year investment properties with a carrying value of £221.0 million were sold to SELP (2018: £242.0 million). Total proceeds (and total cash proceeds) received by SEGRO was
£229.0 million (2018: £251.6 million). The transaction resulted in the net assets of the Group increasing by £8.0 million (2018: £9.6 million increase). The net cash impact on a proportionally
consolidated basis was an inflow of £114.5 million (2018: inflow £125.8 million) once the 50% ownership in SELP is taken into account.
Amounts due from joint ventures are disclosed in Note 14. Investments in joint ventures at 31 December 2019 of £1,121.4 million disclosed in
Note 7 (2018: £999.9 million) includes shareholder loans of £125.3 million (2018: £173.2 million).
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 for the Group and Company comprise Executive and Non-Executive Directors, as outlined in the Governance
Report on pages 74 to 75. Key management personnel compensation is shown in the table below:
Salaries and short-term benefits
Post-employment benefits
Share-based payments
Total remuneration
2019
£m
5.4
0.4
3.4
9.2
2018
£m
5.2
0.4
3.4
9.0
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 97 to 117.
182
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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
Revaluation surplus on investment properties
Valuation gain on other investments
Dividends and other income
Pension buy-out costs (see Note 18)
Other provisions
Decrease in impairment of subsidiaries
Changes in working capital:
Decrease/(increase) in trading properties
(Increase)/decrease in debtors and tenant incentives
Increase in creditors
Net cash inflow/(outflow) generated from operations
Group
Company
2019
£m
949.4
3.4
(203.1)
(7.2)
(476.7)
(4.3)
–
–
8.2
–
2018
£m
1,173.4
2.9
(124.2)
(56.5)
(791.4)
(4.7)
–
51.8
6.1
–
269.7
257.4
30.9
(59.3)
50.3
291.6
(19.5)
(13.7)
10.9
235.1
2019
£m
220.3
0.9
–
–
–
–
(210.3)
–
3.1
(29.2)
(15.2)
–
0.1
5.6
(9.5)
2018
£m
107.3
1.4
–
–
–
–
(145.8)
51.8
3.0
(30.7)
(13.0)
–
5.1
2.1
(5.8)
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 defines net debt as total borrowing less cash and cash equivalents.
Cash movements
Non-cash movements
At 1 January
2019
£m
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
Cash
inflow2
£m
10.2
–
10.2
(66.5)
(56.3)
10.2
–
10.2
(28.6)
(18.4)
Cash
outflow3
£m
(269.7)
(0.9)
(270.6)
–
(270.6)
(269.1)
(0.9)
(270.0)
–
(270.0)
Exchange
movement
£m
Fair value
changes
£m
Cost of
early close
out of debt
£m
Other
non-cash
adjustments1
£m
At
31 December
2019
£m
(60.5)
–
(60.5)
0.5
(60.0)
(60.5)
–
(60.5)
0.2
(60.3)
–
–
–
–
–
–
–
–
–
–
18.6
–
18.6
–
18.6
18.6
–
18.6
–
18.6
–
2.3
2.3
–
2.3
–
2.3
2.3
–
2.3
1,958.3
(14.8)
1,943.5
(132.5)
1,811.0
1,955.9
(15.0)
1,940.9
(60.7)
1,880.2
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 £10.2 million.
3 Group cash outflow of £270.6 million (Company: £270.0 million), comprises the repayment of borrowings of £251.1 million (Company: £250.5 million), cash settlement for early repayment of
debt of £18.6 million (Company: £18.6 million) and capitalised issue costs of £0.9 million (Company: £0.9 million).
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
183
26. NOTES TO THE CASH FLOW STATEMENTS CONTINUED
26(iv) – Analysis of financial liabilities and assets arising from financing activities
For the year ended 31 December 2019
Group
Total borrowings (Note 16)
Derivatives: (Net) Fair value of forward
foreign exchange and currency swap
contracts (Note 17)
Lease liabilities (Note 15)
Total net financial liabilities arising
from financing activities
Cash movements
Non-cash movements
At 1 January
2019
£m
2,243.5
3.3
–
Recognised
on adoption of
IFRS 16 (see
Note 1)
–
–
75.2
Cash
inflow
£m
10.2
26.9
–
Acquisition
of leases
£m
Exchange
movement1
£m
Fair value
changes2
£m
Cost of
early close
out of debt
£m
Other
non-cash
adjustments
£m
At
31
December
2019
£m
–
(60.5)
–
18.6
2.3
1,943.5
Cash
outflow
£m
(270.6)
–
(3.9)
–
8.1
(49.5)
(4.6)
3.1
–
–
–
–
3.0
(16.2)
77.8
2,246.8
75.2
37.1
(274.5)
8.1
(114.6)
3.1
18.6
5.3
2,005.1
1 Exchange movement of £110.0 million from borrowings and forward foreign exchange and currency swap contracts consists of: Foreign exchange gains on effective hedge relationships
recognised in OCI of £57.6 million and foreign exchange gains recognised within the Income Statement of £52.4 million. See Note 17.
2 Total net fair value gain of £7.9 million arising from derivatives per Note 9 also includes fair value gains from interest rate swaps and caps of £11.0 million.
For the year ended 31 December 2018
Cash movements
Non-cash movements
Group
Total borrowings (Note 16)
At 1 January
2018
£m
Cash
inflow
£m
2,063.5
264.1
Cash
outflow
£m
(110.1)
Derivatives: (Net) Fair value of forward foreign exchange
and currency swap contracts (Note 17)
Total net financial liabilities arising from financing
activities
1.4
–
(6.4)
2,064.9
264.1
(116.5)
Exchange
movement3
£m
Fair value
changes4
£m
Cost of early
close out
of debt
£m
Other
non-cash
adjustments
£m
At
31 December
2018
£m
16.2
8.3
24.5
–
–
–
6.4
–
6.4
3.4
2,243.5
–
3.3
3.4
2,246.8
3 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.
4 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.
Company
The Company’s financial liabilities and assets arising from financing activities excluding lease liabilities are materially the same as those shown for
the Group for the year ended 31 December 2019 and 31 December 2018.
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 2019 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. Land values per hectare range from £0.1 million – £10.8 million
(2018: £0.1 million – £7.3 million) for the UK and £0.1 million – £3.9 million (2018: £0.1 million – £4.1 million) for Continental Europe.
184
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
27. PROPERTY VALUATION TECHNIQUES AND RELATED QUANTITATIVE INFORMATION CONTINUED
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.
Sensitivity analysis
Group total completed property portfolio
£m
2019
2018
9,316.9
8,349.4
Impact on valuation of 25bp change
in nominal equivalent yield
Impact on valuation of 5% change
in estimated rental value (ERV)
Increase
£m
(495.5)
(394.4)
Decrease
£m
398.8
393.6
Increase
£m
259.4
314.4
Decrease
£m
(412.4)
(312.0)
There are inter-relationships 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 inter-relationship 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.
Valuation
Inputs
2019 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
Combined
property
portfolio
£m
1,220.2
1,681.7
3,800.7
2,390.2
224.1
ERV2
£ per
sq m
ERV range2
£ per
sq m
45.2
50.6
30.5–147.5
30.5–226.0
105.3
25.4–272.1
152.8
50.8–279.9
150.4
48.2–226.1
934.1
10,251.0
72.2
25.4–279.9
824.7
109.4
934.1
8,351.7
1,899.3
10,251.0
112.6
25.4–279.9
43.6
72.2
28.3–91.5
25.4–279.9
Net true
equivalent
yield³
%
Net true
equivalent
yield range
%
4.9
4.9
4.8
4.4
5.9
4.8
4.7
5.1
4.8
4.0–6.5
3.8–6.5
3.8–10.4
3.9–7.3
4.1–6.9
3.8–10.4
3.8–9.5
3.8–10.4
3.8–10.4
1,220.2
1,681.7
3,800.7
2,390.2
224.1
9,316.9
7,527.0
1,789.9
9,316.9
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 £512.0 million; big box < 35,000 sq m £713.7 million; urban warehouses > 3,500 sq m
£3,688.2 million; urban warehouses < 3,500 sq m £2,389.5 million; and other uses £223.6 million.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
185
27. PROPERTY VALUATION TECHNIQUES AND RELATED QUANTITATIVE INFORMATION CONTINUED
2019 By geography
Greater London
Thames Valley
National Logistics
Northern Europe
Germany/Austria
Netherlands
Southern Europe
France
Italy/Spain
Central Europe
Poland
Other
Group Total
Investment properties – Group (Note 13(i))³
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.
3 Excludes head lease ROU assets of £70.2 million.
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
Valuation
Inputs
Completed
£m
Land &
development¹
£m
3,819.1
1,671.7
711.6
982.4
108.1
955.3
499.4
495.9
73.4
181.9
80.7
161.0
122.5
29.3
82.9
235.0
30.4
10.4
Combined
property
portfolio
£m
4,001.0
1,752.4
872.6
1,104.9
137.4
1,038.2
734.4
526.3
83.8
9,316.9
934.1
10,251.0
ERV1
£ per
sq m
ERV range1
£ per
sq m
157.3
48.7–279.9
143.4
61.9–226.1
69.6
43.3–127.1
55.0
53.5
30.5–150.3
28.3–83.2
56.4
42.8
37.3–114.8
25.4–91.5
40.0
50.6
72.2
30.5–131.9
44.4–91.5
25.4–279.9
Net true
equivalent
yield²
%
Net true
equivalent
yield range
%
4.4
4.9
4.9
4.7
5.0
5.0
5.2
6.2
5.6
4.8
4.0–7.8
4.0–6.6
4.5–6.9
3.8–6.5
4.2–10.4
3.8–9.5
4.1–9.3
5.5–6.5
5.2–5.6
3.8–10.4
8,331.5
1,898.3
20.2
1.0
10,251.0
Valuation
Inputs
Completed
£m
Land &
development¹
£m
1,075.0
1,528.3
3,173.1
2,352.8
220.2
8,349.4
6,916.4
1,433.0
8,349.4
1,073.0
936.7
136.3
1,073.0
Combined
property
portfolio
£m
1,075.0
1,528.3
3,173.1
2,352.8
220.2
9,422.4
7,853.1
1,569.3
9,422.4
ERV²
£ per
sq m
ERV range²
£ per
sq m
48.7
51.8
103.9
155.0
117.2
32.4–147.5
32.4–127.1
27.0–280.2
54.0–279.9
36.5–226.0
74.4
27.0–280.2
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 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 > 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.
186
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
27. PROPERTY VALUATION TECHNIQUES AND RELATED QUANTITATIVE INFORMATION CONTINUED
Valuation
Inputs
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
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
52.9
32.4–137.7
36.5–90.7
55.6
45.2
33.1–119.8
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
%
4.6
5.0
5.2
5.3
5.9
5.5
5.7
6.7
6.0
5.1
Net true
equivalent
yield range
%
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
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.
7,801.4
1,566.9
51.7
2.4
9,422.4
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
187
28. RELATED UNDERTAKINGS
A list of the Group’s related undertakings as at 31 December 2019 is detailed below. Except where the Group’s percentage 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 includes 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.
Certain UK partnerships are exempt from the requirements to prepare, publish and have audited individual accounts by virtue of regulation
7 of The Partnerships (Accounts) Regulations 2008. The results of these partnerships are consolidated within these Group accounts.
These partnerships 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.
Bilton Homes Limited
Bilton p.l.c.**
Bonsol S.R.L.
Brixton (Axis Park) Limited
Brixton (Fairway 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 Greenford Park Limited
Brixton Limited**
Brixton Nominee 8 (Jersey) Limited
Brixton Nominee 9 (Jersey) 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 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 and Wales
England and Wales
England and Wales
England and Wales
Belgium
Poland
England and Wales
England and Wales
Italy
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
Jersey
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
% effective
holding if
not 100%
95%
Direct/
Indirect
Indirect
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Direct
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
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Boulevard Louis Schmidt 87, 1040 Etterbeek, Belgium
Pl. Andersa 3, 61-894 Poznan´, Poland
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
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
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
188
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
28. RELATED UNDERTAKINGS CONTINUED
Company Name
Brixton Northfields 6 Limited**
Brixton Premier Park Limited
Brixton Properties Limited
Brixton Sub-Holdings Limited**
B-Serv Limited**
CHR Holdings II LLC5
% effective
holding if
not 100%
Jurisdiction
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Delaware
CHR Holdings LLC
Coventry & Warwickshire Development Partnership LLP
Delaware
England and Wales 25%
De Hoek-Noord S-Park B.V.
Netherlands
Devon Nominees (No. 1) Limited
Devon Nominees (No. 2) Limited
Devon Nominees (No. 3) Limited
Europa Magnesium S.R.L.
Gateway Rugby Management Company Limited**
England and Wales
England and Wales
England and Wales
Italy
England and Wales 91.85%
Granby Investment Sp. z.o.o.
GrontFour s.r.o.
Helios Northern Limited¹**
HelioSlough Limited**
Holbury Investments Sp. z.o.o.
Howbury Park GP Limited
Poland
Czech Republic
England and Wales
England and Wales
Poland
England and 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 Park SPV Limited
England and Wales 50%
Indirect
IFP S.R.L.
Impianti FTV S.R.L.
Karnal Investments Sp. z.o.o.
LIACOM-A Ingatlanforgalmazó Korlátolt
Felelösségü Társaság
Lynford Investments Sp z.o.o.
M0M4 Üzleti Park Ingatlanfejlesztö Korlátolt
Felelösségü Társaság
Nivindus NV
Ozarow Biznes Park Sp.z.o.o
Premier Greenford GP Limited1
Property Management Company (Croydon) Limited
Roxhill (Coventry M6 J2) Limited
Italy
Italy
Poland
Hungary
Poland
Hungary
Belgium
Poland
95%
95%
50%
England and Wales
England and Wales 72%
England and Wales 50%
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Roxhill (Coventry) Limited
England and Wales 50%
Indirect
Roxhill (Junction 15) Limited
England and Wales 50%
Indirect
Roxhill (Maidstone) Limited
England and Wales 50%
Indirect
Roxhill Management Rugby Limited
Roxhill Warth 2 Limited
England and Wales
England and Wales 25%
Indirect
Indirect
Roxhill Warth 3 Limited
England and Wales 50%
Indirect
Roxhill-SEGRO (Rugby Gateway) LLP1
England and Wales 50%
Indirect
SEGRO (225 Bath Road) Limited
England and Wales
Indirect
Registered Office
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
2711, 400 Centerville Road, Wilmington, New Castle, Delaware,
19808, United States
1209 Orange Street, Wilmington, United States
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ, United Kingdom
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Via Vittor Pisani 16, cap 20124, Milan, Italy
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ, United Kingdom
Pl. Andersa 3, 61-894 Poznan´, Poland
Praha 1, Na Prˇíkopeˇ 9/392 a 11/393, PSCˇ 110 00, Czech
Republic
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
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 Milanofiori, Milan, Italy
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
Zielna 37, 00-108 Warszawa Mazowieckie, Poland
1024 Budapest, Löv ˝oház u.39, Hungary
Boulevard Louis Schmidt 87, 1040 Etterbeek, Belgium
Pl. Andersa 3, 61-894 Poznan´, Poland
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ, United Kingdom
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ, United Kingdom
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ, United Kingdom
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ, United Kingdom
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ, United Kingdom
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Indirect
Indirect
Zielna 37, 00-108 Warszawa Mazowieckie, Poland
1024 Budapest, Löv˝oház u.39, Hungary
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
189
28. RELATED UNDERTAKINGS CONTINUED
Company Name
SEGRO (Acton Park Estate) Limited
SEGRO (BA World Cargo) Limited
SEGRO (Barking 1) Limited
SEGRO (Barking 2) Limited
SEGRO (Barking 3) Limited
SEGRO (Barking) Limited
SEGRO (Beddington Lane) Limited
SEGRO (Blanc Mesnil) SARL
SEGRO (Bonded Stores) Limited
SEGRO (Brackmills) Limited
SEGRO (Bracknell) 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 Rail Freight Terminal) Limited
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
Jurisdiction
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
France
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Netherlands
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
SEGRO (Heathrow Cargo Area) Limited
England and Wales
SEGRO (Heathrow International) Limited
England and Wales
SEGRO (Heathrow Park) Limited
SEGRO (Howbury) Limited
England and Wales
SEGRO (Kettering Gateway Management Company) Limited England and Wales
England and Wales
SEGRO (Kettering) Limited
England and Wales
SEGRO (Lee Park Distribution) Limited
England and Wales
SEGRO (Loop) Limited**
England and Wales
SEGRO (Nelson Trade Park) Limited**
England and Wales
SEGRO (New Cross Business Centre) Limited**
England and Wales
SEGRO (Newport Pagnell) Limited**
England and Wales
SEGRO (NFTE & Mercury) Limited
France
SEGRO (Parc des Damiers) SAS
England and Wales
SEGRO (Poyle 14) Limited
England and Wales
SEGRO (Purfleet) Limited
England and Wales
SEGRO (Rainham 1) Limited
England and Wales
SEGRO (Rainham 2) Limited
England and Wales
SEGRO (Rainham, Enterprise 1) Limited
England and Wales
SEGRO (Rainham, Enterprise 2) Limited**
% 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
Indirect
Registered Office
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
20 Rue Brunel, 75017 Paris, France
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
20 Rue Brunel, 75017 Paris, France
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
190
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
% effective
holding if
not 100%
28. RELATED UNDERTAKINGS CONTINUED
Company Name
SEGRO (Reading) Limited2
SEGRO (Rockware Avenue) Limited
SEGRO (Rugby Gateway 1) Limited
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 (Spacewaye Park) Limited
SEGRO (Stansted Cargo) Limited
SEGRO (Stansted Fedex) Limited
SEGRO (Stockley Close) Limited**
SEGRO (The Portal) Limited
SEGRO (Tilbury 2) Limited
SEGRO (Tottenham) 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.
Jurisdiction
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Netherlands
England and Wales
Germany
Germany
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Netherlands
Belgium
Netherlands
England and Wales
England and Wales
Czech Republic
SEGRO De Hoek B.V.
Netherlands
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.à r.l.
SEGRO Finance plc
Germany
Germany
Germany
Germany
Germany
Germany
England and Wales
Luxembourg
England and Wales
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
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
Direct
Registered Office
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
1 New Burlington Place, London, W1S 2HR, United Kingdom
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
Boulevard Louis Schmidt 87, 1040 Etterbeek, Belgium
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Praha 1, Na Prˇíkopeˇ 9/392 a 11/393, PSCˇ 110 00,
Czech Republic
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
1 New Burlington Place, London, W1S 2HR, United Kingdom
35 - 37 avenue de la Liberté, L-1931 Luxembourg
1 New Burlington Place, London, W1S 2HR, United Kingdom
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
191
% effective
holding if
not 100%
28. RELATED UNDERTAKINGS CONTINUED
Company Name
SEGRO France SA
SEGRO Fünfte Grundbesitz GmbH
SEGRO Fünfundzwanzigste Grundbesitz GmbH
SEGRO Fünfzehnte Grundbesitz GmbH
SEGRO Gennevilliers (SCI)
SEGRO Germany GmbH
SEGRO Glinde B.V.
Jurisdiction
France
Germany
Germany
Germany
France
Germany
Netherlands
SEGRO Holdings France SAS
SEGRO Industrial Estates Limited
SEGRO Industrial Nederland B.V.
France
England and Wales
Netherlands
SEGRO Insurance Limited
Isle of Man
SEGRO Investments Limited**
SEGRO Investments Spain, SL
SEGRO Italy S.R.L.
SEGRO Logistics Nord SCI
SEGRO Logistics Park Aulnay SCI
SEGRO Logistics Sud SCI
SEGRO Luge S.à r.l.
SEGRO Luxembourg S.à r.l.
SEGRO Lyon 1 SCI
SEGRO Lyon 2 SCI
SEGRO Lyon Holding SAS
SEGRO Management Limited**
SEGRO Management NV
SEGRO Netherlands B.V.
England and Wales
Spain
Italy
France
France
France
Luxembourg
Luxembourg
France
France
France
England and Wales
Belgium
Netherlands
SEGRO Netherlands Holding B.V.
Netherlands
SEGRO Neunte Grundbesitz GmbH
SEGRO Neunzehnte Grundbesitz GmbH
SEGRO Overseas Holdings Limited
SEGRO Pension Scheme Trustees Limited
SEGRO Plessis (SCI)
SEGRO Poland Sp. z.o.o.
SEGRO Properties Limited
SEGRO Properties Spain SL
SEGRO plc French Branch
SEGRO Reisholz GmbH
SEGRO Sechste Grundbesitz GmbH
SEGRO Sechzehnte Grundbesitz GmbH
SEGRO Siebte Grundbesitz GmbH
SEGRO Siebzehnte Grundbesitz GmbH
SEGRO Spain Management, S.L.
SEGRO Spain Spare 1 S.L.
SEGRO Spain Spare 2 S.L.
SEGRO Spain Spare 3 S.L.
SEGRO Trading (France) SNC
SEGRO Urban Logistics PR1 SCI
SEGRO Urban Logistics PR2 SCI
SEGRO Vierte Grundbesitz GmbH
SEGRO Vierundzwanzigste Grundbesitz GmbH
Germany
Germany
England and Wales
England and Wales
France
Poland
England and Wales
Spain
France
Germany
Germany
Germany
Germany
Germany
Spain
Spain
Spain
Spain
France
France
France
Germany
Germany
Direct/
Indirect
Indirect
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
Indirect
Indirect
Direct
Indirect
Indirect
Indirect
Direct
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Indirect
Direct
Direct
Direct
Indirect
Indirect
Indirect
Indirect
Indirect
Registered Office
20 Rue Brunel, 75017 Paris, France
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
20 Rue Brunel, 75017 Paris, France
Fichtenstraße 33, 40233 Düsseldorf, Germany
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
20 Rue Brunel, 75017 Paris, France
1 New Burlington Place, London, W1S 2HR, United Kingdom
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
1 New Burlington Place, London, W1S 2HR, United Kingdom
Callee Conde de Aranda 22 5º Izquierda, 28001, Madrid, Spain
Milano (MI), via Maurizio Gonzaga 7, cap 20123, Italy
20 Rue Brunel, 75017 Paris, France
20 Rue Brunel, 75017 Paris, France
20 Rue Brunel, 75017 Paris, France
5, rue Guillaume Kroll, Luxembourg, L-1882 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
1 New Burlington Place, London, W1S 2HR, United Kingdom
Boulevard Louis Schmidt 87, 1040 Etterbeek, Belgium
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
Gustav Mahlerplein 62, ITO-toren, 8th Floor, 1082MA
Amsterdam, Netherlands
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
20 Rue Brunel, 75017 Paris, France
Pl. Andersa 3, 61-894 Poznan´, Poland
1 New Burlington Place, London, W1S 2HR, United Kingdom
Callee Conde de Aranda 22 5º Izquierda, 28001, Madrid, Spain
20 Rue Brunel, 75017 Paris, France
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
Callee Conde de Aranda 22 5º Izquierda, 28001, Madrid, Spain
Avenida Diagonal, 467 - 08036, Barcelona, Spain
Avenida Diagonal, 467 - 08036, Barcelona, Spain
Avenida Diagonal, 467 - 08036, Barcelona, Spain
20 Rue Brunel, 75017 Paris, France
20 Rue Brunel, 75017 Paris, France
20 Rue Brunel, 75017 Paris, France
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
192
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
28. RELATED UNDERTAKINGS CONTINUED
Company Name
SEGRO Vierzehnte Grundbesitz GmbH
SEGRO Wissous (SCI)
SEGRO Zehnte Grundbesitz GmbH
SEGRO Zwanzigste Grundbesitz GmbH
SEGRO Zweite Grundbesitz GmbH
SEGRO Zweiundzwanzigste Grundbesitz GmbH
SEGRO Zwölfte Grundbesitz GmbH
SELP (Alpha Holdings) S.à r.l.
SELP (Alpha JV) S.à r.l.
SELP Finance S.à r.l.
SELP Investments S.à r.l.
SELP Management Limited
SG Austria Brunnerstrasse GmbH
% effective
holding if
not 100%
50%
50%
50%
50%
Jurisdiction
Germany
France
Germany
Germany
Germany
Germany
Germany
Luxembourg
Luxembourg
Luxembourg
Luxembourg
England and Wales
Austria
Slough Trading Estate Limited
Steamhouse Group Limited
Tenedor S.R.L.
The Howbury Park Limited Partnership
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
UK Logistics Trustees Limited
Unitair General Partner Limited**
Unitair Limited Partnership***
Vailog Colleferno SRL
Vailog Energy 1 S.R.L.
Vailog Energy 2 S.R.L.
Vailog Energy 3 S.R.L.
Vailog France SCI
Vailog S.R.L.
Valpar B.V.
Woodside GP Limited
Zinc One S.R.L.
Zinc Two S.R.L.
Zinc Three S.R.L.
Zinc Four S.R.L.
Zinc Five S.R.L.
Zinc Six S.R.L.
Zinc Seven S.R.L
England and Wales
England and Wales
Italy
England and Wales 50%
England and Wales
England and Wales
England and Wales
England and Wales
England and Wales
Jersey
Jersey
Jersey
Jersey
England and Wales
England and Wales
Italy
Italy
Italy
Italy
France
95%
Italy
Netherlands
95%
England and Wales 33%
Italy
Italy
Italy
Italy
Italy
Italy
Italy
95%
95%
95%
95%
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
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
Registered Office
Fichtenstraße 33, 40233 Düsseldorf, Germany
20 Rue Brunel, 75017 Paris, France
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
Fichtenstraße 33, 40233 Düsseldorf, Germany
283 Route d’Arlon, L-8011 Strassen, Luxembourg
283 Route d’Arlon, L-8011 Strassen, Luxembourg
35-37 avenue de la Liberté, L-1931 Luxembourg
35-37 avenue de la Liberté, L-1931 Luxembourg
1 New Burlington Place, London, W1S 2HR, United Kingdom
c/o ECOVIS, Austrail Wirtschaftsprufungs, und
Steuerberatungsgesellschaft m.b.H., 1060 Wien,
Schmalzhofgasse 4, Austria
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Milano (MI), via Maurizio Gonzaga 7, cap 20123, Italy
Lumonics House Valley Drive, Swift Valley, Rugby,
Warwickshire, CV21 1TQ, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
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
Ogier House, The Esplanade, St Helier, JE4 9WG, Jersey
1 New Burlington Place, London, W1S 2HR, United Kingdom
1 New Burlington Place, London, W1S 2HR, United Kingdom
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
20 Rue Brunel, 75017 Paris, France
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
Herengracht 298d, 1016 BL Amsterdam, Netherlands
1 New Burlington Place, London, W1S 2HR, United Kingdom
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
Strada 3 Palazzo B3, 20090 Assago Milanofiori, Milan, Italy
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
193
SUPPLEMENTARY NOTES NOT PART OF AUDITED FINANCIAL STATEMENTS
Table 1: EPRA performance measures summary
EPRA Earnings
EPRA NAV¹
EPRA NNNAV²
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)
2019
2018
£m
264.1
7,801.0
7,425.8
Notes
Table 4
Table 3
12
Table 5
Table 5
Table 6
Table 7
Table 7
Pence per
share
24.4
708
674
3.8%
4.3%
4.0%
22.9%
21.5%
£m
184.7
6,620.3
6,557.7
Pence per
share
18.3
650
644
3.9%
4.3%
5.2%
36.9%
35.3%
1 EPRA NAV: Net assets adjusted to include trading properties at fair value and exclude the fair value of interest rate derivatives and deferred tax in respect of depreciation and valuation surpluses
as detailed in Note 12.
2 EPRA NNNAV: Net assets adjusted to include trading properties and debt at fair value as detailed in Note 12.
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
2019
Joint
ventures
£m
107.1
(27.4)
79.7
(8.6)
(1.6)
69.5
(10.0)
59.5
(5.5)
54.0
–
54.0
Group
£m
362.0
(80.7)
281.3
20.4
(51.5)
250.2
(36.7)
213.5
(3.2)
210.3
(0.2)
210.1
Notes
2,7
2,7
2
2,7
2,7
2,7
2,7
12
12
Adjusted earnings after tax and non-controlling interests (A)
Pension buy-out costs
EPRA earnings after tax and non-controlling interests
2,18
210.1
–
210.1
54.0
–
54.0
Number of shares
EPRA EPS, pence per share
Number of shares
EPRA EPS, pence per share – diluted
2018
Joint
ventures
£m
97.6
(27.1)
70.5
(20.1)
(1.3)
49.1
(7.6)
41.5
(2.5)
39.0
–
39.0
Group
£m
323.2
(75.6)
247.6
44.9
(44.1)
248.4
(45.9)
202.5
(4.4)
198.1
(0.6)
197.5
197.5
(51.8)
145.7
39.0
–
39.0
Total
£m
420.8
(102.7)
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
Total
£m
469.1
(108.1)
361.0
11.8
(53.1)
319.7
(46.7)
273.0
(8.7)
264.3
(0.2)
264.1
1,081.3
24.4
1,087.1
24.3
264.1
–
264.1
1,081.3
24.4
1,087.1
24.3
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.
194
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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.
2019
Joint
ventures
£m
Group
£m
Total
£m
Group
£m
2018
Joint
ventures
£m
Total
£m
8,401.7
1,898.3
10,300.0
7,801.4
1,566.9
9,368.3
1.0
21.2
51.7
2.4
54.1
1,899.3
10,321.2
7,853.1
1,569.3
9,422.4
Notes
13,7
13,7
7
20.2
8,421.9
1,121.4
(1,121.4)
–
(54.7)
(104.6)
(159.3)
16,7
(1,811.0)
(673.3)
(2,484.3)
7,677.6
–
7,677.6
12
12
12
12
123.4
7,801.0
1,102.1
708
999.9
(112.0)
(2,177.0)
6,564.0
(999.9)
(33.0)
(536.4)
–
–
(145.0)
(2,713.4)
6,564.0
56.3
6,620.3
1,018.7
650
Note: Loan to value of 24.2 per cent is calculated as net borrowings of £2,484.3 million divided by total properties (excluding head lease ROU
asset of £70.2 million) of £10,251.0 million (2018: 28.8 per cent; £2,713.4 million net borrowings; £9,422.4 million total properties).
The portfolio valuation uplift of +7.5 per cent shown on page 25 of the Strategic Report is not directly derivable from the Financial Statements
and is calculated to be comparable with published MSCI Real Estate indices against which we are measured. Based on the Financial Statements
there is a valuation surplus of £696.7 million (see Note 8) and property value of £10,251.0 million (paragraph above) giving a valuation uplift
of 7.3 per cent. The primary differences are that the uplift excludes the impact of rent free incentives (£26.7 million, +0.3 per cent) and
other movements (-£5.3 million, -0.1 per cent) primarily due to foreign exchange based on closing rate as opposed to average used in the
Financial Statements.
Total assets under management of £12,220.5 million (2018: £10,991.8 million) includes Group total properties of £8,421.9 million and 100
per cent of total properties owned by joint ventures of £3,798.6 million (see Note 7 (ii), investment properties of £3,796.7 million and trading
properties of £1.9 million) (2018: Group: £7,853.1 million, joint ventures: £3,138.7 million).
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
Gain on sale of trading properties
Decrease in provision for impairment of trading properties
Increase in provision for impairment of other interests in property
Valuation surplus on other investments
Tax on profits on disposals1
Cost of early close out of debt
Net fair value (gain)/loss on interest rate swaps and other derivatives
Deferred tax charge/(credit) 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
13
8
8
8
9
9
7
2
12
2
12
2019
Group
£m
857.9
(476.7)
(7.2)
(6.9)
(1.4)
0.4
(4.3)
9.2
18.6
(7.9)
29.0
(149.1)
2.5
264.1
1,081.3
24.4
–
264.1
24.4
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
1,008.6
18.3
51.8
236.5
23.4
1 Total tax charge in respect of adjustments per Note 2 of £38.2 million (2018: £28.6 million charge) comprises tax charge on profits on disposals of £9.2 million (2018: £36.8 million charge) and
deferred tax charge of £29.0 million (2018: £8.2 million credit).
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
195
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 – 2019
Total properties per financial statements
Add valuation surplus not recognised on trading properties1
Less head lease ROU assets
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 – 2019
EPRA net initial yield3
EPRA topped-up net initial yield3
Net true equivalent yield
Notes
Table 3
13
A
B
C
B/A
C/A
UK
£m
Continental
Europe
£m
Total
£m
6,626.0
3,695.2
10,321.2
0.9
–
6,626.9
(424.5)
6,202.4
416.8
6,619.2
–
(70.2)
3,625.0
(510.5)
3,114.5
152.9
3,267.4
0.9
(70.2)
10,251.9
(935.0)
9,316.9
569.7
9,886.6
£m
£m
£m
242.1
(4.0)
238.1
30.0
268.1
10.7
278.8
UK
%
3.6
4.1
4.6
147.7
(6.1)
141.6
18.6
160.2
1.0
161.2
Continental
Europe
%
4.3
4.9
5.2
389.8
(10.1)
379.7
48.6
428.3
11.7
440.0
Total
%
3.8
4.3
4.8
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
2019
£m
19.2
474.2
4.0%
2018
£m
23.1
441.3
5.2%
196
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
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, service charge 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:
Service charge income, 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
2019
£m
80.7
51.5
37.6
(74.6)
95.2
362.0
107.1
(54.2)
414.9
22.9%
95.2
(12.5)
82.7
19.9%
95.2
–
95.2
(4.8)
(1.1)
89.3
414.9
22.9%
21.5%
2018
£m
75.6
44.1
35.4
(70.6)
84.5
323.2
97.6
(51.9)
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%
1 Property operating expenses are net of costs capitalised in accordance with IFRS of £7.3 million (2018: £4.6 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 Total deduction of £74.6 million (2018: £70.6 million) from costs includes: joint venture management fees income of £20.4 million (2018: £18.7 million), service charge income including
joint ventures of £49.7 million (2018: £47.6 million) and management fees and other costs recovered through rents but not separately invoiced, including joint ventures, of £4.5 million
(2018: £4.3 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. Gross rental income of £362.0 million (2018: £323.2 million) does not include joint venture management fees income of £20.4 million (2018: £18.7 million) and are
not included in the total deduction to income of £54.2 million (2018: £51.9 million).
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
197
SUPPLEMENTARY NOTES NOT PART OF AUDITED FINANCIAL STATEMENTS CONTINUED
Table 8: EPRA capital expenditure analysis
Acquisitions
Development4
Completed properties6
Other5
Total
Wholly
owned
£m
233.9¹
345.2²
25.2³
44.7
2019
Joint
ventures
£m
164.1
63.5
5.6
10.6
649.0
243.8
Total
£m
398.07
408.7
30.8
55.3
892.8
2018
Joint
ventures
£m
162.0
65.9
6.4
6.2
240.5
Wholly
owned
£m
193.7
482.3
23.9
16.6
716.5
Total
£m
355.7
548.2
30.3
22.8
957.0
1 Being £233.9 million investment property and £nil trading property (2018: £193.7 million and £nil respectively) see Note 13.
2 Being £336.8 million investment property and £8.4 million trading property (2018: £461.8 million and £20.5 million respectively) see Note 13.
3 Being £25.2 million investment property and £nil trading property (2018: £23.9 million and £nil million respectively) see Note 13.
4 Includes wholly-owned capitalised interest of £8.2 million (2018: £9.2 million) as further analysed in Note 9 and share of joint venture capitalised interest of £0.8 million (2018: £0.8 million).
5 Tenant incentives, letting fees and rental guarantees and other items.
6 Capital expenditure on completed properties in 2019 did not create additional lettable space.
7 Total acquisitions completed in 2019 shown on page 25 of the Strategic Report of £283.5 million excludes share of assets acquired by SELP from SEGRO of £114.5 million (of which £113.0 million
was completed property and £1.5 million was land, see Note 25).
Total disposals completed in 2019 of £442.4 million shown on page 25 of the Strategic Report includes: Carrying value of investment properties
disposed by SEGRO Group of £473.3 million (see Note 13) and profit generated on disposal of £7.2 million (see Note 8); proceeds from the sale
of trading properties by SEGRO Group of £50.1 million (see Note 4); share of joint venture disposal proceeds of £18.3 million; carrying value of
lease incentives, letting fees and rental guarantees disposed by SEGRO Group and joint venture (at share) of £8.0 million; and excludes 50 per
cent of the disposal proceeds for assets sold by SEGRO to SELP JV of £114.5 million (see Note 25).
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
%
5.7
3.1
4.8
4.7
2019
£m
203.5
90.6
294.1
(6.5)
287.6
40.6
(0.2)
328.0
5.7
10.7
344.4
0.5
16.1
–
361.0
(8.6)
–
352.4
2018
£m
192.6
87.9
280.5
(5.7)
274.8
11.7
1.4
287.9
0.8
18.2
306.9
1.2
8.6
1.4
318.1
(7.0)
(13.1)
298.0
1 Other includes the corporate centre and other costs relating to the operational business which are not specifically allocated to a geographical Business Unit.
198
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FINANCIAL STATEMENTS
NOTES TO THE FINANCIAL STATEMENTS
CONTINUED
FOR THE YEAR ENDED 31 DECEMBER 2019
SUPPLEMENTARY NOTES NOT PART OF AUDITED FINANCIAL STATEMENTS CONTINUED
Table 10: Top 10 estates as at 31 December 2019 (by value, including joint ventures at share)
UK
Ownership
Lettable area
(100%) sq m
Headline
rent
£m
Vacancy by
ERV %
WAULT
years1
Slough Trading Estate
SLP East Midlands Gateway
Shoreham Rd Cargo Area
Premier Park
Greenford Park
North Feltham Trading Estate
Axis Park
Metropolitan Park
Rugby Gateway
BA World Cargo Centre
Continental Europe
SEGRO Logistics Park Aulnay
SEGRO Logistics Park Krefeld-Süd
SEGRO Airport Park Berlin
SEGRO Park Düsseldorf-Süd
VAILOG CSG Logistics Park
SEGRO Logistics Gennevilliers
SEGRO Logistics Park Stryków
SEGRO CityPark Düsseldorf
SEGRO Logistics Park Prague
SEGRO Business Park Blanc Mesnil
100
100
100
100
100
100
100
100
100
100
100
50
50/100
100
50/100
100
50
100
Location
Slough
Midlands
Heathrow
Park Royal
Park Royal
Heathrow
Heathrow
Park Royal
Midlands
Heathrow
534,982
199,525
93,704
78,428
79,509
65,948
61,753
69,972
113,413
74.7
12.5
16.4
10.9
10.2
8.9
8.1
7.7
8.6
n/a
Conf.²
France
Germany
47,288
201,851
Germany
Germany
119,610
79,915
Italy
239,022
France
Poland
Germany
50 Czech Republic
100
France
75,232
301,550
50,318
169,514
34,992
4.4
4.9
5.0
4.9
4.4
5.3
5.1
3.5
3.9
3.6
2.5
0.0
0.0
4.9
2.8
3.5
0.0
6.5
0.0
0.0
0.0
1.4
6.8
1.9
0.5
0.0
5.8
24.2
3.0
0.0
9.5
17.1
4.0
4.0
5.3
4.2
8.1
2.5
8.8
31.3
9.8
5.0
5.9
6.4
7.2
6.6
4.7
6.8
3.9
1.8
Asset
type
Multi-let urban warehouse estate
Big-box warehouse park
Multi-let cargo facility
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
Single-let cargo facility
Big box warehouse park
Big box warehouse park
Multi-let urban warehouse
estate and big box estate
Multi-let urban warehouse estate
Big box warehouse park
Multi-let urban warehouse estate
Big box warehouse park
Multi-let urban warehouse estate
Big box warehouse park
Multi-let urban warehouse estate
1 Weighted average unexpired lease term to earlier of break of expiry.
2 Confidential.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
199
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
Profit/(loss) on sale of trading properties
Decrease/(increase) in provision for impairment of trading properties and other interests in
property
Other investment income
Goodwill and other amounts written off on acquisitions and amortisation of intangibles
Net fair value gain/(loss) 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
Property, 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
902.0
1,099.1
2019
£m
281.3
20.4
(51.5)
54.0
(36.7)
267.5
149.1
7.2
476.7
6.9
1.0
4.3
–
7.9
(18.6)
–
8,401.7
20.2
8,421.9
23.0
1,121.4
383.9
132.5
10,082.7
(1,943.5)
(53.2)
(408.4)
7,677.6
2018
£m
2017
£m
2016
£m
2015
£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)
7,801.4
51.7
7,853.1
13.3
999.9
235.8
66.5
9,168.6
(2,243.5)
(26.9)
(334.2)
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
7,935.1
(2,063.5)
(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)
6,564.0
5,585.4
4,182.1
3,489.9
857.9
255.7
1,113.6
1,062.6
(84.0)
978.6
952.7
450.6
1,403.3
79.3
24.4
700
708
20.7
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
87.7
17.6
447
443
14.9
1 There are no differences between the Adjusted profit before tax and the previously reported EPRA profit before tax for the years 2016, 2017 and 2019.
2 Earnings per share, net assets per share and dividend per share for 2016 and earlier have been re-presented for a bonus factor of 1.046.
200
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FURTHER INFORMATION
FINANCIAL INFORMATION
FINANCIAL CALENDAR AND SHAREHOLDER INFORMATION
FEBRUARY 2020
Announcement of year end results:
Payment:
MARCH 2020
Payment:
Ex-dividend date for final dividend:
Record date:
APRIL 2020
Final date for SCRIP election:
Annual General Meeting:
MAY 2020
Payment:
Payment:
JUNE 2020
Payment:
JULY 2020
Announcement of Half year results:
AUGUST 2020
Payment:
SEPTEMBER 2020
Payment:
OCTOBER 2020
Payment:
Payment:
Payment:
NOVEMBER 2020
Payment:
ANALYSIS OF SHAREHOLDERS – 31 DECEMBER 2019
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
14 February 2020
24 February 2020
16 March 2020
19 March 2020
20 March 2020
8 April 2020
21 April 2020
1 May 2020
26 May 2020
22 June 2020
30 July 2020
6¾ per cent bonds 2024 interest
24 August 2020
7 per cent bonds 2022 interest
14 September 2020
Property Income Distribution and/or Dividend
23/8 per cent bonds 2029 interest
27/8 per cent bonds 2037 interest
October
12 October 2020
12 October 2020
6¾ per cent bonds 2021 interest
23 November 2021
Holders
4,015
1,822
551
367
156
6,911
Holders
4,919
65
1,927
6,911
%
of holders
58.09
26.37
7.97
5.31
2.26
Shares
965,292
6,040,364
20,469,494
129,417,497
939,752,778
100.00
1,096,645,425
%
of holders
71.18
0.94
27.88
Shares
9,275,452
369,484
1,087,000,489
100.00
1,096,645,425
%
of shares
0.09
0.55
1.87
11.80
85.69
100.00
%
of shares
0.85
0.03
99.12
100.00
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
201
SHAREHOLDER INFORMATION
Recent share history of the Company
£ 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.
£ On 15 February 2019, the Company placed 71,000,000 new
ordinary shares at a price of 635 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 19 February
2019. Total gross proceeds of approximately £451 million were
raised from the placing.
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 2020 AGM will be held on 21 April 2020 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 4th
Floor Rear, 67/68 Jermyn Street SW1Y 6NY, 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/tax-on-dividends.
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.
202
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
FURTHER INFORMATION
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).
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) and
excludes head lease ROU asset. 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.
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.
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.
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.
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.
OVERVIEW
STR ATEGIC REPORT
GOVERNANCE
FINANCIAL STATEMENTS
203
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.
204
SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019
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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
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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 2019 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.
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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
S EG RO PLC
1 NEW BURLINGTON PLACE
1 NEW BURLINGTON PLACE
LONDON W1S 2HR
LONDON W1S 2HR
T +44(0)20 7451 9100
T +44(0)20 7451 9100
F +44(0)20 7451 9150
F +44(0)20 7451 9150
WWW.SEGRO.COM/INVESTORS
WWW.SEGRO.COM/INVESTORS