SEGRO 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 CHIEF EXECUTIVE’S STATEMENT REGIONAL REVIEWS SEE PAGES 16–19 SEE PAGES 12–15 SEE PAGES 30–33 OUR STRATEGY 02 – 11 73 – 126 SEE PAGES 22–33 OVERVIEW GOVERNANCE WHAT WE DO 08 BOARD OF DIRECTORS 74 WHERE WE DO IT 10 CHAIR’S INTRODUCTION 76 BOARD LEADERSHIP AND 78 12 – 72 COMPANY PURPOSE OUR DIVISION OF RESPONSIBILITIES 84 GOAL STRATEGIC REPORT CHIEF EXECUTIVE’S STATEMENT 12 COMPOSITION, SUCCESSION 88 AND EVALUATION MARKET OVERVIEW 16 AUDIT, RISK AND INTERNAL CONTROLS 92 DISCIPLINED OUR BUSINESS MODEL 20 CAPITAL OPERATIONAL DIRECTORS’ REMUNERATION REPORT 97 ALLOCATION EXCELLENCE OUR STRATEGY 22 DIRECTORS’ REMUNERATION POLICY 118 SECTION 172 STATEMENT 23 EFFICIENT CAPITAL AND DIRECTORS’ REPORT 124 CORPORATE STRUCTURE REGIONAL REVIEW 30 STATEMENT OF DIRECTORS’ 126 FINANCE REVIEW 34 RESPONSIBILITIES KEY PERFORMANCE INDICATORS 40 RESPONSIBLE SEGRO 42 127 – 199 PRINCIPAL RISKS 65 FINANCIAL STATEMENTS INDEPENDENT AUDITOR’S REPORT 128 TO THE MEMBERS OF SEGRO PLC GROUP INCOME STATEMENT 135 FOR MORE INFORMATION ON SEGRO’S ACTIVITIES RESPONSIBLE SEGRO AND PERFORMANCE, PLEASE VISIT OUR WEBSITE: GROUP STATEMENT OF 135 SEE PAGES 42–64 WWW.SEGRO.COM/INVESTORS COMPREHENSIVE INCOME BALANCE SHEETS 136 O UR LE C STATEMENTS OF CHANGES IN EQUITY 137 P O EO M P M R U CASH FLOW STATEMENTS 139 U N O I T Y NOTES TO THE FINANCIAL STATEMENTS 140 The Directors present the Annual Report for the year ended 31 December 2019 which includes the Strategic Report, FIVE-YEAR FINANCIAL RESULTS 199 Governance report and audited Financial Statements for the year. References to ‘SEGRO’, the ‘Group’, the ‘Company’, ‘we’ O T U N or ‘our’ are to SEGRO plc and/or its subsidiaries, or any of them R E S as the context may require. Pages 12 to 72 inclusive, comprise T M A H N 200 – 202 K E Y E A ET O the Strategic Report, pages 124 to 125 inclusive comprise the H LTH SAF IR O & V N Directors’ Report and pages 97 to 117 inclusive comprise the LD E FURTHER INFORMATION ERS UR Directors’ Remuneration Report, each of which have been drawn O up and presented in accordance with English company law and the FINANCIAL INFORMATION 200 liabilities of the Directors in connection with these sections shall be subject to the limitations and restrictions provided by such law. SHAREHOLDER INFORMATION 201 The Annual Report contains forward-looking statements. GLOSSARY OF TERMS 202 For further information see inside back cover. 01 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OUR RICH HISTORY We have included a number of INVESTING in high quality, interesting stories throughout this report that have helped shape sustainable buildings in prime SEGRO over the years. locations since 1920. FOR MORE INFORMATION, PLEASE VISIT: WWW.SEGRO.COM/ABOUT-US/2020 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. READ MORE ABOUT WHAT’S BEHIND OUR STRATEGY ON PAGES 22–23 02 SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019 CREATING EXTRAORDINARY 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 The common understanding of a warehouse, on the edges of cities) combined with the ‘a large building for storing things before they automation of internal processes, has made are sold, used or sent out to shops’1, is far it possible for items ordered online to be 1932 from an accurate description of what really delivered the following day or in some cases THE MARS COMPANY happens inside our buildings. within hours. In 1932 Frank Mars gave his son Forrest Warehouses come in lots of different sizes The expansion of the cloud and the ability the money to set up his own chocolate and hiding behind the deceptively simple to access information on-the-go has been business in the UK. Forrest ended up in exterior, is a fascinating array of businesses facilitated by the growth of data centres - huge Slough and rented a unit on the Slough that use our space to assemble, design, create, warehouses full of hard drives that store this Trading Estate, where he invented the research, distribute, construct and undertake information. The Slough Trading Estate is now Mars Bar. a wide variety of other activities, as well as home to 27 data centres and is the second the more traditional functions of storage largest hub in the world. Almost 90 years later Mars Bars are still and manufacturing. being produced on the estate, with more Our warehouses are also home to businesses than 2.5 million bars being made each day Warehouses are very adaptable spaces and from the food and beverage industry. In Paris, and distributed across Europe. our customers fit them out with mezzanine Agricool grow strawberries using a method levels, workshops, increasingly high-tech that requires 90 per cent less water and It’s also now home to a research and production and distribution lines, showrooms, nutrients in a building within SEGRO Park La development facility, designing the kitchens and even research laboratories. Courneuve and lots of the food consumed chocolate bars of the future. Essentially, if something doesn’t happen in an in London’s hotels, restaurants and high office building or outside it probably happens street food chains was either produced inside a warehouse. in or travelled through our Park Royal estates. Navigation Park, one of our North FOR MORE INFORMATION, PLEASE VISIT: More than half of our rent comes from London estates, is even home to Camden WWW.SEGRO.COM/ABOUT-US/2020 businesses linked to e-commerce (including Town Brewery. 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 03 OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS 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% General manufacturing is also still regularly carried out in our buildings. Brompton have their headquarters, a manufacturing facility 2020 and their flagship store in our Greenford estate, exporting their iconic folding bikes RESEARCH & DEVELOPMENT from London to all over the world. And in A number of our warehouses are used for Germany, LUSH manufacture their handmade cutting edge research and development, the sustainable cosmetics in SEGRO Park findings of which could have a meaningful Düsseldorf Süd. impact on our future. In one of our Beyond this our warehouses are homes to warehouses close to Schiphol airport, Kite businesses involved in film and media, yacht Pharma have installed scientific laboratories in design and construction, leisure activities which they are working on immunotherapy (such as climbing walls and trampoline parks) treatment. Their technology takes a cancer and a huge number of other industries. patient’s blood and genetically modifies some of the cells before reintroducing it When brilliant businesses find outstanding back into the bloodstream where it will spaces, extraordinary things happen. identify and attack cancerous cells, hopefully curing the patient of the disease without the need for chemotherapy and other chemical based treatments. 04 SEGRO PLC | ANNUAL REPORT & ACCOUNTS 2019 CREATING EXTRAORDINARY SPACE SEGRO PARK RAINHAM PHASE 2 This new development will feature some of the most cutting-edge innovations in warehouse design. INNOVATING COMMUNAL GREEN/LIVING TESLA GREEN SPACE WALL BATTERIES Providing seating and a Improving air quality and Storing generated place to unwind. energy levels. electricity for use during off-peak hours. The world around us is fast changing, from the E-commerce has been another output of the industrial revolution of the early 1900’s to the technological revolution that has changed the technological revolution that we are currently requirements for warehouse space as retailers 1920 -25 experiencing, and successful businesses adapt their supply chains for an omni-channel THE SLOUGH TRADING COMPANY LTD constantly innovate so that they stay relevant delivery model. The need for fast and efficient to their customers. throughput of parcels has resulted in the The Slough Trading Estate was formed creation of cross-dock warehouses with a large after WW1 when our founders purchased SEGRO has undergone various number of loading doors and bigger yards for a repair depot for former British military transformations since it was founded in the the movement of both HGVs and smaller local vehicles. They rehired the original War 1920s but a focus on industrial property has delivery vehicles. Department staff and began to adapt remained at its core. And whilst our business the vehicles for civilian use before selling has had to periodically reshape itself, evolving Environmental sustainability has been the them on. By 1925 they had repaired the customer requirements have also led to most recent focus of innovation as we last of them and were left with the empty changes in the design of our warehouses. work to reduce the carbon footprint of our warehouse space that had formerly been buildings. This means looking not just at the The recent technological revolution has workshops and storage.