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SEGRO Plc 2016 Annual Report

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Annual Report and Accounts 2016 SEGRO Annual Report and Accounts 2016 Overview Financial Chairman’s The right assets in the right places 01 Record Statement Strategic Report p08 p09 Financial Record 08 Chairman’s Statement 09 Business Review 10 Market Overview 12 Business Model 16 Key Performance Indicators 20 Chief Executive’s Review 22 Chief Executive’s Regional Summary 32 Review Operational Review 34 Corporate Social Responsibility 40 p22 Financial Review 48 Principal Risks 54 Governance Chairman’s Introduction 63 Board of Directors 64 Governance Framework 66 Governance Report 67 Nomination Committee Report 73 Audit Committee Report 77 Remuneration Committee Report 85 Remuneration Policy 98 Business Governance Directors’ Report 103 Statement of Directors’ Responsibilities 105 Review p62 p10 Financial Statements Independent Auditor’s Report 107 to the Members of SEGRO plc Group Income Statement 113 Group Statement of 113 Comprehensive Income Balance Sheets 114 Board of Financial Statements of Changes in Equity 115 Directors Statements Cash Flow Statements 117 Notes to the Financial Statements 118 p64 p106 Five-Year Financial Results 169 Further Information Financial Information 170 Shareholder Information 171 Glossary of Terms 172 The Directors present the Annual Report for the year ended 31 December 2016 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 08 to 61 inclusive, comprise the Strategic Report, pages 103 to 104 inclusive comprise the Directors’ Report and pages 85 to 97 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. Overview Strategic Report Governance Financial Statements 01 The right assets in the right places Our warehouses play a crucial role in the operations of our customers, enabling extraordinary things to happen. Our big box warehouses are located on Europe’s major transport corridors, from which goods are distributed regionally, nationally and internationally. Our urban warehouses are located in and around Europe’s major cities, allowing quick access to customers and easy access for companies’ workforces, and include workshops, laboratories, data centres, showrooms and distribution facilities, among a wide variety of other uses. The rise of e-commerce, in particular, has had a major influence on investor and occupier demand for warehousing: retailers are having to reconfigure their supply chains to cater for both their store networks and consumers who buy products online and expect them to be delivered quickly to locations convenient to them. SEGRO is the only listed company to offer this combination and scale of big box and urban warehouses on a pan-European basis. In response to this demand, we are reporting some of the strongest metrics in our recent history, with a record delivery of new developments and a strong pipeline of new space under construction capable of driving growth for the coming years. More information ° More information on SEGRO’s activities and performance can be found at www.SEGRO.com, including investor presentations and the 2016 Property Analysis Report which contains details of the portfolio. ° More details on our Responsible SEGRO initiatives, as well as our Corporate Social Responsibility Reports, can be found at www.SEGRO.com/csr. SEGRO Annual Report and Accounts 2016 02 An award winning design... By being in the right place ° Brompton is a British success story, exporting Brompton’s workshop is located close to the A40, its iconic folding bikes all over the world. M40 and M25, with direct access to the heart of ° Its headquarters, in Greenford, West London, ensures that Brompton maintains its historic London – home to Brompton’s flagship store – as links to London, is easily reached by its highly well as easy access to Heathrow from which the skilled workforce and allows the company to consolidate four parts of its business into a company can reach its 44 export markets. single property. ° The facility includes a viewing platform which allows Brompton customers to watch their personally-specified bikes being built. Overview Strategic Report Governance Financial Statements 03 ...accessible to millions SEGRO Annual Report and Accounts 2016 04 Last minute gift... By being in the right place ° The 16,200 sq m facility was completed in Getting distribution centre configuration and 2016 and is fully let. location right is crucial for parcel delivery ° The warehouse boasts strong sustainability companies. This warehouse, minutes away from credentials. Photovoltaic panels, water saving measures and air source heat pumps ensure Heathrow Airport, allows rapid delivery to London that CO2 emissions are 40% less than and the South-East region, as well as easy and building regulation requirements. efficient distribution of international parcels. Overview Strategic Report Governance Financial Statements 05 ...last mile delivery SEGRO Annual Report and Accounts 2016 06 Supply chain efficiency... By being in the right place ° Volkswagen Group Polska is an importer of SEGRO built a brand new, 32,000 sq m distribution six car brands and is the official original spare facility for Volkswagen Group Polska in Pozna´n, Poland, parts supplier for Poland and Belarus. within easy reach of its Polish dealership network. ° This new facility, ideally located next to the A2 motorway, has allowed Volkswagen Group Polska to increase the efficiency of its distribution network and to extend its Same Day Delivery service. Samochody Użytkowe Overview Strategic Report Governance Financial Statements 07 ...to keep Europe moving SEGRO Annual Report and Accounts 2016 08 Strategic Report Financial record: £154.5M 19.7P £426.4M Adjusted profit Adjusted EPS1 Profit before tax 1 before tax (2015: 18.4p) (2015: £686.5m) (2015: £138.6m) 16.4 P £6.3BN 500P Total dividend Portfolio value2 EPRA net asset 1 per share (2015: £5.5bn) value per share (2015: 15.6p) (2015: 463p) In this section: Important Explanatory Notes about Alternative Performance Metrics used in this Report 1 EPRA and Adjusted metrics: The Financial Statements are prepared under IFRS. SEGRO Business Review 10 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 Market Overview 12 property rental business which is the Group’s core operating activity. These include those defined Business Model 16 by EPRA as part of their mission to establish consistency of calculation across the European listed Key Performance Indicators 20 real estate sector. Pages 132-133 and page 165 of the Annual Report and Accounts contains more information about the adjustments and the reconciliation of these to IFRS equivalents. Chief Executive’s Review 22 Regional Summary 32 2 Proportionally consolidated figures and metrics: SEGRO owns assets both wholly itself and through Operational Review 34 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 Corporate Social Responsibility 40 equity figure on the Balance Sheet; Note 7 to the Financial Statements provides the component Financial Review 48 parts of these figures. In operational terms, SEGRO does not distinguish between assets held in Principal Risks 54 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. Strategic Report Overview Governance Financial Statements 09 Chairman’s Statement Strong performance from a unique portfolio The Chairman’s Statement last year referred Board Changes to our expectation of slowing capital growth Nigel Rich retired as Chairman during the year in 2016 and this was the main reason that our and I would like to thank him on behalf of the profit before tax was £426.4 million, compared Board for his 10 years of service to SEGRO. to £686.5 million in 2015. Our Adjusted He has provided invaluable guidance and profit before tax, which excludes the impact expertise during a period of great change in the of valuation movements, improved by Company and will be missed by everyone who 11.5 per cent to £154.5 million. worked with him. As planned, our acquisition activity slowed Justin Read, who had been SEGRO’s Group during the year, with capital focused instead Finance Director since 2011, retired from the on developing new assets and securing Board and the Company on 31 December development opportunities for the future. 2016. On behalf of the Board and our To help fund these developments we raised shareholders I would like to thank Justin for his £325 million of new equity through an equity expert stewardship of the Company’s finances placing in September. We are grateful for the and his significant contribution towards the vote of confidence in our investment plans transformation of the Company over the past This is my first Chairman’s Letter shown by our shareholders and are already five years. He leaves with our best wishes for a and it is a pleasure to be able to starting to see the benefits of those initiatives. long and happy retirement.
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