SEGRO PLC: Annual Financial Report

SEGRO plc 
SEGRO plc (the Company) 
Availability of 2012 Annual Report and Accounts 
The 2012 Annual Report and Accounts is now available to view at 
The following documents are scheduled to be mailed to registered shareholders
of the Company on 15 March 2013: 
* 2012 Annual Report and Accounts; 
* Notice of the 2013 Annual General Meeting; and 
* Form of Proxy for the 2013 Annual General Meeting. 
In accordance with Listing Rule 9.6.1 a copy of each of these documents will be
submitted to the National Storage Mechanism and will be available for viewing
on 15 March 2012 or shortly thereafter. The Notice of the 2012 Annual General
Meeting will be available to view on the Company's website from this date. 
The information below, which is extracted from the 2012 Annual Report and
Accounts, is included solely for the purpose of complying with DTR 6.3.5. This
information should be read in conjunction with the Company's 27 February 2013
announcement of its 2012 Final Results (available at This
material is not a substitute for reading the full 2012 Annual Report and
Accounts. All page numbers and cross-references in the extracted information
below refer to page numbers and notes to the financial statements, in the 2012
Annual Report and Accounts. 
The Group recognises that its ability to manage risk consistently across the
organisation is central to its success. It defines risk as the potential effect
of uncertainty on its ability to achieve its objectives, while risk management
ensures a structured approach to decision-making that aims to reduce the
uncertainty surrounding expected outcomes, balanced against the objective of
creating value for its shareholders. 
The Board has overall responsibility for ensuring that risk is effectively
managed across the Group and, on behalf of the Board, the Audit Committee
reviews the effectiveness of the Group's risk management process. 
The risk management process is designed to identify, evaluate and manage the
significant risks that the Group faces. The process aims to manage, rather than
eliminate, the risk of failure to achieve business objectives, and therefore
can only provide reasonable and not absolute assurance. 
Appetite towards risk is considered at Board meetings whenever significant
strategic, financial or operational decisions are made, and is a key part of
ongoing discussions about strategy. 
The individual risks faced by the Group do not typically change materially from
year to year; however, the magnitude and importance of these risks can change
significantly. The Board recognises that it has limited control over many of
the external risks it faces, such as the macro-economic environment, but it
reviews the impact of such risks on the business and actively considers them in
its decision-making. For example, during 2012 the Board regularly considered
the financial difficulties in the Eurozone and assessed the impact of them on
the Group's investment and divestment decisions. 
The Board monitors internal risks and ensures that controls are in place to
manage them. During the year, the Group revised its governance process for
major investment transactions to ensure that the risks involved in due
diligence or contract negotiations are more formally considered before
proceeding with any transaction and that any specific risks being assessed are
in line with the Group's risk appetite. 
Risks are considered within each area of the business, taking into account both
the unmitigated risk (assuming that controls fail) and residual risk (with
controls operating normally). The most significant risks are detailed in the
Group Risk Register. Each risk is owned by a member of the Executive Committee
and assigned to a manager who is required to develop a plan to manage or
mitigate individual risks to an agreed position. The relatively small
management team allows management to respond quickly to changing events so as
to reduce any adverse effects on the Group's risk profile. 
During the year, the Executive Committee and the Board have reviewed the
effectiveness of the Group's risk management framework and practices. The Group
has identified certain areas for improvement in 2013, such as a greater focus
on seeking to anticipate valuation movements. 
The Group has a Risk Management Committee responsible for regularly reviewing
the Group Risk Register, monitoring the most important controls and
prioritising risk management activities. The Executive Committee considers
emerging risks and their impact on the Group Risk Register. The Board reviews
the principal risks twice a year and the Audit Committee receives a report
twice a year on how the Group Risk Register has been compiled. 
Details of the principal risks and uncertainties facing the Group are set out
The principal risks and uncertainties have the potential to affect SEGRO's
business materially - either favourably or unfavourably. 
The principal risks and uncertainties facing the Group are described below,
along with the potential areas of impact on the Group's key performance
indicators (KPIs) and the principal activities that are in place to manage such
risks. The direction of change in the level of the risk during the course of
2012 is given, along with commentary on any changes occurring and key links to
further relevant information provided in other sections of this report. 
These represent the risk factors over which the Group has limited control, and
so they are rigorously monitored. The most significant of these risk factors
and some of the major potential impacts on the Group are set out below: 
PRINCIPLE UNCERTAINTIES                               POTENTIAL IMPACTS          
CHANGES IN MACRO-ECONOMIC CONDITIONS                  Bank covenant breaches     
Global market and economic conditions have been       Changes in the             
challenging, with tighter credit conditions and       availability and cost of   
slower growth in most major economies during the      finance                    
last few years. Although signs of recovery may                                 
exist, there are continued concerns about government  Fluctuations in currency   
austerity measures, Eurozone sovereign and bank       exchange rates             
debt, the availability and cost of credit and                                  
geopolitical issues that all contribute to increased  Changes in expected        
market volatility and uncertain expectations for the  returns on investments     
global economy.                                                                 
                                                  Changes in asset values    
CHANGES IN GOVERNMENT POLICIES                                                  
                                                  Increases in customer      
Changes in government regulation or policy at         insolvencies               
European Union (EU), national and local levels could                           
impact on the Group. For example, unfavourable        Occupier requirements not  
changes in tax and planning regulations or changes    met                        
to existing or planned infrastructure investment                               
(including transport) might change the value of the   Changes in occupier 
Group's property portfolio or influence development                            
decisions.                                            Changes in rental income   
CHANGES IN THE COMMERCIAL ENVIRONMENT                 Changes in operating 
Changes in consumer behaviour, sustainability         Regulatory requirements    
regulations or customer preferences could impact the  not met / compliance       
attractiveness of the Group's properties to certain   breaches                   
industry sectors. For example, the increase in                                 
online commerce is stimulating the demand for                                  
logistics and distribution space located near major                            
transport hubs and conurbations. Competitor                                    
behaviour could also have a bearing on the Group's                             
plans - particularly in relation to competition for                            
acquisitions, tenants and land for development.                                 
Not all of the risks listed here are within the control of the Group, and other
factors besides those listed may affect the performance of our business. Some
risks may be unknown at present, and other risks that are currently regarded as
immaterial and therefore not detailed here, could turn out to be material in
the future. 
Risks are classified as 'principal' according to their potential level of
materiality after mitigating actions have been taken into consideration as
determined by the risk management process. 
The principal risks that the Group reported last year have evolved in nature,
as has the Group's response to them. Consideration of the Group's current risk
environment, as well as its strategic priorities, has resulted in an additional
risk not being classified as principal risks, and this is described in the
table below. 
Additionally, there are also a number of risks that have been de-classified as
a principal risk since last year. There are a number of reasons for this,
including: the risk has been re-categorised as a principal uncertainty; there
is duplication of an issue; mitigating actions have reduced the level of risk
and/or natural hedging has occurred between risks and/or the uncertainty
surrounding the risk has been reduced. 
The declassified risks are: 'failure to maintain an appropriate and
cost-effective capital structure'; 'the availability and cost of borrowing';
and 'fluctuations in foreign exchange rates'. 
The following table details each of the Group's current principal risks, and
these are arranged by five risk groupings - referred to as risk categories that
cover strategic risks, financial risks, operational risks, investment risks and
compliance/regulatory risks. The purpose of grouping risks into risk categories
is to assist the systematic identification of risks in a consistent manner. It
also helps to identify the root causes of these risks, and the KPIs most
directly impacted by each category are also identified. The Group's strategy
and KPIs are detailed in the Chief Executive's Review on pages 10 to 19. 
The current or prospective risks to earning and capital arising from changes in
the business environment and from adverse business decisions, failed
implementation of decisions or lack of responsiveness to changes in the
business environment. 
RISK                    CHANGE       MITIGATING ACTIONS      COMMENTARY          

                        SINCE 2011                                              

PORTFOLIO SHAPE AND          →       A strategic review of   The reshaping     
PERFORMANCE                          the portfolio was       strategy and the    

                                     completed and assets    progress made      

Management considers                 identified for          during 2012 are    

that if the Group holds              disposal. The           described in the   

the wrong shape                      reshaping strategy is   Chief Executive's  

portfolio then                       being implemented over  Review.            

non-performing assets                the medium term and                       
or the wrong type of                 should result in SEGRO                    
assets may dilute                    holding an appropriate                    
portfolio returns                    balance of high                           
resulting in relative                quality `stabilised'                      
underperformance of TPR              and `opportunity'                         
and TSR against the                  assets necessary to                       
market and external                  achieve the returns                       
expectations.                        that our shareholders                     

PACE OF STRATEGIC            →       The pace of strategic   Considerable      
CHANGE                               charge, including       progress has been   

                                     balancing our           made against three 

If SEGRO does not                    strategic priorities    of the four        

deliver its stated                   against each other      strategic          

strategic changes at                 (for example reducing   priorities         

the right pace and                   leverage against        announced in       

within an acceptable                 reinvesting in new,     November 2011, the 

timeframe then investor              core assets), will      exception being,   

expectations may not be              continue to be          reducing financial 

met and improved                     carefully considered    leverage.          

shareholder returns may              by both the Board and                     
not be delivered.                    the Executive           The strategic      
                                     Committee during 2013,  priorities and the 
                                     alongside the KPIs      progress made      
                                     established in          against these      
                                     November 2011 to        priorities are     
                                     monitor performance.    detailed in the    
                                     Clear targets have      Chief Executive's  
                                     been established for    Review.            
                                     further progress to be                    
                                     made in 2013, which                       
                                     have been built into                      
                                     the personal                              
                                     objectives of senior                      

IMPACT OF THE EUROZONE       →       We remain alert to the  The Financial     
ECONOMIC ENVIRONMENT                 potential financial     Review on pages 38  

                                     and operational risks   to 39 provides     

A deterioration in                   to the business         further detail of  

economic conditions in               arising from a          the Group's 
the Eurozone could                   deterioration in        exchange exposure  

result in a loss in                  economic conditions in  to the euro and 
value or reduction in                the Eurozone. We will   policies and the   

income to the Group, by              continue to maintain a  hedging            

adversely impacting                  high level of currency  arrangements in    

economic performance in              translation hedging     place to manage    

the markets in which we              against the impact of   this exposure.     

hold property assets in              a weaker euro and to                      
Continental Europe. If               closely monitor our                       
this deterioration also              exposure to major                         
resulted in a weakening              tenants in the                            
of the euro against                  Eurozone.                                 
sterling this would                                                            
have an adverse                      Geographically, the                       
currency translation                 portfolio is located                      
impact of the reported               predominantly in the                      
sterling income and                  relatively stronger                       
asset values from our                European economies.                       
euro denominated                     The split by property                     
operations.                          values is: UK 66%,                        
                                     France 11%, Germany                       
                                     8%, Poland 7%, Belgium                    
                                     3%, Netherlands 2%,                       
                                     Italy 2% and Czech                        
                                     Republic 1%.                              


The risks to the cash flows, equity capital and solvency of the Group resulting
from the debt funding arrangements of the Group and movement in external
financial variables that have a significant impact on the Group, such as
interest rates, foreign exchange rates and the creditworthiness of the Group's
major financial counterparties.


RISK                    CHANGE       MITIGATING ACTIONS      COMMENTARY         
                        SINCE 2011                                              

SOLVENCY AND COVENANT        →       Funding and covenant    Further details 
BREACH                               ratio headroom are      Treasury Policy,    

                                     closely monitored by    funding headroom,  

A material fall in the               Group Treasury, the     financial covenant 

Group's property asset               Treasury Committee and  ratios and related 

values or rental income              the Board.              headroom and       

could lead to a breach                                       sensitivities are  

of financial covenants               The impact of major     provided in the    

within its debt funding              investment decisions    Financial Review 
arrangements. This                   on covenant and         pages 36 to 39.    

could result in the                  funding headroom is                       
cancellation of debt                 also considered by the                    
funding which could, in              Investment Committee                      
turn, leave the Group                as part of the                            
without sufficient                   approval process for                      
long-term resources                  these decisions.                          
(solvency) to meet its                                                         


The risk of loss and/or missed opportunities resulting from inadequate or
failed internal processes, people or systems or from external events.


RISK                    CHANGE       MITIGATING ACTIONS      COMMENTARY         
                        SINCE 2011                                              

OPERATIONAL DELIVERY         →       In 2012, various        Sustainability,   
                                    operational processes   performance         
The Group's ability to               were subject to         relative to         
maintain its                         internal audit. This    operational         
reputation, revenues                 has provided assurance  delivery is         
and shareholder value                that our processes are  detailed in the     
could be damaged by                  essentially robust,     Corporate           
operational failures                 but with some scope     Responsibility      
such as:                             for improvement .       Review on pages 24  
                                                         to 31.              
- Health and Safety                  We will ensure that                       
incidents                            operational processes   That section sets   
                                 remain well controlled  out the identified  
- Environmental damage               during 2013, and will   areas for           
                                 seek to implement       improvement in      
- Business systems or                identified              operational         
IT disruption                        improvements to these   processes and the   
                                 processes.              Group's approach 
- Failing to attract,                                        managing people.    
retains and motivate                                                           
key staff                                                                       
- Breach of                                                                    
anti-bribery and                                                               
corruption legislation                                                          
The risks associated with capital allocation including the acquisition,
disposal and development of assets and the valuation of the Group's portfolio. 
RISK                    CHANGE       MITIGATING ACTIONS      COMMENTARY          

                        SINCE 2011                                              

MARKET CYCLE                 →       The Board, Executive    The market 
                                 Committee and           is detailed in the  
The property market is               Investment Committee    Chief Executive's   
cyclical and there is                monitor the property    Review on page 16.  
an inherent risk that                market cycle on a                         
the Group could either               continual basis and                       
misinterpret the market              seek to adapt the                         
or fail to react                     Group's capital                           
appropriately to                     investment/divestment                     
changing market                      strategy in                               
conditions, which could              anticipation of                           
result in capital being              changing market                           
invested or disposals                conditions.                               
taking place at the                                                            
wrong time in the                                                              
APPROPRIATNESS OF            ↓       Formal asset            The approach to   
INVESTMENT PLANS                     management plans are    investment and      

                                     prepared annually for   development is     

Decisions to buy, hold,              all estates to ensure   detailed in the    

sell or develop assets               that capital            Performance Review 

could be flawed due to               allocation is           on pages 20 to 21. 

inadequate analysis,                 optimised across the                      
inappropriate                        portfolio. The plans                      
assumptions, poor due                are used to determine                     
diligence or changes in              where to invest                           
the economic or                      capital in existing                       
operating environment.               assets and to identify                    
                                     assets for disposal.                      
                                     The Group's major                         
                                     development projects                      
                                     are generally pre-let                     
                                     to customers on a long                    
                                     lease. Speculative                        
                                     development is                            
                                     carefully monitored by                    
                                     the Investment                            
                                     Committee and is                          
                                     limited to locations                      
                                     where supply is                           
                                     limited and demand is                     
                                     expected to be strong.                    
                                     A new comprehensive                       
                                     Capital Investment                        
                                     Policy covering                           
                                     evaluation, due                           
                                     diligence, approval                       
                                     and execution, has                        
                                     been developed and                        

PORTFOLIO VALUATION         NEW      The Group's re-shaping  The reshaping       

                                     strategy is focused on  strategy is        

If we fail to                        increasing exposure to  detailed in the    

anticipate portfolio                 attractive assets in    Chief Executive's  

valuation changes we                 core locations and      Review on page 10. 

may fail to take action              disposing of non-core                     
to sell                              assets.                 The progress made  

under-performing assets                                      during 2012 in     

or we may not be able                The Group's investment  reshaping the      

to manage shareholder                team is responsible     portfolio is also  

expectations                         for the regular         detailed in the    

appropriately,                       assessment of           Performance Review 

resulting in TPR                     investment market       on page 11 to 12.  

underperformance or                  conditions and for                        
potential damage to our              managing the biannual                     
reputation with                      external valuations.                      
investors and,                                                                 
ultimately, to an                    This risk is also                         
increase in our cost of              regularly monitored by                    
capital.                             the Investment                            
                                     Committee which also                      
                                     provides oversight of                     
                                     and challenge to the                      
                                     annual asset planning                     
                                     process. An investor                      
                                     relations process is                      
                                     in place to maintain                      
                                     positive shareholder                      
                                     relationship and                          
                                     manage shareholder                        


The risk of legal or regulatory sanctions, material financial loss, or loss of
reputation that the Group may suffer as a result of its failure to comply with
laws, regulations, rules, related self-regulatory organisation standards, and
codes of conduct applicable to its business activities.


Currently there are no compliance risks which, taking into account the impact
of mitigating actions, including continued assessments and internal controls,
are considered to be principal risks.



Transactions during the year between the Group and its joint ventures are
disclosed below:
                                                                   2012    2011

New loans during the year                                           1.2     0.7 
Loans repaid during the year                                          -   (0.4) 
Loans outstanding at the year end                                 172.1   127.0 
Dividends received                                                 18.7     8.3 
Management fee income                                               7.4     5.9 
Transactions between the Company and its subsidiaries eliminate on
consolidation and are not disclosed in this note. Amounts due from subsidiaries
are disclosed in note 18 and amounts due to subsidiaries are disclosed in note
None of the above Group or Company balances are secured. All of the above
transactions are made on terms equivalent to those that prevail in arm's length
Key management personnel comprise Executive and Non-Executive Directors and any
other members of the Executive Committee, as outlined in the Governance Report
on pages 46 to 51. Key management personnel compensation is shown in the table

                                                                   2012    2011

Salaries and short-term benefits                                    3.5     4.4 
Termination benefits                                                  -     0.6 
Post employment benefits                                            0.1     0.2 
Share-based payments                                                0.6     0.1 
TOTAL REMUNERATION                                                  4.2     5.3 
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 audited part of the Report
on Directors' Remuneration on pages 57 to 65. 
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations. 
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors are required to prepare the Group
financial statements in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS
Regulation and have also chosen to prepare the parent Company financial
statements under IFRSs as adopted by the EU. Under company law the Directors
must not approve the accounts unless they are satisfied that they give a true
and fair view of the state of affairs of the Company and of the profit or loss
of the Company for that period. In preparing these financial statements,
International Accounting Standard 1 requires that Directors: 
* properly select and apply accounting policies; 

      * present information, including accounting policies, in a manner that
    provides relevant, reliable, comparable and understandable information;
      * provide additional disclosures when compliance with the specific
    requirements in IFRSs are insufficient to enable users to understand the
    impact of particular transactions, other events and conditions on the
    entity's financial position and financial performance; and
      * make an assessment of the Company's ability to continue as a going concern.

The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Company's transactions and disclose with
reasonable accuracy at any time the financial position of the Company and
enable them to ensure that the financial statements comply with the Companies
Act 2006. They are also responsible for safeguarding the assets of the Company
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
corporate and financial information included on the Company's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions. 
We confirm that to the best of our knowledge: 
* the financial statements, prepared in accordance with International 

    Financial Reporting Standards, give a true and fair view of the assets,
    liabilities, financial position and profit or loss of the Company and the
    undertakings included in the consolidation taken as a whole; and
      * the management report, which is incorporated into the Directors' Report,
    includes a fair review of the development and performance of the business
    and the position of the Company and the undertakings included in the
    consolidation taken as a whole, together with a description of the
    principal risks and uncertainties that they face.

By order of the Board
David Sleath           Justin Read
Chief Executive        Group Finance Director
26 February 2013       26 February 2013 
This Annual Report contains certain forward looking statements with respect to
SEGRO's expectations and plans, strategy, management objectives, future
developments and performance, costs, revenues and other trend information.
These statements and forecasts involve risk and uncertainty because they relate
to events and depend upon circumstances that may occur in the future. There are
a number of factors which could cause actual results or developments to differ
materially from those expressed or implied by these forward looking statements
and forecasts. 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 speak only as of
the date they are made. SEGRO does not undertake to update forward looking
statements to reflect any changes in SEGRO's expectations with regard thereto
or any changes in events, conditions or circumstances on which any such
statement is based. Nothing in this Annual Report should be construed as a
profit forecast. Past share performance cannot be relied on as a guide to
future performance. 
Robin Healy
Deputy Company Secretary
+44 (0) 20 7451 9082 
-0- Mar/08/2013 12:00 GMT
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