Last checked at 21 Mar 2011 09:19
SEGRO plc (the Company)
Mailing of 2010 Annual Report and Accounts
The following documents have been mailed to the registered shareholders of the Company:
·; 2010 Annual Report and Accounts;
·; Notice of the 2011 Annual General Meeting; and
·; Form of Proxy for the 2011 Annual General Meeting.
In accordance with Listing Rule 9.6.1 a copy of each of these documents have been submitted to the National Storage Mechanism and will be available for viewing shortly.
The 2010 Annual Report and Accounts and the Notice of the 2011 Annual General Meeting are also available at www.SEGRO.com/investors.
The information below, which is extracted from the 2010 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 Preliminary Announcement of its Final Results (available at www.SEGRO.com). This material is not a substitute for reading the full 2010 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 2010 Annual Report and Accounts.
Principal Risks and Uncertainties
Effective risk management is integral to delivering our strategic priorities. The process for identifying, assessing and reviewing risks faced by the Group is described in the Governance Report section page 55.
Principal risks and uncertainties facing the Group are described below.
1. Strategic Risks
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Impact: An ineffective or poorly executed strategy may damage shareholder value or fail to meet shareholder expectations
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Risk factors
| Mitigation | Commentary |
THE ECONOMIC ENVIRONMENT SEGRO and its customers could be adversely affected by changes in the external economic environment, resulting in a reduced demand for business space, increased customer insolvency levels and falling asset values. | The Board and the Executive Committee actively monitor the external economic environment and seek to adapt the Group's business in order to respond to anticipated changes, as described in the sections set out below. | Over the last year the economic environment appears to have stabilised and there have been positive signs including an increase in UK property values and an improvement in occupancy markets. However, the economic environment remains challenging with particular risks stemming from government austerity measures and concerns over the solvency of weaker European countries and their banks.
We expect that the economy will remain relatively flat through 2011 but prime locations will continue to outperform and present opportunities for investment.
The main external risks are considered as the Group manages Strategic, Financial and Real Estate risks detailed below. The Chairman's Statement page 8.
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STRATEGY The Group develops medium and long term plans based on a wide range of variables. Incorrect assumptions about our markets or changes in, for example, the needs of customers, or activities of competitors may adversely affect the returns achieved by the Group. | Strategy is developed by the Executive Committee and regularly reviewed with the Board. The strategy development process draws on internal and external analysis of geographic and property markets, emerging customer trends and a range of other factors. Independent third party data and analysis is used to underpin the strategy.
| The Group's strategy involves the selection of geographic markets, asset types, customer strategy and investment approach. Also see the Chief Executive's Review page 10. |
THE PROPERTY MARKET CYCLE The property market is cyclical and there is an inherent risk that the Group either misinterprets the market or fails to react appropriately to changing market conditions with capital being invested at the wrong time in the cycle.
| The Board and Executive Committee monitor the property market cycle on a continual basis and seek to adapt the Group's capital investment/divestment strategy in anticipation of changing market conditions. | |
2. FINANCIAL RISKS
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Impact: Financial risks threaten the Group's capacity to meet its financial objectives and potentially its ability to operate as a going concern. The principal financial risks are:
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Risk factors
| Mitigation | Commentary |
SOLVENCY AND LIQUIDITY A material fall in the Group's property asset values or rental income could lead to a breach of financial covenants within its credit facilities, which in turn could lead to credit facilities being cancelled. | The Group has a flexible funding strategy and manages liquidity in accordance with Board approved Treasury Policies designed to ensure that the Group has adequate funds for its ongoing needs.
The Board monitors financial covenant ratios closely and completes scenario analysis to inform its financial planning.
| Group Treasury policies page 41. |
THE COST OF BORROWING Deterioration in the Company's credit profile, a decline in debt market conditions or a general rise in interest rates could impact the cost and availability of borrowing. | The Group monitors its key financial ratios and seeks to maintain a strong investment grade credit rating. The Group also monitors changes in credit market conditions and to the broader financial environment and seeks to optimise its use of different sources of debt capital. Interest rate sensitivity is mitigated by using fixed rate debt instruments.
| Group Treasury policies page 41. Interest rate exposure pages 42 and 94. |
FOREIGN EXCHANGE RATES Foreign exchange rate fluctuations could reduce the sterling value of Continental European assets and earnings. | The majority of foreign currency assets are matched by liabilities denominated in the same currencies. This provides a natural hedge against the value of the Group's overseas assets and earnings. Significant exchange rate fluctuations can also impact the Group's gearing ratio.
| Foreign currency risk management pages 43 and 92. |
3. REAL ESTATE AND OPERATIONAL RISKS
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Impact: Real estate and operational risks may impact the income from and the value of the Group's property assets.
The principal real estate and operational risks are:
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Risk factors
| Mitigation | Commentary |
LOSS OF INCOME A potential loss of income and increased vacancy due to customer default, falling demand or oversupply. | SEGRO has over 1,700 customers in a wide range of business sectors and geographic territories and there is limited exposure to any single customer. The Group stays close to its customers, monitoring the credit worthiness of the customer base and working closely with individual customers facing financial difficulty. The Group has a strong focus on leasing and aims to provide a high level of customer service to minimise the likelihood of customers leaving the Group's properties at the end of a lease or at the point of a break option.
| The vacancy rate across the portfolio is 12 per cent and has been improving through 2010 particularly in the last quarter. In 2011 we expect that despite a challenging occupier market, vacancy rates should continue to decline. Occupancy levels pages 4, 20 and 28. |
CAPITAL RECYCLING / TRADING The failure to acquire or dispose of assets at attractive prices or acceptable terms could result in a loss of value or missed opportunities to create value. | Our property teams are tasked with identifying suitable assets to acquire or sell. All acquisitions are subject to a due diligence process and the Group uses reputable third party advisors to assist with due diligence and contractual negotiations. The Capital Approvals Committee oversees all significant acquisitions and disposals. Investment decisions are based on experience and analysis, with reference to data from a wide range of external and internal sources.
| Despite challenging market conditions, in 2010 the Group was successful in acquiring the APP portfolio and continuing to dispose of non-core assets.
Acquisition of APP page 22. Disposal pages 23 and 31. |
DEVELOPMENT
Development projects fail to deliver expected returns due to increased costs, delays, or changes in property market values. | The Executive Committee regularly reviews the Group's land holdings and seeks to balance the requirement for development land with the cost of holding a non-productive asset. The Capital Approvals Committee approves all significant developments. Sensitivity analysis is carried out on all potential investments to determine the effects of changes in the principal project assumptions on returns.
| In 2010 the Group signed 12 pre-let developments.
In 2011 we expect to initiate more construction developments primarily for customers who are committed to long term, pre-let contracts. Development information pages 22 and 31. |
OBSOLESCENCE Older or bespoke buildings may become obsolete more quickly than expected resulting in lower income and valuations. | The Group maintains asset management plans for all estates and these are intended to identify the optimum point at which to develop, refurbish, re-develop or sell each asset. Asset management plans are reviewed regularly by the Executive Committee. Our new developments and refurbishments are designed with an emphasis on flexible use in order to minimise the impact of obsolescence and maximise long term value. | The Group operates a range of buildings to suit customer needs. The majority of older buildings continue to be attractive to customers but some age poorly and become difficult to lease at competitive rates, particularly if they have been highly customised.
The Group's focus on flexible business space is one way in which we aim to counter the effects of obsolescence and ensure that our buildings provide a long term sustainable income.
Operating review UK and Continental Europe Pages 18 and 26.
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REGULATORY A change or breach of regulatory requirements. Regulatory changes, particularly those affecting the UK assets could impact property values or operating costs. | The business is actively managed to maintain compliance with regulations. Senior managers lobby on property matters through the relevant industry bodies. The Group has Committees of the Executive in place to oversee internal policies in areas such as "Health and Safety" and "Sustainability" which go beyond legal compliance.
| More information about Sustainability reporting page 32. |
HEALTH AND SAFETY The potential for loss or injury to a range of employees, contractors, customers and members of the public. | The Health and Safety Committee oversees the implementation of a comprehensive, Group-wide health and safety programme. | Accident rates throughout the Group remain low. Safety page 35. More information will be provided in the SEGRO 2010 Sustainability Report, to be published in April 2011.
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In setting out the Group's principal risks and uncertainties and commentary on possible future developments, above, the statements should not be considered indications of likelihood or certainty. The statements are based on the knowledge and information available at the date of preparation of this Directors' report and what are believed to be reasonable judgements. A wide range of factors may cause the actual outcomes and results to differ materially from those contained within, or implied by, these various forward-looking statements.
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RELATED PARTY TRANSACTIONS
Group
Transactions during the year between the Group and its joint ventures are disclosed below:
2010 £m | 2009 £m | ||
New loans to joint ventures during the year | - Existing | 5.1 | 13.9 |
- Acquired in Brixton | - | 102.2 | |
Loans repaid by joint ventures during the year | (29.3) | (11.9) | |
Loans outstanding to joint ventures at the year end | 127.2 | 152.0 | |
Dividends received | 8.8 | 12.9 | |
Management fee income | 1.9 | - |
As disclosed in note 6 the Group sold £237.1 million of property and joint venture investments into APP on an arm's length basis.
Company
Balances outstanding between the Company and external related parties at balance sheet date are £14.0 million (2009: £18.3 million). 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 17 and amounts due to subsidiaries are disclosed in note 18. 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 transactions.
Remuneration of key management personnel
Key management personnel comprise Executive and Non-Executive Directors and any other members of the Executive Committee, as outlined in the Governance Report on page 52. Key management personnel compensation is shown in the table below:
2010 £m | 2009 £m | |
Salaries and short-term benefits | 3.9 | 3.6 |
Termination benefits | 0.2 | - |
Post employment benefits | 0.9 | 0.8 |
Share-based payments | 1.2 | 0.6 |
Total remuneration | 6.2 | 5.0 |
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 audited part of the Report on Directors' Remuneration on pages 58 to 66.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The statement of Directors' Responsibilities below has been prepared in connection with the Company's full Annual Report for the year ending 31 December 2010. Certain parts of the Annual Report have not been included in this announcement as set out in note 1 of the financial information.
We confirm that to the best of our knowledge:
·; the financial statements, prepared in accordance with IFRSs as adopted by the European Union, 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.
This responsibility statement was approved by the board of directors on 23 February 2011 and is signed on its behalf by:
Harriet Huband
+44 20 7451 9083