6th Mar 2008 07:00
Issued for immediate release: 6 March 2008
PRELIMINARY RESULTS ANNOUNCEMENT FOR THE YEAR TO 31 DECEMBER 2007
SEGRO, the leading European provider of flexible business space, announces its Preliminary Results for the year ended 31 December 2007.
Highlights----------
‚· Strong underlying profit performance - adjusted profit before tax
increased by 7.7 per cent to ‚£153.7m (2006: ‚£142.7m), comprising profit
from both continuing operations (‚£131.3m) plus discontinued operations
(‚£22.4m). Profit before tax reported under IFRS was ‚£242.9m
(2006: ‚£690.1m).
‚· Adjusted diluted NAV per share was down 9.2 per cent at 704p (down 13.2
per cent since June 2007), NAV per share was down 3.9 per cent at 690p.
These reflected property valuation reductions including a 9.5% market-
driven year on year UK deficit, positively countered by a surplus of 6.2%
in Continental Europe. H1 2007 property gains of 3.1 per cent (UK: 2.1 per
cent; Continental Europe: 9.1 per cent) were offset by a second half
deficit of 9.1 per cent (UK: 11.3 per cent; Continental Europe 0.2 per cent
gain).
‚· Very strong lettings achieved in the UK with a record 298,000 sq m of
space let (up 62 per cent) and overall vacancy reduced from 11.6 per cent
to 10.8 per cent (8.5 per cent underlying).
‚· Excellent progress in Continental Europe with ‚£425m (¢â€š¬621m) of
attractive acquisitions and development expenditure of ‚£112m (¢â€š¬164m). Very
good letting figures of 298,000 sq m (up 76 per cent) and a vacancy rate of
5.9 per cent at year end (down from 8.7 per cent).
‚· Successful and well-timed exit from the USA realising a pre-tax gain on sale of ‚£437m and enabling the payment of a ‚£250m special dividend (53 pence per share) in August 2007. ‚· Adjusted diluted earnings per share up 28.3 per cent at 32.2p (2006: 25.1p) with a basic unadjusted loss per share of 16.4p (2006: 201.8p earnings per share). ‚· Final dividend per share of 14.7p, making a total dividend of 23p per
share, up 21 per cent over 2006 and assisted by the Group's REIT conversion
on 1 January 2007.
‚· Strong balance sheet and resilient business model with a year end
adjusted debt to equity ratio of 56 per cent, a loan to value ratio of 34
per cent, average debt maturity of 10.5 years and available funds of
‚£1.1bn.
Ian Coull, Chief Executive commented:
"2007 was a transformational year for SEGRO, in which we became a UK REIT,achieved critical mass in Continental Europe, delivered a timely and wellexecuted disposal of our US business and divested the power station in Slough.We produced excellent profits, underpinned by our customer focus and our coreskills in asset management and development.Looking forward, we expect the continuing weakness in the credit and real estateinvestment markets to maintain downward pressure on UK commercial propertyvalues during the first half of the year. However, occupier demand across allour key markets continues to hold up well and, with a strong balance sheet -‚£1.1 billion of available facilities - a focused business model and a broaddiversity of customers, SEGRO is well placed to take advantage of theopportunities and to face the challenges that lie ahead".SUMMARY FINANCIAL STATEMENT TABLES----------------------------------INCOME STATEMENTContinuing Operations 2007 2006Net rental income(1) (‚£m) 204.8 188.8Property (losses)/gains (‚£m) (382.2)
397.5
(Loss)/profit before taxation (‚£m) (246.5)
505.5
Adjusted profit before taxation(2) (‚£m) 131.3
99.6
Underlying tax rate(4) (%) 1.4
14.0
Continuing and Discontinued OperationsProfit before taxation (‚£m) 242.9
690.1
Adjusted profit before taxation(2) (‚£m) 153.7
142.7
Basic (loss)/earnings per share (p) (16.4)
201.8
Adjusted diluted earnings per share(3) (p) 32.2
25.1
Total dividend for the year (p) 23.0 19.0Total return(9) (%) 0.7 19.2BALANCE SHEET 31 December 31 December 2007 2006
Total properties, including share of Joint Ventures (‚£m) 5,182.6 6,079.8 Net assets excluding minority interests (‚£m)
2,989.0
3,372.7
Adjusted net assets(5) (‚£m) 3,056.0
3,648.8
Net assets per share (p) 690
718
Adjusted diluted net assets per share(6) (p) 704
775Net debt (‚£m) 1,701.1 2,223.4Debt to equity(7) (%) 55.7 60.9Loan to value(8) (%) 34.0 38.0
1. Including rental income on trading properties.
2. Profit before tax adjusted for EPRA and exceptional items.
3. Earnings per share based on adjusted profit before tax and reflecting the
dilutive effects shares held by the ESOP trust.
4. Tax charge, excluding deferred tax on valuation movements, as a percentage
of adjusted profit before tax.
5. Shareholders' funds adjusted to add back deferred tax associated with
investment properties.
6. NAV per share adjusted to add back deferred tax associated with investment
and development properties and to reflect the dilution caused by shares
held in the ESOP. 7. Net debt as a percentage of net assets adjusted to add back deferred tax associated with investment and development properties.
8. Net debt as a percentage of the total property portfolio excluding joint
ventures.
9. Adjusted NAV growth plus dividends paid in the period and after adding back
the SIIC conversion charge of ‚£13.9 million (2006 restated to add back the
REIT conversion charge of ‚£81.9 million).
SEGRO plc The Maitland ConsultancyMichael Waring Colin Browne Tel: +44 (0)7775 788 628 Tel: +44 (0)20 7379 5151About SEGRO SEGRO is the leading provider of Flexible Business Space in Europe.Headquartered in the UK, SEGRO is listed on the London Stock Exchange and onEuronext in Paris. The company is a UK Real Estate Investment Trust ("REIT")with operations in ten countries (it completed the exit from its US business inAugust 2007), serving a diversified customer base of over 1,600 customersoperating in a wide range of sectors, representing both small and largebusinesses, from start ups to global corporations. With property assets of ‚£5.2billion (including trading properties and development assets) and around 4.7.million sq m of business space, SEGRO has an annual rental income in excess of‚£249 million. www.segro.comSEGRO PLC - 2007 PRELIMINARY RESULTS DETAIL-------------------------------------------SUMMARY DATA TABLES: THE INVESTMENT PORTFOLIO - Completed Investment Properties Rental Data* Lettable % of Passing Market Gross Net Vacancy space at (sq m) rent at rental rental rental Rate by 31.12.07 Total 31.12.07 value income income Space (ERV) at for 2007 for 2007 31.12.07 (000's sqm) (‚£m) (‚£m)
(‚£m) (‚£m) % UK - by asset typeIndustrial 2,330.6 56.3 146.8 180.0 167.8 133.8 10.7Offices 193.2 4.7 26.2 36.5 32.4 22.0 12.3Retail 55.2 1.3 11.8 13.4 12.2 10.4 0.1Total UK 2,579.0 62.3 184.8 229.9 212.4 166.2 10.8Continental Europe - by asset typeIndustrial 1,450.1 35.0 53.2 62.5 32.0 26.3 5.1Offices 85.4 2.1 9.8 12.1 9.3 7.6 20.1Retail 23.0 0.6 1.7 1.9 1.4 1.1 0.0Total Continental Europe 1,558.5 37.7 64.7 76.5 42.7 35.0 5.9Continental Europe - by countryFrance 473.5 11.4 19.8 18.9 13.4 11.4 3.9Germany 530.1 12.8 17.0 23.5 10.0 8.0 3.5Belgium 166.4 4.0 13.3 17.8 12.4 10.0 19.0Netherlands 88.0 2.1 3.9 4.2 2.0 1.6 1.0Italy 68.4 1.7 4.9 4.9 1.8 1.6 0.0Spain 2.0 0.0 0.1 0.1 0.0 0.0 0.0Central Europe 230.1 5.6 5.7 7.1 3.1 2.4 9.9Total 1,558.5 37.7 64.7 76.5 42.7 35.0 5.9Industrial 3,780.7 91.4 200.0 242.5 199.8 159.8 8.6Offices 278.6 6.7 36.0 48.6 41.7 29.8 14.7Retail 78.2 1.9 13.5 15.3 13.6 11.6 0.1Group Total 4,137.5 100.0 249.5 306.4 255.1 201.2 8.9 Valuation Data* Valuation Valuation Valuation Valuation Initial Equivalent 31.12.07 % of total surplus/ surplus/ Yield yield (deficit) (deficit) (‚£m) (‚£m) % % %UK - by asset typeIndustrial 2,666.4 60.7 (292.3) (9.9) 5.5 6.1Offices 561.7 12.8 (48.1) (7.9) 4.7 6.2Retail 227.5 5.2 (21.4) (8.6) 5.2 5.5Total UK 3,455.6 78.7 (361.8) (9.5) 5.3 6.1Continental Europe - by asset typeIndustrial 747.8 17.1 38.5 5.4 7.0Offices 163.7 3.7 13.8 9.2 6.0Retail 21.0 0.5 2.0 10.5 8.1Total Continental Europe 932.5 21.3 54.3 6.2 6.9 7.0Continental Europe - by countryFrance 284.0 6.5 14.5 5.4 7.0 7.1Germany 220.2 5.0 8.3 3.9 6.7 7.5Belgium 209.9 4.8 11.4 5.7 6.3 6.7Netherlands 50.6 1.2 0.4 0.8 7.7 6.9Italy 67.8 1.5 0.0 0.0 7.2 6.3Spain 1.1 0.0 0.0 0.0 8.2 6.5Central Europe 98.9 2.3 19.7 24.9 5.8 6.9Total 932.5 21.3 54.3 6.2 6.9 7.0
Industrial 3,414.2 77.8 (253.8) (6.9) 5.8Offices 725.4 16.5 (34.3) (4.5) 5.0Retail 248.5 5.7 (19.4) (7.2) 5.4Group Total 4,388.1(1) 100.0 (307.5) (6.5) 5.7 6.3
* Including the Group's share of joint ventures' properties. Excluding land
held for investment and properties in the course of construction.
(1) A reconciliation to total properties as per the balance sheet is included
within note 6 of the attached financial statements.
REVERSIONARY POTENTIAL as at 31 December 2007--------------------------------------------- Passing rent subject to Reversion to ERV on ERV of vacant rent review in 2008 2009 2010 Occupied properties properties (‚£m) (‚£m) (‚£m) (‚£m) (‚£m)UK - Industrial 21.5 19.0 26.1 3.0 21.3 - Offices 2.6 3.2 4.4 (0.8) 4.2 - Retail 4.6 0.1 0.5 1.3 -Continental Europe - - - 6.0 5.8Total 28.7 22.3 31.0 9.5 31.3LETTINGS ANALYSIS----------------- Area 000's sq m Rent(1) pa (‚£m) Lettings Space Returned Lettings Space Returned 2007 2006 2007 2006 2007 2007UK - Lettings of new developments 88 38UK - Existing vacant 148 129UK- Licenses 62 17Total UK 298 184 217 169 25.5 14.7Continental Europe 298 169 69 86 9.9 3.2Total Group 596 353 286 255 35.4 17.9
(1) Annualised rent, after the expiry of any rent free periods.
VACANCY ANALYSIS---------------- 31 December 31 December 2007 2006 (%) (%)UK 10.8 11.6Continental Europe 5.9 8.7Group Total 8.9 10.9Analysis of Underlying UK VacancyRecent acquisitions (less than 18 months) 0.0
2.5
Completed development sites (less than 18 months) 2.3 1.1Underlying UK vacancy 8.5 8.0Total UK 10.8 11.6Lease expiries & customers--------------------------Investment properties only Average Passing rent Passing rent lease (at 31.12.07) of subject Length leases which to to expire in: breaks: Number of Break Expiry 2008 2009 2010 2008 2009 2010 customers (Years) (Years) (‚£m) (‚£m) (‚£m) (‚£m) (‚£m) (‚£m)UK - Industrial/Warehousing 1,251 6.1 8.5 7.7 10.5 10.7 11.1 11.1 8.3 - Offices 122 5.7 8.7 0.4 0.8 0.4 2.9 0.8 1.9 - Retail 96 9.1 9.2 - - - 0.1 - -Total UK 1,469 6.3 8.6 8.1 11.3 11.1 14.1 11.9 10.2Continental Europe 205 5.9 8.4 6.3 1.6 1.8 2.6 5.9 5.2Group Total 1,674 6.4 8.6 14.4 12.9 12.9 16.7 17.8 15.4DEVELOPMENT PIPELINE SUMMARY*-----------------------------Group Total Construction Potential Potential Potential starts Total in progress starts starts in 2010 & beyond programme in 2008 2009Land area ha 59 126 123 226 534 Space:Logistics warehousing 000's sq m 147 285 296 564 1,292Other industrial 000's sq m 100 127 172 286 685Offices 000's sq m 58 52 79 316 505Retail 000's sq m 2 2 4 - 8Total 000's sq m 307 466 551 1,166 2,490Investment properties % 72 73 72 68 72Trading properties % 28 27 19 32 28Pre-Let % 37 11 - - 7Planning status - fully approved % 100 26 16 7 24 - zoned/outline approval % - 58 72 75 62Rental value when completed ‚£m 23 31 39 99 192Current valuation ‚£m 166 115 130 251 662
Forecast future costs to completion ‚£m 135 308 352
896 1,691UKLand area ha 11 50 24 65 150Space:Logistics warehousing 000's sq m 0 14 28 10 52Other industrial 000's sq m 41 55 54 158 308Offices 000's sq m 11 42 24 174 251Retail 000's sq m 2 2 4 - 8Total 000's sq m 54 113 110 342 619Investment properties % 95 100 100 100 100Trading properties % 5 - - - -Pre-Let % 64 26 - - 10Planning status - fully approved % 100 53 14 17 30 - zoned/outline approval % - 15 58 62 48Rental value when completed ‚£m 8 17 16 54 95Current valuation ‚£m 65 78 73 168 384
Forecast future costs to completion ‚£m 53 182 140
460 835Continental EuropeLand area ha 48 76 99 161 384Space:Logistics warehousing 000's sq m 147 271 268 554 1,240Other industrial 000's sq m 59 72 118 128 377Offices 000's sq m 47 10 55 142 254Retail 000's sq m - - - - -Total 000's sq m 253 353 441 824 1,871Investment properties % 67 64 76 55 63Trading properties % 33 36 24 45 37Pre-Let % 31 7 - - 6Planning status - fully approved % 100 17 17 4 22 - zoned/outline approval % 0 72 75 80 67Rental value when completed ‚£m 15 14 23 45 97Current valuation ‚£m 101 37 57 83 278
Forecast future costs to completion ‚£m 82 126 212 436 856
* Including the Group's share of joint ventures' properties
Further details of the investment portfolio and the development pipeline will bepublished on the Investors Relations section of our website http://www.segro.com. All amounts are indicative only and are liable to change. Certain propertiesincluded above are currently income producing and are expected to beredeveloped; such properties have a current book value of ‚£119 million andproduce current rental income of approximately ‚£8 million per annum.OPERATING REVIEW----------------Overview of 20072007 was a transformational year for SEGRO, in which we became a UK REIT,achieved critical mass in Continental Europe, delivered a timely and wellexecuted disposal of our US business and divested the power station in Slough.The US sale enabled us to return ‚£250 million to shareholders in the form of aspecial dividend (accompanied by a share consolidation), and provided funds tofinance the Group's future growth and development. Once again we have producedexcellent profits underpinned by our customer focus and our core skills in assetmanagement and development.Adjusted profit before tax increased by 7.7 per cent to ‚£153.7 million (2006:‚£142.7 million) comprising profit from both continuing operations (‚£131.3million) plus discontinued operations (‚£22.4 million). This increase was drivenby a strong contribution from acquisitions, rental income from the letting ofexisting properties and new developments, trading property disposal profits andfrom other income. The positive impact of REIT and SIIC status were the maindrivers of the reduction in our effective tax rate from 14.0 per cent in 2006 to1.4 per cent in 2007.We have made excellent progress in the growth of our Continental Europeanbusiness with ‚£425.2 million (¢â€š¬620.8 million) of attractive acquisitions (at anaverage initial yield of approximately 7 per cent) and with developmentexpenditure of ‚£112.4 million (¢â€š¬164.1 million). Our acquisitions enabled us toestablish a presence in new markets, such as Lyon and Milan and strengthen ourposition in existing markets, such as Frankfurt, or with key customers (eg DHL).All of these acquisitions offer opportunities to enhance the initial yieldthrough further development or asset management. Good occupier demand for ourexisting buildings and for newly completed developments enabled us to achievevery strong letting figures of 298,000 sq m (up 76 per cent on 2006) on theContinent. In addition, 104,000 sq m of the current construction in progress andpotential 2008 development starts are already pre-let. The vacancy rate of 5.9per cent at year end is down significantly on the 8.7 per cent reported lastyear end.Very strong lettings were also achieved in the UK with a record 298,000 sq m ofspace taken up by customers, some 62 per cent ahead of the level achieved in2006 and helped by the delivery and take up of a number of well timed andlocated development completions. ‚£7.9 million of additional annualised incomefrom developments came on stream during 2007. Overall UK vacancy reduced from11.6 per cent to 10.8 per cent (8.5 per cent underlying) by 31 December 2007with good levels of customer enquiries continuing into the New Year. We madeonly a few, very carefully selected acquisitions in the UK in 2007, focusing onexceptional opportunities to complement existing holdings in key locations.Meanwhile, we generated some ‚£232.8 million from the sale of UK properties(including trading properties), mostly in the first half of the year beforeinvestment market conditions deteriorated. As a result of our asset management,development and capital recycling in the UK, we have grown the UK rental incomefor the year by 3.8 per cent (excluding lease surrender premiums) and theaverage ERV of our investment portfolio increased by 6.0 per cent to ‚£89.1 persq m (‚£8.30 per sq ft). UK average rental growth from lettings and rent reviewswas relatively subdued, showing a 1.4 per cent increase over December 2006 ERV,slightly above the 1.2 per cent level in the equivalent IPD indicator forindustrial rents; within this, we achieved 3 per cent average growth from rentreviews.NAV per share was 690 pence, down 3.9 per cent from last year end and adjusteddiluted NAV per share (which adds back deferred tax on investment properties)was down 9.2 per cent (13.2 per cent since June 2007) at 704 pence. Thesedeclines reflect the well documented reduction in commercial property valuationsaffecting all sectors of the UK market in the second half of 2007. The IPD AllProperty Index showed a capital reduction of 11.7 per cent between June andDecember 2007, whilst Industrial recorded a 10.8 per cent reduction. Our UKinvestment portfolio showed an 11.3 per cent valuation reduction since June,with Continental Europe recording a 0.2 per cent positive movement in the sameperiod.Management changes------------------
A number of management changes were made in 2007 which will ensure SEGRO is wellplaced for the years ahead. After three years leading the rapid and successfulexpansion of our Continental European business, Walter Hens is now using hisproven deal-making skills to head up a newly created Group Business Developmentfunction. This function will be responsible for driving our relationships withmajor cross-border customers, particularly focusing on the 'big box' logisticsmarket and on data centres.We appointed Ines Reinmann to become head of our Continental European businessfrom January 2008. Ines' initial priorities will include reinforcing SEGRO'sprocesses to most effectively manage our burgeoning European business and toprovide a strong platform for future growth.In the UK we have re-structured into three geographically-organised businessunits - the Slough Trading Estate, London Markets and National Markets. Thisstructure is an evolution of the successful move to a regional structure whichstarted over two years ago. As previously announced, John Heawood, ExecutiveDirector, UK Property, will be leaving the business in the summer of 2008. Johnhas played an important role in developing the UK portfolio over a number ofyears and we wish him well for the future; a search for his replacement is
wellunder way.Development-----------
SEGRO is a development-led property investment company and our developmentpipeline is a key driver of future growth. The Group has an extremely welllocated land bank of approximately 534 hectares, with the potential to developalmost 2.5 million sq m of buildings over several years. At today's prices, thiswould entail future development expenditure of approximately ‚£1.7 billion andcould produce annual rents in the region of ‚£184 million (net of rents whichwill be given up on currently income producing buildings to be redeveloped),giving an estimated cash yield of 11 per cent on future expenditure (includingfinancing costs) or 8 per cent taking into account the current book value of theland bank (‚£662 million).During 2007, 343,651 sq m of development space was completed, of which 252,206sq m or 73 per cent had either been sold or let by the year end. This level ofsuccess, combined with our excellent lettings in 2007 and the pre-lets alreadysecured, gives us particular confidence in the current development programme.306,679 sq m of development was under construction at the end of 2007, of which113,686 sq m had either been let or sold. At this stage of the year, a further465,529 sq m of development has been provisionally scheduled to startconstruction in 2008 and this will be adapted as the year progresses to ensurethat we are developing in line with market demand and that the consequentialfinancial returns are likely to meet our requirements.Identifying and acquiring attractive sites in good locations, managing theplanning process, developing the right products to coincide with likely customerdemand and letting the space are our core competencies. A pre-requisite for anydevelopment proposal approval is a robust business case, clearly demonstratingthat acceptable risk-adjusted returns will be delivered.
Based on current expectations and anticipated market conditions, we expect most of the current development pipeline to take approximately 5 years to deliver.
Outlook-------
Our priorities for 2008 are to:
‚· continue to work with our customers to meet their needs for business
space and deliver strong letting figures, building on our long term
customer relationships and leveraging this through our newly established
Group Business Development function
‚· maintain momentum in our development programme, particularly in Central
Europe, but to 'de-risk' it in other geographies potentially more vulnerable to an economic downturn, by carefully managing the level of speculative development
‚· preserve the Group's balance sheet strength so as to position the Group
to take advantage of attractive acquisition and investment opportunities
which may emerge over the coming months
‚· continue building our Continental European platform, mainly through
development, and to study potential new markets - building in particular on
our successes with logistics occupiers ‚·'recycle' capital by selling mature properties when investment market conditions allow
‚· deliver new systems to improve operating efficiency and to drive future
growth
Whilst concerns remain about a potential slow down in the global economy, ouroccupier demand across all of our key markets is currently holding up well. Weare staying close to our customers and watching developments carefully so thatappropriate action can be taken swiftly if conditions start to weaken. SEGRO hasa strong balance sheet and resilient business model - the year-end debt toequity ratio of 56 per cent, loan to value ratio of 34 per cent and availablefunds of ‚£1.1 billion (with no significant debt maturities before mid 2010),mean we have significant financial resources at our disposal. We serve a broaddiversity of customers and industries and have relatively long average remaininglease lengths. These factors, combined with the flexibility we have to adjustthe pace of speculative development relatively quickly, mean that SEGRO is wellplaced to face any challenges the market may present and to capitalise onsuitable opportunities that may lie ahead.FINANCIAL REVIEW----------------
Analysis of movement in net asset value
Pence ‚£m per shareAdjusted diluted equity attributable toshareholders at 31 December 2006 3,648.8 774.9Property losses (342.8) (79.0)Profit after tax on sale of US business 134.9 31.1Deferred tax adjustment on sale of US business (213.4) (49.2)Profit after tax on sale of Utilities business 7.7 1.8Adjusted profit after tax 147.6 34.0SIIC conversion charge (13.9) (3.2)Currency translation differences 17.7 4.1Ordinary dividends paid (91.9) (21.2)Special dividend paid (250.0) (57.6)Other items 11.3 2.6
Dilution adjustment for movement in number of shares - 66.0Adjusted diluted equity attributable toshareholders at 31 December 2007 3,056.0 704.3The most significant factor affecting the NAV movement and total return for theyear was the property losses of ‚£342.8 million (79.0 pence per share), whichfollowed the well publicised valuation reductions seen across the UK propertyindustry. Whilst being a very significant item, it should be placed in the widermarket context of falling UK commercial property values across all sectors andthe ‚£1.3 billion in aggregate valuation gains which the Group recorded in theprevious three years (including US properties).The property valuation losses in the income statement comprised valuation lossesof ‚£442.1 million relating to the UK and gains of ‚£56.9 million relating toContinental Europe and included deficits of ‚£337.6 million arising on investmentproperties and ‚£47.6 million arising on development and owner-occupied property.
Valuation gains were 3.1 per cent for the Group in the first half of the year, offset by a fall of 9.1 per cent in the second half of the year.
Good valuation gains were achieved in the first half of the year in CentralEurope (in Poland), France and Belgium, driven mainly by development activityand some yield compression, with valuation gains of 9.1 per cent being reportedoverall. In the second half of the year, there was a slight softening invaluation yields but development gains enabled us to maintain the portfoliovaluation with a 0.2 per cent surplus being reported in Continental Europe.The UK has experienced significant valuation deficits in the year, which arebroadly in line with the monthly IPD UK industrial capital deficit of 9.6 percent for the year (2006: 11.0 per cent growth). Valuation gains of 2.1 per centin the first half were offset by deficits of 11.3 per cent in H2. Furtheranalysis of the valuation gains and losses is provided in the portfolio table onpage 3.For the first time in 2007 the Group had all its trading properties externallyvalued as of 31 December 2007. The trading property portfolio had anunrecognised valuation surplus of ‚£74.3 million at 31 December 2007, which weexpect to realise as developments are completed and sold. An impairment chargeof ‚£2.3 million (2006: nil) relating to 100 per cent owned trading properties isoffset against the profit on sale of trading properties and the remainingimpairment provision of ‚£1.6 million is reflected in the share of profits
fromjoint ventures after tax.Adjusted profit before tax--------------------------
Analysis of increase in adjusted profit before tax ‚£mAdjusted profit before tax from continuing anddiscontinued operations - 2006 142.7Decrease in profit before tax from discontinued operations (20.7)Increase in net rental income 15.1Increased profits from sales of trading properties 16.1Interest earned/saved on US proceeds net of special dividend 13.7Reduction in capitalised interest (9.3)Increase in other finance costs (3.3)Increased administration expenses (9.0)Other changes (mainly in other income) 8.4Adjusted profit before tax from continuing anddiscontinued operations - 2007 153.7Adjusted profit before tax of ‚£153.7 million (2006: ‚£142.7 million) comprised‚£131.3 million (2006: ‚£99.6 million) from continuing operations and ‚£22.4million (2006: ‚£43.1 million) from the discontinued operations of Slough EstatesUSA and Slough Heat and Power.Adjusted profit before tax from continuing operations increased by 31.8 per centpartly due to increased net rental income of 8.0 per cent and the benefit ofinterest earned on the net US sales proceeds. In addition, an increase inprofits on sale of trading properties of ‚£16.1 million to ‚£22.0 million (2006:‚£5.9 million) also contributed, with the gains mainly arising on the sale ofFarnborough residential land (‚£9.7 million), a fire control centre at CambridgeScience Park (‚£3.5 million), non-core buildings in the Karstadt portfolio inGermany (‚£3.7 million), a surplus land holding in the Netherlands (‚£2.3 million)and other UK and Continental European property (‚£2.7 million and ‚£2.4 million,respectively), partly offset by provisions against impairment of tradingproperties of ‚£2.3 million.During the year other investment income increased significantly by ‚£9.9 millionto ‚£18.4 million, as a result of realisations of previous investments by theCandover and Charterhouse USA venture capital investment funds, in which theGroup invested some years ago. These gains were partly offset by an increase inadministration expenses of ‚£9.0 million to ‚£34.5 million (2006: ‚£25.5 million),of which ‚£6.8 million relates to the Continental European business as wecontinue to expand the scale of operations, with new offices and additionalemployees. The cost of share based incentives payable to directors and othersenior executives represented an increase of ‚£1.7 million.Adjusted profit and earnings per share are stated after adjusting for valuationgains/losses and similar items recommended by EPRA and exceptional items. Theonly other adjustments in the year were the SIIC conversion charge of ‚£13.9million, included within continuing operations, a repayment penalty of ‚£9.7million after tax in discontinued operations related to the early redemption ofUS debt incurred as part of the disposal and negative goodwill of ‚£0.9 millioncredited to the income statement (2006: none). Full details of all the EPRA andexceptional adjustments are provided in note 5 to the attached financialstatements.Rental Income-------------
Gross rental income, excluding discontinued operations, increased by ‚£30.2 million (13.2 per cent) to ‚£258.8 million and net rental income, on the same basis, increased by 8.0 per cent to ‚£203.9 million.
The key drivers of the increase in net rental income are set out in the tablebelow: ‚£m
Net rental income from continuing operations 2006
188.8Acquisitions 19.3Disposals (11.8)New developments 11.5Re-lettings and rent reviews 9.3Space returned (9.9)
Increase in property operating expenses
(11.8)Lease surrender premiums 6.4Other 2.1
Net rental income from continuing operations 2007 203.9Acquisition related growth arose from transactions in both 2006 and 2007 and, inparticular, Vimercate, Italy (‚£1.8 million), Neckermann.de, Germany (‚£2.2million), Longbow, France (‚£0.8 million) and Treforest (‚£1.0 million), Sunbury(‚£1.6 million), Peterborough (‚£0.9 million) and Pucklechurch (‚£1.0 million) inthe UK. This was offset by the loss of rents on disposals, including ‚£9.0million in the UK.
Strong lettings, particularly of new developments in Central Europe (‚£1.7 million) and the UK (‚£3.9 million) and good income from re-lettings in the UK (‚£7.7 million), contributed to the growth in net rental income.
Property operating expenses comprise all of the costs of managing our portfolioincluding, for example, salaries, building maintenance and refurbishment costs,agents' fees, marketing expenses, insurance, the costs of maintaining emptybuildings and rental guarantees payable in respect of buildings sold withvacancy. The level of costs incurred can vary according to a number of factorssuch as the level of lettings, take-backs, vacancy and, above all, the scale ofthe overall portfolio. The apparent increase in 2007 expenses was partly causedby an element of service charge income having been netted off operating expensesin 2006, but not in 2007. Adjusting for this item, property operating expensesincreased as a percentage of gross rental income from 18.9 per cent in 2006 to21.1 per cent in 2007. This increase reflects the very high volume of lettingactivity in 2007 (up 69 per cent on 2006) as well as increases in a number ofthe underlying expenses in areas such as insurance and building maintenance. Weaim to reduce costs as a percentage of income in 2008, but the impact of the UKGovernment's abolition of empty rates relief is likely to offset these savings.Tax - continuing operations---------------------------The underlying tax charge on the adjusted profit before tax was 1.4 per cent(2006: 14 per cent) with the decrease primarily due to the effect of the Group'sREIT and SIIC status in the UK and France, respectively.The Group achieved UK Real Estate Investment Trust (REIT) status with effectfrom 1 January 2007 and, as a REIT, all eligible investment property income andcapital gains are tax exempt. During the period the Group also elected forSocietes d'Investissements Immobiliers Cotees (SIIC) status in France, witheffect from 1 January 2007, meaning that income and capital gains on the Group'seligible French investment activities will also be tax exempt.
The accounts already show the benefits of the Group's changes to its tax structure, with an underlying tax charge of just ‚£1.9 million for the year (2006: ‚£13.9 million).
Dividend--------The directors have proposed a final dividend of 14.7 pence per share, anincrease of 21.5 per cent from 2006, which will be paid on 23rd May 2008 tothose shareholders on the register on 18th April 2008. The final dividend of14.7 pence will consist of 5.7 pence to be paid as a property incomedistribution ('PID') and 9.0 pence to be paid as a regular dividend. The 2007total dividend of 23.0 pence represents an increase of 21.1 per cent from 2006.Cash flow---------
A summary of the cash flow for the period is set out in the table below:
2007 2006 ‚£m ‚£mCash flow from operations 181.9 137.6Finance costs (net) (124.6) (122.8)Dividends received (net) 2.5 35.7Tax received/(paid) (net) 4.1 (11.6)Free cash flow 63.9 38.9REIT/SIIC conversion charge paid (44.5) -Sale of subsidiary undertakings 1,499.7 -Tax paid on sale of US subsidiary undertaking (87.2) -Capital expenditure (756.9) (451.9)Property sales (including joint ventures) 207.3 164.1Ordinary dividends (335.9) (84.0)Other items 1.2 (3.6)Net funds flow 547.6 (336.5)Net (decrease)/increase in borrowings (361.9) 321.4Net cash inflow/(outflow) 185.7 (15.1)Opening cash and cash equivalents 151.0 166.9Exchange rate changes 3.5 (0.8)Closing cash and cash equivalents 340.2 151.0Cash flows generated from operations for the period were ‚£181.9 million, anincrease of 32.2 per cent from 2006 as a result of higher proceeds from the saleof trading property developments. Cash flows generated from continuingoperations were ‚£147.8 million (2006 : ‚£74.7 million) and from discontinuedoperations were ‚£34.1 million (2006 : ‚£62.9 million).Dividends received were significantly lower than 2006, mainly due to a one-offdividend from the Group's joint venture with Tesco in 2006 which was notrepeated in 2007. Finance costs of ‚£124.6 million, net of interest income, werehigher by ‚£1.8 million due to property acquisitions in 2006 and 2007, partlyoffset by the interest paid in 2006 on the preference shares of ‚£5.2 million,which were converted into ordinary shares during 2006 plus a benefit of ‚£13.7million from the proceeds of the sale of the US property business net of thespecial dividend. A net tax refund of ‚£4.1 million was received in the year(2006: ‚£11.6 million tax paid) primarily due to a tax refund in the UK relatingto prior years. In addition there was tax paid of ‚£87.2 million on the profit onthe sale of the US property business and REIT and SIIC conversion charges paidof ‚£41.0 million and ‚£3.5 million, respectively.Capital expenditure for the year of ‚£756.9 million (2006: ‚£451.9 million)included approximately ‚£255 million of development expenditure, including jointventures and trading properties, and land purchases of ‚£75 million were made toprovide future development opportunities. The remaining capital expenditurerelates to acquisitions of income producing properties throughout the portfolio,with over 75 per cent relating to Continental European acquisitions, consistentwith the previously stated intention to establish critical mass on theContinent.After payment of the dividend, there was a net funds inflow of ‚£547.6 million(2006: ‚£336.5 million outflow). Allowing for the decrease in borrowings in 2007,the net cash inflow for the period was ‚£185.7 million (2006 : ‚£15.1 millionoutflow).Proceeds from disposals amounted to ‚£1,707.0m including ‚£1,499.7m from the saleof the US property business and Slough Heat and Power, and ‚£207.3 from the saleof investment and development properties.Financial position------------------At 31 December 2007 the Group's borrowings totalled ‚£2,049.4 million (31December 2006: ‚£2,384.8 million). Cash balances totalled ‚£348.3 million (2006:‚£161.4 million) resulting in reported net debt amounting to ‚£1,701.1 million(2006: ‚£2,223.4 million). The weighted average maturity of the debt portfoliowas 10.5 years.Unsecured borrowings represent 96 per cent of gross debt at the year end.Secured debt totalled ‚£80.2 million representing some historical mortgage debtdomiciled in the Group's overseas operations. ‚£1,383.7 million of debt domiciledin the UK was unsecured and was issued by SEGRO plc without any supportingup-stream guarantees. ‚£585.5 million of unsecured debt was issued by subsidiarycompanies located overseas.Reported financial gearing was 57 per cent (2006: 66 per cent) or 56 per cent(2006: 61 per cent) after adding back deferred tax of ‚£67.0 million (2006:‚£276.1 million). The loan to value ratio (net debt divided by property assets)of the Group at 31 December 2007 was 34 per cent (2006: 38 per cent).Interest cover based upon adjusted profit before interest and tax and adjustednet finance costs was 2.6 times, or 2.4 times if capitalised interest isincluded. The market value of borrowings of the Group at the end of December2007 was ‚£2,004.5 million, ‚£44.9 million lower than the book value.Funds availability at 31 December totalled ‚£1,136.5 million, comprised of ‚£348.3million of cash deposits and ‚£788.2 million of undrawn bank facilities. Only ‚£25million of the Group's facilities are uncommitted overdraft lines with thebalance of undrawn facilities being fully committed and with ‚£738.9 millionremaining available to 2010/12.Group income statement----------------------
For the year ended 31 December 2007
2007 2006 Adjusted Adjust- Total Adjusted Adjust- Total income & ments(2) income &
income & ments(2) income &
expense(1) expense expense(1) expenseContinuing operations Notes ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mRevenue 342.8 - 342.8 264.4 - 264.4Gross property rental income 258.8 - 258.8 228.6 - 228.6Property operating expenses (54.9) 0.9 (54.0) (39.8) - (39.8)Net property rental income 203.9 0.9 204.8
188.8 - 188.8
Profit on sale of tradingproperties lessprovisions 2 22.0 - 22.0 5.9 - 5.9Share of profits from propertyjoint venturesand associates after tax 4.0 1.6 5.6 5.5 4.2 9.7Other investment income 18.4 - 18.4 8.5 - 8.5Administration expenses (34.5) - (34.5) (25.5) - (25.5)Property (losses)/gains - (382.2) (382.2) - 397.5 397.5Operating profit/(loss) 213.8 (379.7) (165.9)
183.2 401.7 584.9Finance income 17.6 3.5 21.1 28.4 4.7 33.1Finance costs (100.1) (1.6) (101.7) (112.0) (0.5) (112.5)
Profit/(loss) before tax 131.3 (377.8) (246.5)
99.6 405.9 505.5
Tax (charge)/credit - current (2.4) (13.9) (16.3)
(12.1) (71.1) (83.2) - deferred 0.5 17.9 18.4 (1.8) 391.1 389.3Total tax (1.9) 4.0 2.1 (13.9) 320.0 306.1Profit/(loss) from continuing operations 129.4 (373.8) (244.4)
85.7 725.9 811.6
Discontinued operationsProfit after tax from discontinued operations 18.7 151.9 170.6 29.2 78.3 107.5Profit/(loss) for the year 148.1 (221.9) (73.8) 114.9 804.2 919.1Attributable to equity shareholders 147.6 (222.5) (74.9) 113.9 802.6 916.5
Attributable to minority interests 0.5 0.6 1.1
1.0 1.6 2.6
148.1 (221.9) (73.8) 114.9 804.2 919.1Earnings per shareFrom continuing and discontinued operationsBasic (loss)/earnings per share 4 (16.4p) 201.8pDiluted (loss)/earnings per share 4 (16.4p) 196.0pFrom continuing operationsBasic (loss)/earnings per share 4 (53.6p) 178.6pDiluted (loss)/earnings per share 4 (53.6p)
173.6pNotes-----
1. 'Adjusted income & expense' relates to the Group's income and expense
after EPRA adjustments and excluding exceptional items.
2. EPRA adjustments arise from adopting the recommendations of the Best
Practices Committee of the European Public Real Estate Association ("EPRA")
as appropriate. Exceptional items are disclosed separately due to their size
or incidence to enable a better understanding of performance. Both these types of adjustments are described in Note 5.
Statement of recognised income and expense (SORIE) --------------------------------------------------
For the year ended 31 December 2007
2007 2006Continuing and discontinued operations
‚£m ‚£m
Revaluation gains on properties in the course of development
3.3 22.3
Exchange movement arising on translation of international operations
14.3 (34.3)
Actuarial gains on defined benefit pension schemes
6.8 10.2
Increase in value of available-for-sale investments
8.1 7.5
Tax on items taken directly to equity
0.1 (10.9)
Net gain/(loss) recognised directly in equity
32.6 (5.2)
Transfer to income statement on sale of available-for-sale investments
(4.3) (6.2)
Transfer to income statement exchange realised on sale of US property
3.5 -
business
(Loss)/profit for the year from continuing operations
(244.4) 811.6
Profit for the year from discontinued operations
170.6 107.5
Total recognised income and expense for the year
(42.0) 907.7
Attributable to:
- equity shareholders (43.1) 905.8 - minority interests 1.1 1.9 (42.0) 907.7Balance sheet-------------As at 31 December 2007 2007 2006 Notes ‚£m ‚£mAssetsNon-current assetsGoodwill 0.8 0.7Investment properties 6 4,485.5 5,156.7Development and owner occupied properties 6 289.5 469.7Plant and equipment 5.8 48.1Investments in joint ventures and associates 73.4 84.5Finance lease receivables 10.4 10.6Available-for-sale investments
39.5 44.1 4,904.9 5,814.4Current assetsTrading properties 6 236.0 232.3
Trade and other receivables 134.5 119.0Cash and cash equivalents 348.3 161.4Tax recoverable 0.7 5.1Non-current assets held for sale - 56.6Finance lease receivables
0.1 0.2Inventories - 1.0 719.6 575.6Total assets 5,624.5 6,390.0LiabilitiesNon-current liabilitiesBorrowings 7 1,997.3 2,307.2Deferred tax provision 65.4 298.5Provisions for liabilities and charges 4.4 17.7Trade and other payables
18.7 31.7 2,085.8 2,655.1Current liabilitiesBorrowings 7 52.1 77.6Tax liabilities 283.3 82.5
Trade and other payables
213.6 192.4 549.0 352.5Total liabilities 2,634.8 3,007.6Net assets 2,989.7 3,382.4EquityShare capital 118.1 118.0Share premium 368.9 367.3Own shares held (16.8) (10.6)Revaluation reserve 1,535.7 2,129.3Other reserves 66.0 70.4Retained earnings 917.1 698.3
Total shareholders' equity
2,989.0 3,372.7Minority interests 0.7 9.7Total equity 2,989.7 3,382.4Net assets per ordinary shareBasic 4 690p 718pDiluted 4 689p 716p
The financial statements were approved by the Board of directors and authorised for issue on 5 March 2008.
Cash flow statement-------------------For the year ended 31 December 2007 2007 2006 ‚£m ‚£m
Cash flows from operating activities 181.9 137.6Interest received on deposits and loans
22.9 13.1Dividends received 3.8 36.5Interest paid (147.5) (130.7)
Dividends paid to preference shareholders
- (5.2)Minority dividends paid (1.3) (0.8)Tax paid (40.4) (11.6)
Net cash received from operating activities 19.4 38.9Cash flows from investing activitiesPurchase of subsidiary undertakings (net of cash acquired) (95.8) -Sale of US property business (net of cash disposed of) 1,451.9 -Tax paid on sale of US property business (87.2) -Sale of Slough Heat & Power 47.8 -Purchase and development of investment properties (390.7) (262.6)Sale of investment properties 193.4 158.3Purchase and development of property, plant and equipment (249.7) (189.3)Sale of property, plant and equipment 13.9 5.8Purchase of available-for-sale investments (4.7) (4.7)Proceeds from disposal of available-for-sale investments 27.6 15.7Investments and loans to joint ventures and associates (21.0) (21.3)Loan repayments by joint ventures 5.2 9.2Acquisition of minority interests (20.7) -Transfer to restricted deposits (0.2) (3.9)Net cash received from/(used in) investing activities 869.8 (292.8)Cash flows from financing activitiesDividends paid to ordinary shareholders
(335.9) (84.0)Proceeds from new loans 62.4 66.9Repayment of loans (244.7) (10.1)
Net (decrease)/increase in other borrowings (179.6) 264.6Proceeds from the issue of ordinary shares 1.7 5.9Purchase of own shares (7.4) (4.5)Net cash (used in)/from financing activities (703.5) 238.8Net increase/(decrease) in cash and cash equivalents 185.7 (15.1)Cash and cash equivalents at the beginning of the year 154.9 166.9Restricted deposits at the beginning of the year (3.9) -Effect of foreign exchange rate changes 3.5 (0.8)Cash and cash equivalents at the end of the year 340.2 151.0Cash and cash equivalents per the balance sheet 348.3 161.4Less restricted deposits
(4.1) (3.9) 344.2 157.5Bank overdrafts (4.0) (6.5)
Cash and cash equivalents per cash flow statement 340.2 151.0Notes to the financial statements---------------------------------
1. Basis of preparation
The financial information set out in the announcement does not constitute theCompany's statutory accounts for the years ended 31 December 2007 or 2006, butis derived from those accounts. Statutory accounts for 2006 have been deliveredto the Registrar of Companies and those for 2007 will be delivered following theCompany's Annual General Meeting. The auditors have reported on those accounts,their reports were unqualified and did not contain statements under S237 (2) or(3) of the Companies Act 1985.The financial statements have been prepared in accordance with EU EndorsedInternational Financial Reporting Standards (IFRS), IFRIC Interpretations, andthe Companies Act 1985 applicable to companies reporting under IFRS. Inaddition, the Group has also followed best practice recommendations issued bythe European Public Real Estate Association ("EPRA") as appropriate. Thefinancial statements have been prepared under the historical cost convention asmodified by the revaluation of properties, available-for-sale investments andfinancial assets and liabilities held for trading, and the accounting policiesused are consistent with those set out in the annual report and accounts for theyear ended 31 December 2006.
2(a). Analysis of profit from continuing and discontinued operations
2007 2006 Adjusted Adjust- Total Adjusted Adjust- Total income & ments income & income & ments income & expense expense expense expenseContinuing operations ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mNet property rental income 203.9 0.9 204.8 188.8 - 188.8
Profit on sale of trading properties 22.0 - 22.0 5.9 - 5.9Share of profits from property jointventures andassociates after tax 4.0 1.6 5.6 5.5 4.2 9.7Other investment income 18.4 - 18.4 8.5 - 8.5Administration expenses (34.5) - (34.5) (25.5) - (25.5)Property (losses)/gains - (382.2) (382.2) - 397.5 397.5Operating profit/(loss) 213.8 (379.7) (165.9) 183.2 401.7 584.9Net finance costs (82.5) 1.9 (80.6) (83.6) 4.2 (79.4)Profit/(loss) before tax from continuing operations 131.3 (377.8) (246.5) 99.6 405.9 505.5Discontinued operationsNet property rental income 42.4 - 42.4 58.4 - 58.4
Profit on sale of trading properties - - - 0.2 - 0.2Share of profits from property jointventures andassociates after tax 0.7 1.1 1.8 1.5 2.1 3.6Net income from utilities 2.4 - 2.4 2.1 - 2.1Administration expenses (5.2) - (5.2) (3.4) - (3.4)Property gains - 36.1 36.1 - 139.5 139.5
Profit from sale of Slough Heat & Power - 7.7 7.7 - - -Profit from sale of US property business - 437.3 437.3
- - -Operating profit 40.3 482.2 522.5 58.8 141.6 200.4Net finance costs (17.9) (15.2) (33.1) (15.7) (0.1) (15.8)Profit before tax from discontinued operations 22.4 467.0 489.4 43.1 141.5 184.6Continuing and discontinued operationsNet property rental income 246.3 0.9 247.2 247.2 - 247.2Profit on sale of trading properties 22.0 - 22.0 6.1 - 6.1Share of profits from property jointventures andassociates after tax 4.7 2.7 7.4 7.0 6.3 13.3Net income from utilities 2.4 - 2.4 2.1 - 2.1Other investment income 18.4 - 18.4 8.5 - 8.5Administration expenses (39.7) - (39.7) (28.9) - (28.9)Property (losses)/gains - (346.1) (346.1) - 537.0 537.0
Profit from sale of Slough Heat & Power - 7.7 7.7 - - -Profit from sale of the US property business - 437.3 437.3 - - -Operating profit 254.1 102.5 356.6 242.0 543.3 785.3Net finance costs (100.4) (13.3) (113.7) (99.3) 4.1 (95.2)Profit before tax from continuing anddiscontinued operations 153.7 89.2 242.9
142.7 547.4 690.1
Tax - continuing and discontinued operations (5.6) (311.1) (316.7) (27.8) 256.8 229.0Profit/(loss) after tax 148.1 (221.9) (73.8) 114.9 804.2 919.12(b). Segmental analysisGeographical segments United Kingdom* Continental Europe Group 2007 2006 2007 2006 2007 2006Adjusted profit - continuing operations ‚£m ‚£m ‚£m ‚£m ‚£m ‚£mSegment revenue 255.8 194.4 87.0 70.0 342.8 264.4
Gross property rental income 206.6 193.2 52.2 35.4 258.8 228.6Property operating expenses (46.5) (32.6) (8.4) (7.2) (54.9) (39.8)Net property rental income 160.1 160.6 43.8
28.2 203.9 188.8
Proceeds on sale of trading properties 48.3 1.2 35.7
34.6 84.0 35.8Carrying value of trading properties sold (33.4) (1.2) (28.6) (28.7) (62.0) (29.9)Profit on sale of trading properties 14.9 - 7.1 5.9 22.0 5.9Share of profits from property jointventures andassociates after tax 5.5 5.0 (1.5) 0.5 4.0 5.5Other investment income 18.4 8.5 - - 18.4 8.5Administration expenses (23.1) (20.9) (11.4) (4.6) (34.5) (25.5)Operating profit 175.8 153.2 38.0 30.0 213.8 183.2Finance income 16.4 25.6 1.2 2.8 17.6 28.4Finance costs (70.8) (99.0) (29.3) (13.0) (100.1) (112.0)Profit before tax 121.4 79.8 9.9 19.8 131.3 99.6Taxation - current 0.5 (9.5)
(2.9) (2.6) (2.4) (12.1)
- deferred (0.7) (0.7) 1.2 (1.1) 0.5 (1.8)Adjusted profit after tax from continuingoperations 121.2 69.6 8.2 16.1 129.4 85.7EPRA adjustmentsNet property rental income - - 0.9 - 0.9 -Share of profits from property jointventures andassociates after tax 1.6 4.1 - 0.1 1.6 4.2Property (losses)/gains (439.1) 374.9 56.9 22.6 (382.2) 397.5Finance income 2.0 1.4 1.5 3.3 3.5 4.7Finance costs (1.3) (0.5) (0.3) - (1.6) (0.5)Taxation - deferred (0.1) 415.3 18.0 (10.0) 17.9 405.3Total EPRA adjustments (436.9) 795.2 77.0 16.0 (359.9) 811.2Exceptional adjustmentsTaxation - current - (71.1)
(13.9) - (13.9) (71.1)
- deferred - (14.2) - - - (14.2)Total exceptional adjustments - (85.3) (13.9) - (13.9) (85.3)Total adjustments (436.9) 709.9 63.1 16.0 (373.8) 725.9(Loss)/profit after tax from continuing operations (315.7) 779.5 71.3 32.1 (244.4) 811.6Profit after tax from discontinued
operations ** 170.6 107.5(Loss)/profit after tax (73.8) 919.1Summary balance sheetContinuing operationsTotal property assets 3,792.4 4,208.3 1,390.2 711.3 5,182.6 4,919.6
Other assets (excluding cash) 138.0 145.0 76.3
35.2 214.3 180.2Segment assets *** 3,930.4 4,353.3 1,466.5 746.5 5,396.9 5,099.8Deferred tax liability (9.0) (16.7) (68.5) (70.8) (77.5) (87.5)Other liabilities (excluding borrowings) (513.4) (327.0) (115.2) (44.5) (628.6) (371.5)Segment liabilities *** (522.4) (343.7) (183.7) (115.3) (706.1) (459.0)Net segment assets 3,408.0 4,009.6 1,282.8 631.2 4,690.8 4,640.8Net external borrowings (1,089.3) (1,346.6) (611.8) (366.0) (1,701.1) (1,712.6)Net inter-segment borrowings 287.6 126.7 (287.6) (57.6) - 69.1Net assets continuing 2,606.3 2,789.7 383.4 207.6 2,989.7 2,997.3Net assets of discontinued operations **
- 385.1Net assets 2,989.7 3,382.4
2(b). Segmental analysis (continued)
United Kingdom* Continental Europe Group 2007 2006 2007 2006 2007 2006Summary balance sheet (continued) ‚£m ‚£m
‚£m ‚£m ‚£m ‚£m
Depreciation by segmentContinuing operations 1.8 1.4 0.2 0.5 2.0 1.9Discontinued operations** 3.0 2.8 5.0 4.7Capital expenditure in the yearContinuing operations 236.4 295.5 532.6 202.7 769.0 498.2Discontinued operations** 89.8 132.7 858.8 630.9
* The figures for United Kingdom include income from US available-for-sale
investments which were not part of the disposal group. In prior periods,
this income was classified in the USA segment.** Discontinued operations comprise the US property business and Slough Heat & Power, which appeared under the segments USA and UK respectively in prior years.*** Includes the Group's share of assets and liabilities held by joint ventures.3. Dividends 2007 2006 ‚£m ‚£mOrdinary dividends paidInterim dividend for 2007 @ 8.3 pence per share 35.0 -Special dividend @ 53.0 pence per share 250.0 -Final dividend for 2006 @ 12.1 pence per share 56.9 -Interim dividend for 2006 @ 6.9 pence per share - 32.4Final dividend for 2005 @ 11.0 pence per share
- 51.6 341.9 84.0In respect of the current year, the directors propose a final dividend of 14.7pence per ordinary share, consisting of 5.7 pence of property incomedistribution ("PID") and 9.0 pence of regular dividend (interim dividend 2007all PID). The final dividend amounts to ‚£64.1 million and will be paid toshareholders on 23 May 2008. This dividend is subject to approval by theshareholders at the Annual General Meeting (AGM). The final dividend is notrecognised in the financial statements.
4. Earnings and net assets per ordinary share
4(i) - Earnings per ordinary share
Basic Diluted 2007 2006 2007 2006 pence pence pence penceContinuing and discontinued operations(Loss)/earnings per ordinary share e1/a, f1/c (16.4) 201.8 (16.4) 196.0Adjusted earnings per ordinary share g1/a, h1/c
32.3 25.1 32.2 25.1
Continuing operations(Loss)/earnings per ordinary share e2/a, f2/c (53.6) 178.6 (53.6) 173.6Adjusted earnings per ordinary share g2/a, h2/c 28.2 18.9 28.2 19.24(ii) - Number of shares Weighted average In issue in year at year endThe number of shares used in calculating earnings and net assets 2007 2006 2007 2006per share is: millions millions millions millionsShares in issue 460.0 456.4 436.1 472.0Less shares held by the ESOP (2.9) (2.2) (2.9) (2.2)Basic number of shares a, b 457.1 454.2 433.2 469.8
Dilution adjustment for preference shares - 14.3 - -
Dilution adjustment for share options and save-as-you-earn schemes 0.7 1.1
0.7 1.1Diluted number of shares c, d 457.8 469.6 433.9 470.94(iii) - Earnings Basic Diluted 2007 2006 2007 2006
Earnings used in calculating earnings per share are: ‚£m ‚£m ‚£m ‚£mContinuing and discontinued operations(Loss)/profit attributable to equity shareholders (74.9) 916.5 (74.9) 916.5Adjustment for interest on preference shares - - - 4.1 e1, f1 (74.9) 916.5 (74.9) 920.6EPRA adjustments (note 5 below) 206.0 (889.5) 206.0 (889.5)Minority interest on EPRA adjustments 0.6 1.6 0.6 1.6Adjustments for exceptional items (note 5 below) 15.9 85.3 15.9 85.3Adjusted earnings g1, h1 147.6 113.9 147.6 118.0Continuing operations(Loss)/profit attributable to equity shareholders (245.3) 811.2 (245.3) 811.2Adjustment for interest on preference shares - - - 4.1 e2, f2 (245.3) 811.2 (245.3) 815.3EPRA adjustments (note 5 below) 359.9 (811.2) 359.9 (811.2)Minority interest on EPRA adjustments 0.6 0.6 0.6 0.6Adjustments for exceptional items (note 5 below) 13.9 85.3 13.9 85.3Adjusted earnings g2, h2
129.1 85.9 129.1 90.0
4(iv) - Net assets per ordinary share Basic DilutedNet asset values (NAV) are as follows : 2007 2006 2007 2006 pence pence pence penceNAV i/b, i/d 690 718 689 716Adjustment for deferred tax on investment properties: - capital allowances 7 20 7 20 - valuation surplus 8 39 8 39Adjusted NAV j/b, j/d 705 777 704 775
Fair value of debts net of tax 10 (17) 10 (16)Deferred tax in respect of capital allowances (7) (20) (7) (20)Deferred tax in respect of valuation surpluses (8) (39) (8) (39)Fair value on trading properties 17 - 17 -Triple net NAV (NNNAV) 717 701 716 7004(v) - Net assets Basic and Diluted
Equity used for the calculation of net assets per ordinary share is: 2007 2006 ‚£m ‚£mTotal equity attributable to ordinary shareholders 3,005.8 3,383.3Less shares held by the ESOP (16.8) (10.6) i 2,989.0 3,372.7Deferred tax attributable to investment and development properties 67.0 276.1Adjusted equity attributable to ordinary shareholders j 3,056.0 3,648.8
5. Adjustments for EPRA, exceptional items and related tax
The Group has presented the income statement in a three-column format, so as topresent adjusted amounts to exclude the impact of EPRA adjustments, exceptionalitems, and related tax. The Directors consider that the adjusted figures give auseful comparison for the periods shown in the consolidated financialstatements.EPRA adjustments arise from adopting the recommendations of the Best PracticesCommittee of the European Public Real Estate Association ("EPRA") asappropriate. Exceptional items are items that are disclosed separately due totheir size or incidence to enable a better understanding of performance. Continuing Discontinued operations operations TotalDetails of adjustments Income statement line ‚£m ‚£m ‚£mYear ended 31 December 2007EPRA adjustmentsNegative goodwill credited, net Property operating expenses 0.9 - 0.9Gains after tax on property valuations Share of profits from property joint ventures and associate 1.6 1.1 2.7Revaluation (deficit)/surplus Property (losses)/gains (385.2) 36.1 (349.1)Profit on sale of investment properties Property (losses)/gains 3.0 - 3.0Adjustments for fair value of derivatives Finance costs (1.6) - (1.6)Adjustments for fair value of derivatives Finance income 3.5 1.2 4.7Profit from the sale of US property business Discontinued operations - 437.3 437.3EPRA adjustments before tax (377.8) 475.7 97.9Tax on the sale of US property business Discontinued operations - (302.4) (302.4)Deferred tax attributable to investment anddevelopment property which does notcrystalliseunless sold Deferred tax 18.1 (19.0) (0.9)Other deferred tax Deferred tax (0.2) (0.4) (0.6)
Total EPRA adjustments after tax
(359.9) 153.9 (206.0)
Exceptional items (excluding minority interests)Profit from the sale of Slough Heat & Power Discontinued operations - 7.7 7.7Debt repayment penalty on early US loanredemption Finance costs - (16.4) (16.4)France SIIC conversion charge Current tax (13.9) - (13.9)Total exceptional items before tax (13.9) (8.7) (22.6)Tax effect of exceptional items Current tax - 6.7 6.7Total exceptional items after tax
(13.9) (2.0) (15.9)
Total adjustments
(373.8) 151.9 (221.9)
5. Adjustments for EPRA, exceptional items and related tax (continued)
Continuing Discontinued
operations operations TotalDetails of adjustments Income statement line ‚£m ‚£m ‚£mYear ended 31 December 2006EPRA adjustmentsGains after tax on property valuations Share of profits from property joint ventures and associates 4.2 2.1 6.3Revaluation surplus Property (losses)/gains 392.7 139.5 532.2
Profit on sale of investment properties Property (losses)/gains 4.8 - 4.8Adjustments for fair value of derivatives Finance costs (0.5) (0.1) (0.6)Adjustments for fair value of derivatives Finance income 4.7 - 4.7EPRA adjustments before tax
405.9 141.5 547.4
Deferred tax attributable to investmentanddevelopment property which does notcrystalliseunless sold Deferred tax 406.5 (63.2) 343.3Other deferred tax Deferred tax (1.2) - (1.2)Total EPRA adjustments after tax
811.2 78.3 889.5
Exceptional items (excluding minority interests)UK REIT conversion charge Current tax (81.9) - (81.9)Total exceptional items before tax (81.9) - (81.9)Tax effect of exceptional items Current tax 10.8 - 10.8 Deferred tax (14.2) - (14.2)Total exceptional items after tax
(85.3) - (85.3)Total adjustments 725.9 78.3 804.26. Properties Continental
Properties are included in the balance sheet as follows : UK
Europe Total
2007 2007 2007 2006Properties carried at valuation: ‚£m ‚£m ‚£m ‚£mInvestment properties 3,547.5 938.0 4,485.5 5,156.7Development and owner occupied properties 116.8 172.7 289.5 469.7Classified as held for sale in current assets - - - 56.6 3,664.3
1,110.7 4,775.0 5,683.0 Group's share of investment properties within joint ventures and associates
105.9 5.1 111.0 137.3Total properties carried at valuation 3,770.2
1,115.8 4,886.0 5,820.3
Properties carried at the lower of cost and net realisable value: Trading properties
8.1
227.9 236.0 232.3 Group's share of trading properties within joint ventures and associates
14.1
46.5 60.6 27.2 Total properties carried at the lower cost and net realisable value
22.2
274.4 296.6 259.5
Total properties at 31 December 3,792.4
1,390.2 5,182.6 6,079.8
Reconciliation of the completed investment properties table to the financial statements:
Valuation of completed investment properties, including share of joint ventures
3,455.6 932.5 4,388.1 5,012.1Add Trading Properties 8.1 227.9 236.0 232.3Add tenant lease incentives, letting fees and rental guarantees 29.8 5.2 35.0 66.7Add Joint Ventures - trading properties 14.1 46.5 60.6 27.2Company occupied buildings 11.9 1.2 13.1 16.8Land & construction in progress 272.9
176.9 449.8 724.7
Total properties at 31 December 3,792.4 1,390.2 5,182.6 6,079.87. Borrowings Group7(i) - Borrowings by type 2007 2006 ‚£m ‚£mSecured borrowings :European mortgages (repayable within 1 year) 22.1 0.9US dollars 6.9% 2007 first mortgage - 3.5Euro mortgages 2009 to 2012 22.4 7.7US dollars 6.85% to 7.51% 2008 to 2017 - 24.4Euro mortgages 5.14% to 6.36% 2014 to 2027 35.7 40.6Total secured (on land, buildings and other assets)
80.2 77.1Unsecured borrowings :Bonds7.125% bonds 2010 124.6 124.56.25% bonds 2015 148.3 148.25.5% bonds 2018 198.0 197.95.625% bonds 2020 247.0 246.87.0% bonds 2022 148.8 148.76.75% bonds 2024 220.8 220.75.75% bonds 2035 198.0 197.9Notes7.58% US dollar Notes 2007 - 10.27.84% US dollar Notes 2008 - 7.6
9.27% Canadian dollar Notes 2010
- 11.07.94% US dollar Notes 2010 - 46.66.417% Euro Notes 2011 36.8 33.76.57% US dollar Notes 2011 - 50.98.0% US dollar Notes 2012 - 22.28.09% US dollar Notes 2015 - 5.16.97% US dollar Notes 2016 - 50.9 1,322.3 1,522.9Bank loans and overdrafts 646.6 784.5
Preference shares held by subsidiary
0.3 0.3Total unsecured 1,969.2 2,307.7Total borrowings 2,049.4 2,384.8
The maturity profile of borrowings is as follows :
Group 2007 2006Maturity profile of debt ‚£m ‚£mIn one year or less 52.1 77.6In more than one year but less than two 4.6 30.7In more than two years but less than five 796.1 991.0In more than five years but less than ten
182.8 272.8In more than ten years 1,013.8 1,012.7Total debt 2,049.4 2,384.8Maturity profile of undrawn borrowing facilitiesIn one year or less 49.3 37.1In more than one year but less than two - 11.1In more than two years 738.9 461.7Total available undrawn facilities 788.2 509.9There are no early settlement or call options on any of the borrowings.Financial covenants relating to the borrowings include maximum limits on theGroup's gearing ratio and minimum limits to permitted interest cover. The Groupis comfortably within the limits imposed by the covenants.GLOSSARY OF TERMS-----------------Adjusted earnings per share---------------------------EPS based on adjusted profit before tax and excluding deferred tax on investmentproperties.Adjusted net asset value per share----------------------------------NAV per share adjusted to add back deferred tax associated with investmentproperties, as recommended by EPRA.Adjusted profit before tax--------------------------Reported profit before tax, after reflecting EPRA adjustments and excludingitems which are exceptional by virtue of their size or incidence.Book value----------The amount at which assets and liabilities are reported in the accounts.Combined portfolio------------------The investment, development and trading properties of the Group, including therelevant share of joint ventures' properties.Continuing operations---------------------The remaining ongoing operations of the Group after excluding the operations ofthe Group's US business and Slough Heat & Power.Development pipeline--------------------The Group's current programme of developments authorised or in the course ofconstruction at the balance sheet date, together with potential schemes not yetcommenced on land owned or controlled by the Group or its joint ventures.Diluted figures---------------Reported amounts adjusted to reflect the dilutive effects of convertiblepreference shares and of shares held by the employee share ownership plantrusts.Discontinued operations-----------------------The operations of the Group's US business which was sold on 1 August 2007 andSlough Heat & Power which was sold on 31 December 2007. Under IFRS 5, theseoperations are required to be accounted for as discontinued and disclosedseparately in the income statement and balance sheet.Dividend cover--------------Adjusted earnings per share divided by the ordinary dividend per share.Earnings per share (EPS)------------------------Profit after taxation attributable to ordinary shareholders divided by theweighted average number of ordinary shares in issue during the year.EPRA adjustments----------------Adjustments to income statement and balance sheet amounts reported under IFRSarising from adopting the recommendations of the Best Practices Committee of theEuropean Real Estate Association ("EPRA"). The adjustments to income statementamounts principally relate to the exclusion of valuation gains and losses,whilst the balance sheet adjustments relate to the exclusion of deferred tax oninvestment properties.Equivalent yield----------------
The internal rate of return from an investment property, based on the value ofthe property assuming the current passing rent reverts to ERV and assuming theproperty becomes fully occupied over time.Estimated rental value (ERV)----------------------------The estimated annual market rental value of lettable space as determinedbiannually by the Company's valuers. This will normally be different from therent being paid.Estimate to complete (ETC)--------------------------Costs still to be expended on a development or redevelopment to practicalcompletion (not to complete lettings), including attributable interest.Finance lease-------------A lease that transfers substantially all the risks and rewards of ownership
fromthe lessor to the lessee.Gearing (net)-------------Total borrowings, including bank overdrafts, less short-term deposits, corporatebonds and cash, at book value, plus non-equity shareholders' funds as apercentage of equity shareholders' funds.Gross rental income-------------------Contracted rental income recognised in the period, including surrender premiums,interest receivable on finance leases and service charge income. Leaseincentives, initial costs and any contracted future rental increases areamortised on a straight line basis over the lease termHectares (ha)-------------The area of land measurement used in this report. The conversion factor used,where appropriate, is 1 hectare = 2.471 acres.Initial yield-------------Annualised current passing rent expressed as a percentage of the propertyvaluation.
IPD
---
Investment Property Databank.
IRR
---
The internal rate of return is the discount rate at which the net present value of the expected cash flows of a project is zero (ie the breakeven rate of return).
Joint venture-------------An entity in which the Group holds an interest and which is jointly controlledby the Group and one or more partners under a contractual arrangement wherebydecisions on financial and operating policies essential to the operation,performance and financial position of the venture require each partner's consentNet asset value (NAV) per share-------------------------------Equity shareholders' funds divided by the number of ordinary shares in issue atthe period end.Net rental income-----------------Gross rental income less ground rents paid, service charge expenses and propertyoperating expensesOver-rented-----------
Space that is let at a rent above its current ERV.
Passing rent------------The annual rental income currently receivable on a property as at the balancesheet date (which may be more or less than the ERV - see over-rented andreversionary).
Pre-let
-------
A lease signed with an occupier prior to completion of a development.
REIT
----
A qualifying entity which has elected to be treated as a Real Estate InvestmentTrust for tax purposes. In the UK, such entities must be listed on a recognisedstock exchange, must be predominantly engaged in property investment activitiesand must meet certain ongoing qualifications. SEGRO plc and its UK subsidiarieselected for REIT status with effect from 1 January 2007.Reversionary or under-rented----------------------------Space where the passing rent is below the ERV.Reversionary yield------------------The ERV of a property, expressed as a percentage of the property's valuation. Inthe case of portfolio data, the reversionary yield assumes all properties arefully occupied.SIIC----
(Societes d'Investissements Immobiliers Cotees). A qualifying entity which haselected to be a French Real Estate Investment Trust. In France, such entitiesmust be listed on a recognised stock exchange, must be predominantly engaged inproperty investment activities and must meet certain ongoing qualifications.SIICs are exempt from corporation tax. SEGRO plc, whose shares are listed onEuronext Paris, and its eligible French subsidiaries elected for SIIC statuswith effect from 1 January 2007.Square metres (sq m)--------------------The area of buildings measurements used in this report. The conversion factorused, where appropriate, is 1 square metre = 10.639 square feet.Total development cost----------------------All capital expenditure on a project including the opening book value of theproperty on commencement of development, together with all finance costscapitalised during the development.Total property return---------------------The valuation surplus, profit/(loss) on sale of investment properties and netrental income in respect of investment properties, expressed as a percentage ofthe closing book value of the investment property portfolio.Total return------------Dividends per share plus annual growth in diluted adjusted net asset value pershare, expressed as a percentage of the opening diluted adjusted net asset
valueper share.Trading properties------------------Properties held for trading purposes and shown as current assets in the BalanceSheet.Voids-----
The area in a property or portfolio, excluding developments, which is currently available for letting.
SEGRO PLCRelated Shares:
Segro