Half-yearly Report

Issued for immediate release: 29 August 2007 RESULTS ANNOUNCEMENT FOR THE SIX MONTHS TO 30 JUNE 2007 CONTINUING GROWTH ACROSS EUROPE "We have delivered strong results, with profits up by 27 per cent and there is real momentum behind our successful growth in Continental Europe" Ian Coull, Chief Executive Six months to Six months to Change 30 June 2007* 30 June 2006 % Adjusted** profit before tax (Â£m) - continuing 68.8 45.6 50.9 Adjusted** profit before tax (Â£m) - continuing & 86.5 68.1 27.0 discontinued Profit before tax (Â£m) - continuing 196.2 275.7 (28.8) Adjusted** diluted EPS (p) - continuing & discontinued 17.0 12.3 38.2 Basic EPS (p) - continuing & discontinued 48.0 55.2 (13.0) Interim dividend (p) 8.3 6.9 20.3 At 30 June 2007* At 31 Dec 2006 Adjusted** diluted NAV per share (p) 811 775 4.6 Basic NAV per share (p) 756 718 5.3 * Note: SEGRO completed the disposal of its $2.9bn US business on 1 August 2007. Unless otherwise stated all "continuing" numbers and the equivalent prior period comparatives exclude the US. ** Note: for definitions of "adjusted" items, see footnotes on page 3 of this press release. Excellent performance - adjusted profit before tax up 27.0% Good NAV growth - valuation surpluses of 9.1% in Continental Europe and 2.1% in UK Continuing strong growth and successful capital deployment in Continental Europe - Acquisitions of around â‚¬430m announced so far in 2007 - Development completions 131,000 sq m (76% let/sold), construction in progress 263,000 sq m - Excellent letting successes (59,000 sq m of new pre-lets),with strong occupier demand Good progress in managing UK assets; tougher investment market, strong occupier market - Prime quality portfolio, valued on a 4.7% initial yield - 143,000 sq m of lettings, up by 46 per cent on H1 2006, resulting in Â£8.4m of net new income - Divestments of Â£170.7m of investment properties, 2% premium over book value - UK rent reviews deliver 2.9% growth over 2006 ERV, overall UK rental growth of 0.9% Successful and well timed $2.9bn US disposal Special dividend of Â£250m (53p per share), payable 31 August - Interim dividend up 20.3%, full year dividend anticipated to show similar increase Strong financial position - post sale of US business - 33 per cent debt to equity gearing - capacity to support significant growth programme - Â£1.6bn development investment set to increase size of Continental Europe to c50% of portfolio - Diversified occupier base, over 1,600 customers, 8.6 years average unexpired income - Weighted average cost of debt 5.7%, 88% at fixed rates, average maturity 11.7 years Ian Coull, Chief Executive said: In the first half of 2007, the Group delivered another strong financial and operational performance. We benefited from yield compression across our portfolio (although modest in the UK) but our results have been driven primarily by management activity in all sectors of our business. NAV growth came from our development activity, good asset management and our strong profitability, both in the UK and in Continental Europe. We also realised the significant value we had created in our biotechnology real estate business in California. Following the payment of the Â£250 million special dividend, the remaining net proceeds from this well timed sale will be invested in our focused European business, with a growing number of prime assets located in key business centres. Our REIT status in the UK and our equivalent French SIIC status are facilitating our materially improved tax efficiency across Europe. REIT status has also helped us to declare a substantial 20.3 per cent increase in our interim dividend and in the absence of unforeseen events, the directors anticipate that the full year dividend, including PID and regular dividend, will show a similar level of year on year increase. Across the portfolio we remain confident about the opportunities for continuing growth, with a large and strong development pipeline and with healthy occupier demand. Our business model is focused on growing cash flows from the underlying real estate assets by concentrating on our customers' needs, by delivering growth from development and through earnings accretive acquisitions. We have an extremely robust income profile, serving a wide spread of customers and industries, a long average lease length and mostly fixed rate debt. We are continuing to find very attractive acquisitions in Continental Europe where we can exploit the still very positive gap between investment and development yields and the cost of borrowing. Our Group's 2.2 million sq m development pipeline dwarfs that of any other UK based industrial company. Our portfolio predominantly consists of good quality, well located, resilient prime property. For these reasons, whilst we have been and will continue planning our UK business on the prudent assumption of a tougher investment market, we do so with confidence in our team's ability to deliver. We are financially strong and have very good cash flow. I believe this places us in an excellent position to take advantage of the opportunities that will, undoubtedly, arise in the coming months. ENDS SEGRO plc The Maitland Consultancy Michael Waring Tel: +44 (0)7775 788 628 Colin Browne Tel: +44 (0)20 7379 5151 About 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 on Euronext 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 in August 2007), serving a diversified customer base of over 1,600 customers operating in a wide range of sectors, representing both small and large businesses, from start ups to global corporations. With investment property assets of Â£4.6 billion (Â£5.1 billion including trading properties and development assets) and around 3.6 million sq m of business space, SEGRO has an annual rental income in excess of Â£200 million. www.segro.com SEGRO PLC - 2007 INTERIM RESULTS DETAIL SUMMARY FINANCIAL STATEMENT TABLES INCOME STATEMENT Six months to Six months to Continuing Operations 30 June 2007 30 June 2006 Net rental income(1) (Â£m) 96.9 93.7 Property gains (Â£m) 126.3 224.5 Profit before taxation (Â£m) 196.2 275.7 Adjusted profit before taxation(2) (Â£m) 68.8 45.6 Underlying tax rate(4) (%) 2.0 23.0 Continuing and Discontinued Operations Profit before taxation (Â£m) 237.1 338.1 Adjusted profit before taxation(2) (Â£m) 86.5 68.1 Basic earnings per share (p) 48.0 55.2 Adjusted diluted earnings per share(3) (p) 17.0 12.3 Interim dividend (p) 8.3 6.9 Total return(9) (%) 6.6 9.1 BALANCE SHEET 30 June 30 June 31 December 2007 2007 2006 Pro-forma Excluding US (10) Total properties, including share of Joint 5,061.7 6,218.3 6,013.1 Ventures (Â£m) Net assets excluding minority interests (Â£m) 3,429.4 3,547.2 3,372.7 Adjusted net assets(5) (Â£m) 3,484.9 3,808.6 3,648.8 Net assets per share (p) 792 756 718 Adjusted diluted net assets per share(6) (p) 804 811 775 Net debt (Â£m) 1,138.0 2,264.7 2,223.4 Debt to equity(7) (%) 32.6 59.3 60.8 Loan to value(8) (%) 23 38 38 At 30 June 2007 on a pro-forma basis post the sale of the US business - weighted average cost of debt 5.7%, 88% fixed, average maturity 11.7 yrs 1. Including rental income on trading properties. 2. Profit before tax excluding property revaluation surpluses and the gains and losses on derivative instruments. 3. Earnings per share based on adjusted profit before tax, and reflecting the dilutive effects of preference shares (in 2006 only) and shares held by the ESOP trust. 4. Tax charge, excluding deferred tax on valuation surpluses, 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 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 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 Â£14.2 million. 10. Balance sheet as at 30 June 2007 adjusted as if disposal of US business, share consolidation and special dividend had occurred on that date. 2007 INTERIM REVIEW SUMMARY SEGRO is pleased to report strong first half results and that the Group is making good progress against the priorities we had previously outlined for 2007. Across the Group we set out to execute our substantial development programme and to acquire new sites for further development, to build critical mass in our key markets through acquisition and development, and to recycle capital, particularly in the UK. In Continental Europe we targeted significant further acquisitions and corporate partnering transactions, and in the US we aimed to complete the disposal of our biotech business. Significant investments have been made in Europe and the disposal of the US business has been completed for a consideration well above its pre-tax book value. The reported financial results still include the US business as the disposal was completed on 1 August, after the period end; however, the financial results of the US business are separately reported as "discontinued operations". Profit for the period including continuing and discontinued operations was Â£226.3 million (2006: Â£243.8 million), down Â£17.5 million as a result of the Â£111.2 million lower revaluation surplus in the first half of 2007. Adjusted profit before tax from our continuing business (that is, adjusted to exclude the now divested US business) was up by a very strong 50.9 per cent, and by 27.0 per cent if discontinued operations are included. This growth reflected a particularly high Â£16.9 million profit from the sale of trading properties. Although this was higher than normal, the realisation of trading profits is a recurring feature of our results. Adjusted diluted earnings per share increased 38 per cent, with a reduction in the underlying tax charge from 23 per cent in H1 2006 to 2 per cent in H1 2007, reflecting the benefit of the Group's status as a REIT in the UK and a SIIC in France. Following the announcement of our new dividend policy in November 2006, the directors are, today, declaring an interim dividend of 8.3 pence per share, an increase of 20.3 per cent from 2006, to be paid entirely as a Property Income Distribution ("PID"). The final dividend for 2007 will comprise both PID and regular dividend, the amount and split of which will be declared in March 2008. Following the US disposal, we will be paying a special dividend of 53 pence per share. This disposal followed the strategic review of our US business, which comprised specialist biotech properties in California and was not core to our main businesses in Europe. The successful sale of the business for $2.9 billion reflected a significant surplus over the net assets of Slough Estates USA at the end of 2006 - and consequently we are returning Â£250 million to shareholders by way of the special dividend mentioned above. The remaining proceeds will be re-invested to fund our growth plans in Europe. Following this transaction, SEGRO is now shaped as we want it - strategically and structurally focused on our core business - investing in and developing Flexible Business Space in Europe. The yield gap in Continental Europe remains attractive both from acquisitions and from development. Good progress has been made in undertaking successful acquisitions and corporate partnering deals in Continental Europe, with a further Â£73 million and 112,000 sq m of acquisitions (including trading properties) in the first half of 2007. Since the end of the period, we announced our largest corporate partnering transaction to date, the â‚¬197 million acquisition of an office and distribution campus in Frankfurt - from Neckermann, a subsidiary of KarstadtQuelle. This builds on SEGRO's 2005/06 corporate partnering purchase of a warehousing portfolio across Germany from the KarstadtQuelle group. The Central European development programme has surpassed even our more optimistic expectations in terms of the strength of the demand, with three quarters of the 90,000 sq m constructed in the first half let by the period end. In recent years, SEGRO has more actively recycled its capital and we have continued to make significant divestments in the UK. This programme has been increased partly because of REIT status, which means that we can now sell mature assets, realising value which has been created without incurring tax on capital gains. Year-to-date we have sold Â£170.7 million of investment properties in the UK, comprising 156,000 sq m. This has realised disposal profits of Â£3.1 million, crystallised total gains on original investment of Â£43.5 million and provided capital for recycling into higher return opportunities. Although most of this reinvestment is currently going into Continental Europe where the economics are at present more attractive, we are still finding attractive value-adding acquisition opportunities in the UK. A good example was our recent purchase of the Airlinks Trading Estate near Heathrow Airport, building on the extensive cluster of assets we own in that prime location. Our development programme continues to be a key driver of our returns. During the period, we completed 200,000 sq m of construction, of which 80 per cent had been let or sold at 30 June 2007. These completed developments have delivered valuation surpluses of Â£24 million and when fully let should generate annual rents of approximately Â£12 million. We have commenced 255,000 sq m of construction during the first half of the year and expect to see this grow to more than 572,000 sq m by year end. We have been actively adding to our land bank in order to provide future development opportunities with acquisitions of some 80 hectares in the first half of the year. Including potential developments due to commence in 2008 and beyond, we now have scope to develop approximately 2.2 million sq m of Flexible Business Space - almost 70 per cent of which is in Continental Europe. Good progress in letting and pre-letting newly developed space combined with excellent locations within our land bank gives us confidence to accelerate our construction programme. We now expect to increase our development expenditure in the UK and in Continental Europe to between Â£300 million and Â£350 million in 2007. Based on present market conditions, we would anticipate Â£300 million to Â£400 million being spent in 2008. We are currently achieving average development surpluses on cost of typically 20 per cent in the UK, and in excess of 25 per cent in Continental Europe. Development yields in the UK are delivering 6 per cent to 8 per cent, with 8 per cent to 10 per cent in Continental Europe. Our development programme is gaining momentum and has the potential to create significant value for our shareholders in the years ahead. The current development pipeline has a book value at valuation of Â£800 million with future investment to completion forecast at Â£1.6 billion. NB: These tables exclude the US business which was sold after the end of the period Rental Data* Lettable space % of Passing rent Market rental Gross rental Net rental at 30.06.07 (sq m) at 30.06.07 Value (ERV) income income Total at 30.06.07 for H1 2007 for H1 2007 (sq m) (Â£m) (Â£m) (Â£m) (Â£m) UK - by asset type Industrial 2,214.9 89.9 141.0 170.9 79.5 67.5 Offices 192.3 7.8 24.6 36.2 14.8 9.7 Retail 55.5 2.3 11.4 13.3 6.1 5.4 Total UK 2,462.7 100.0 177.0 220.4 100.4 82.6 Continental Europe - by asset type Industrial 1,031.0 90.6 30.8 36.1 14.7 12.1 Offices 83.5 7.3 9.2 10.0 4.5 3.7 Retail 23.0 2.1 1.4 1.5 0.7 0.6 Total Continental Europe 1,137.5 100.0 41.4 47.6 19.9 16.4 Continental Europe - by country France 367.4 32.3 12.5 14.9 6.1 5.6 Germany 354.7 31.2 9.3 11.5 4.4 3.4 Belgium 201.9 17.7 13.6 15.0 6.2 5.5 Netherlands 25.7 2.3 1.0 0.4 0.7 0.4 Italy 36.5 3.2 1.2 1.3 0.6 0.5 Spain 31.3 2.8 1.1 1.2 0.6 0.6 Central Europe 120.0 10.5 2.7 3.3 1.3 0.4 Total 1,137.5 100.0 41.4 47.6 19.9 16.4 Group Totals Industrial 3,245.9 90.2 171.8 207.0 94.2 79.6 Offices 275.8 7.7 33.8 46.2 19.3 13.4 Retail 78.5 2.1 12.8 14.8 6.8 6.0 Group Total 3,600.2 100.0 218.4 268.0 120.3 99.0 Vacancy Valuation Data* Rate by Valuation Valuation % Valuation Valuation Initial Equivalent Space 30.06.07 of total surplus surplus Yield yield % (Â£m) (Â£m) % % % UK - by asset type Industrial 11.7 2,924.7 77.3 37.8 1.3 4.8 5.4 Offices 15.4 604.9 16.0 37.0 6.5 4.1 5.1 Retail 3.9 252.9 6.7 4.1 1.6 4.5 5.2 Total UK 11.7 3,782.5 100.0 78.9 2.1 4.7 5.4 Continental Europe - by asset type Industrial 6.2 463.2 73.4 37.0 8.7 6.6 - Offices 16.0 149.6 23.7 14.3 10.6 6.2 - Retail 0.0 18.5 2.9 1.5 8.8 7.8 - Total Continental Europe 6.8 631.3 100.0 52.8 9.1 6.6 - Continental Europe - by country France 0.3 195.3 30.9 17.1 9.6 6.4 7.2 Germany 9.0 129.2 20.5 8.7 7.2 7.2 7.3 Belgium 14.4 209.0 33.1 16.2 8.4 6.5 6.9 Netherlands 4.4 18.9 3.0 0.3 1.6 5.3 7.4 Italy 0.0 15.8 2.5 0.5 3.3 7.6 6.5 Spain 0.0 17.0 2.7 1.1 6.9 6.5 6.7 Central Europe 10.4 46.1 7.3 8.9 23.9 5.9 7.0 Total 6.8 631.3 100.0 52.8 9.1 6.6 - Group Totals Industrial 10.0 3,387.9 76.8 74.8 2.3 5.1 - Offices 15.6 754.5 17.1 51.3 7.3 4.5 - Retail 2.8 271.4 6.1 5.6 2.1 4.7 - Group Total 10.2 4,413.8 100.0 131.7 3.1 4.9 - * Including the Group's share of joint ventures' properties. Excluding land held for investment and properties in the course of construction. REVERSIONARY POTENTIAL as at 30 June 2007 Reversion to ERV on ERV of vacant properties occupied properties (Â£m) (Â£m) UK - Industrial 3.0 18.5 - Offices (2.2) 5.0 - Retail 1.5 - Continental Europe 3.5 7.0 Total 5.8 30.5 LETTINGS ANALYSIS By area 000's sq m By rent(1) pa (Â£m) Lettings Space Returned Lettings Space Returned H1 2007 H1 2006 H1 2007 H1 2006 H1 2007 H1 2007 UK - Lettings of new developments 62 20 8.6 UK - Existing vacant 56 71 5.9 UK- Licenses 25 7 0.3 Total UK 143 98 101 84 14.8 6.4 Continental Europe 168 87 28 55 5.0 1.5 Total Group 311 185 129 139 19.8 7.9 (1) Annualised rent, after the expiry of any rent free periods VACANCY ANALYSIS 30 June 31 December 2007 2006 (%) (%) UK 11.6 11.6 Continental Europe 6.5 8.2 Group Total 10.0 10.6 Analysis of Underlying UK Vacancy Recent acquisitions (less than 18 months) 0.6 2.5 Completed development sites (less than 18 months) 1.3 1.1 Underlying UK vacancy 9.7 8.0 Total UK 11.6 11.6 Lease expiries & customers Investment properties only Average Passing rent Passing rent lease length (at 30.06.07) of subject to to: leases which expire in: rent review in: Number of Break Expiry 2007 2008 2009 2007 2008 2009 customers (Years) (Years) (Â£m) (Â£m) (Â£m) (Â£m) (Â£m) (Â£m) UK - Industrial/Warehousing 1,177 6.2 8.7 4.7 5.8 12.2 3.4 10.1 9.1 - Offices 120 5.2 8.5 0.3 0.4 0.8 2.0 3.2 0.8 - Retail 91 11.7 11.8 0.1 0.0 0.0 - - - Total UK 1,388 6.3 8.7 5.1 6.2 13.0 5.4 13.3 9.9 Continental Europe 213 5.9 8.3 0.4 0.4 1.7 - 2.3 4.0 Group Total 1,601 6.2 8.6 5.5 6.6 14.7 5.4 5.6 13.9 DEVELOPMENT PIPELINE SUMMARY Construction in Potential starts Potential starts Total progress in 2007 2008 & beyond programme Land area ha 65 78 335 478 Space: Industrial sq m 280,681 251,155 1,155,334 1,687,170 Offices sq m 49,815 65,431 367,585 482,831 Retail sq m 0 0 5,747 5,747 Total sq m 330,496 316,586 1,528,666 2,175,748 Investment properties % 76 78 63 67 Trading properties % 24 22 37 33 Pre-Let % 26 6 1 5 Planning status - fully approved % 100 19 6 22 - zoned/outline approval % 0 67 72 60 Rental value when completed Â£m 20.3 32.0 120.8 173.1 Current book value - at valuation Â£m 114.0 153.3 528.4 795.7 Forecast future costs to completion Â£m 153.6 280.5 1,130.2 1,564.3 Further details of the investment portfolio and the development pipeline will be published on the Investors Relations section of our website http://www.segro.com All amounts are indicative only and are liable to change. Certain properties included above are currently income producing and are expected to be redeveloped; such properties have a current book value of Â£265 million and produce current rental income of approximately Â£15 million per annum. 2007 INTERIM REVIEW UK BUSINESS REVIEW HIGHLIGHTS In the UK, our asset management skills are again coming to the fore. Record levels of new leases delivered an annualised net increase in income of Â£8.4 million, with new lease income being well over twice income lost through space returned. A high proportion of expiring leases is being renewed; at almost seventy per cent, this is ahead of IPD, and key customers have been taking on additional space. Major pre-lets have been delivered on time and within budget, with significant new pre-lets also signed; and we have reinforced our commitment to capital recycling with an increased divestment programme in the UK. PROFILE The UK Business: - 76 property holdings - gross land area of 822 hectares - developed business space of 2,499,616 sq m - current rent roll of Â£182.8 million - Â£4.1 billion of property (including land and trading properties) The business focus covers the full range of Flexible Business Space products. The UK properties are located mainly in the South of England, in proximity to areas with strong long term growth characteristics - such as Slough, the Thames Valley, Croydon, Chelmsford, Farnborough and Bristol. We also have some important locations outside the South East, including Cardiff, Portsmouth, Birmingham and Manchester. There are only around two hundred people employed directly, with functions not core to the property skill base - such as construction - being outsourced. VALUATION The portfolio is externally valued twice a year. At the end of June 2007, completed investment properties were valued at Â£3,782 million (excluding land, including an apportionment for stakes in joint ventures). This represented a 2.1 per cent net surplus over the book value. The 2.1 per cent (including our industrial, office and retail assets) was comfortably ahead of the IPD all property index at 1.9 per cent and of the IPD industrial index at 1.4 per cent. During a period in which yield compression was minimal, the uplift in valuation was mainly as a result of successfully attracting and retaining occupiers - major wins included the pre-let to O2 and the retention and attraction of office occupiers at Slough. Core asset management skills have seen major pre-lets delivered on time and within budget (for example, IX Europe on the Slough Trading Estate and Agilent at Winnersh). Important new pre-lets also contributed (see next section). LEASING A record level of lettings started in the first half of the year, with the annualised income exceeding the impact of space returned by Â£8.4 million. Â£14.8 million of new income was generated by leasing over 143,000 sq m of space (62,000 sq m of new space and 81,000 sq m of existing space). The new space included a major pre-letting to Thales - where the new buildings were completed in the first half of 2007. Significant new leases were completed with Rackspace Management (datacentre) and Argos Ltd (retail warehouse in Slough), Premier Cables (warehouse in Dunstable), and Red Hat (offices in Farnborough). Future revenue was secured by major office pre-lets agreed with Harris Systems - Â£1.8 million per annum for 6,735 sq m at Winnersh - and with O2 - Â£3.0 million per annum for 10,220 sq m at Slough. Pre-lets were also agreed with Barons at Farnborough and Wellman at Portsmouth. These pre-lettings are in addition to the lettings which started in H1 2007 - as detailed in the previous two paragraphs. THE OCCUPIER MARKET The reported headline vacancy at the end of June 2007 was 11.6 per cent - unchanged on the 11.6 per cent at the end of December 2006. In the UK an "underlying" vacancy is calculated by excluding recent acquisitions and newly completed developments (within the last eighteen months). The underlying vacancy level at the end of June 2007 was 9.7 per cent, up from 8.0 per cent at the end of December 2006 and reflecting the inclusion of higher vacancy properties which were no longer "recent" (these include Heywood, where some large sites have been taken back - in line with plans at the time of those acquisitions). The level of occupation remains broadly static despite a high volume of transactions in the six month period. During the period a significant number of new developments have been completed, including for example almost 35,000 sq m in Crawley and over 7,000 sq m at Heywood. Importantly these new properties coming on stream are generally being absorbed at a rate which is encouraging for our ambitious development programme. However as noted at our Annual General Meeting in June, the impact of development completions and take backs is likely to see this reported vacancy number rise by the end of 2007. The industrial/warehouse occupier market remains positive and there are healthy signs of the market for prime office space improving. Enquiries are generally continuing at good levels despite interest rate increases. From the UK vacancy and Estimated Rental Value (ERV) numbers it can be calculated that, as expected, the potential exposure to the new empty building rates legislation is likely to be in the region of Â£8 million per annum. A strategy for minimising exposure by demolishing redundant buildings and challenging assessments is expected to reduce the actual impact. However, as no developer would normally seek to have property which is unoccupied, it is not envisaged that this legislation will itself have any impact on current vacancy levels - rather this will become a cost increase to be absorbed into the business case for each proposed speculative development. RENTAL GROWTH Compared with the ERV at December 2006, the UK team delivered a strong performance on rent reviews, with an increase of 2.9 per cent. Leases on over 35,000 sq m of existing space were successfully renewed. These lease renewals were achieved partly because of our flexible approach to occupier requirements. This contributed to rents on lease renewals being slightly down, by 0.5 per cent overall. New lettings delivered rent increases of 0.8 per cent, in line with overall rental performance. Overall rent reviews (effective in 2007), lease renewals and new lettings show an uplift of 0.9 per cent, ahead of IPD industrial rental value growth of 0.6 per cent. RECYCLING Our programme of recycling investment properties is accelerating - we were net sellers in the UK in 2006 and have secured sales of Â£170.7 million in the first half of 2007 at 2 per cent ahead of book value. This acceleration of disposals has been facilitated by the REITs related removal of capital gains tax considerations and is also driven by our assessment that market conditions in the UK will see lower general levels of capital growth than those we have experienced in recent years. We have taken advantage of continuing demand for well managed industrial/warehouses where we believe there are limited opportunities for us to add value. We have also moved to dispose of those assets which have a weaker strategic fit, for example those which are not part of a critical mass of holdings in target locations. Conversely we continue to make acquisitions where SEGRO can add value, where the business case meets our hurdle rates and where the locations help us to consolidate our presence in key growth areas. Consequently we acquired property in Heston and Frimley, where there is natural synergy with our existing holdings. TRADING SALES Sales of trading properties made a Â£14.0 million positive contribution to profitability in the period, including the Â£17.9 million sale of five hectares of land at Farnborough for residential development - improving the overall attractiveness of that estate. This is a good example of how we can be flexible and add value to our estates by securing consent for an alternative more valuable use that improves the value of the retained holdings. Other significant trading sales in the period were the 100 per cent pre-sale of 21 individual industrial units for Â£12 million at Northpoint, Centennial Park, significantly ahead of programme and the sale of residential land at Elstree for Â£1.5 million following successful planning appeal. DEVELOPMENT Our development programme continued apace with over 68,000 sq m of space completed in the first half of the year of which over 80 per cent was either let or sold by the end of the period. Over 67,000 sq m of additional space was under construction at the end of the period. 146,000 sq m of construction starts were scheduled for H2 2007, with a further 461,000 sq m already scheduled in the development pipeline for 2008 and beyond. All of which represents a further investment to completion of Â£877 million. CUSTOMER ENGAGEMENT The UK team is very focused on enhancing income by attracting new customers and by retaining existing customers. The team works closely with both existing and new occupiers and are well placed to develop long-term commercial relationships - over 60 per cent of lettings secured during the first half of 2007 were to existing customers. Our initiatives with occupiers address a wide range of business issues, including both security and environmental sustainability. We continue to measure occupier satisfaction, sharing the results with our customers and taking firm action in response to this feedback. External surveys are commissioned annually and we also measure customer perceptions when handling key events (handover, insurance claims, consents, managing service charges) to ensure we are continually improving how we meet occupier needs. CURRENT MARKET CONDITIONS We anticipate some softening of yields for secondary properties, but investor demand for quality prime located assets in our key markets remains strong. The prime nature of SEGRO's portfolio and the steps taken to recycle underperforming assets should stand us in good stead. In this environment, activities in which SEGRO has proven expertise will become ever more important. Improvements in value will come from the successful implementation of our significant development pipeline and from securing customers. In the occupier market enquiry and viewing rates remain at the same encouraging levels as at the beginning of the year, with similar conversion from heads of terms into concluded transactions. Fundamentally our properties are located or clustered in regions which are well placed to take maximum benefit from economic growth drivers. CONTINENTAL EUROPEAN BUSINESS REVIEW HIGHLIGHTS Following a significant further expansion through strategic acquisitions, our Continental European assets achieved a valuation surplus of over 9 per cent. At the end of the period we had a land bank in Continental Europe of 303 hectares, and a development pipeline with planned investment of Â£688 million. Construction of over 131,000 sq m of developments was completed during the period, and income started to flow from the occupiers of 168,000 sq m of new leases. 59,000 sq m of pre-lettings were agreed and signed during the period. PROFILE The Continental European Business: - gross land area of over 600 hectares - developed business space of 1,442,918 sq m - 110 property holdings - generates a rent roll of Â£49.2 million per annum - Â£0.9 billion of property (including land and trading properties) The business focus covers the full range of Flexible Business Space product and we directly develop 'big-box' warehouses which are a key part of our product offering, particularly in Central Europe. The Continental European business is based in key locations in nine countries. As in the UK the business is located in specific areas with high economic growth potential at key transport infrastructure inter modal hubs - often close to airports or major road intersections. Our locations include Brussels, Prague, Budapest, Poznan, Warsaw, Silesia, Paris, Dusseldorf, Frankfurt, Berlin, Amsterdam (Schiphol), and Madrid. As a result of the December 2006 agreement of a major portfolio acquisition from Antalis, in 2007 SEGRO significantly increased its presence in its key existing markets of France, Germany and Belgium, and also moved into Spain and Italy for the first time. VALUATION As at 30 June 2007 the investment portfolio in Continental Europe has been externally valued at Â£631.3 million (excluding land, including the Group's share from joint ventures). This increase reflected Â£44.2 milllion of acquisitions (excluding land of Â£9.4 million) and a strong valuation surplus of 9.1 per cent. In addition the land bank was valued at Â£83.4 million, up 45.6 per cent on the 2006 year end, driven not only by the valuation uplift but by the significant scale of the acquisition programme. NEW MARKETS & CORPORATE PARTNERING The late 2006 Antalis acquisition has enabled us to gain a foothold in two new markets, Spain and Italy, and develop new business on the back of corporate partnering. In Madrid we are in negotiations with Antalis about the possibility of extending their main 19,700 sq m distribution facility by a further 5,000 sq m by the end of the year. We are also helping them in their requirements for new warehousing facilities in both Madrid and Barcelona which will probably be carried out on a build-to-suit basis. Earlier this month SEGRO expanded outside of Paris into Lyon, with the acquisition of a well located prime quality modern warehousing and light industrial portfolio for â‚¬42.5 million (6.7% yield, rising to 7.5% as vacancy is fully let up). We see the growth potential in the Lyon market as particularly strong and plan to open up an office there in the near future. In Italy we are working on a number of acquisitions and, having now appointed a Country Manager, we also plan to open an office in Milan before the year end to support the anticipated growth. We recently announced the â‚¬84.5 million acquisition (7.4% yield) of a business park North East of Milan, giving us a real foothold in the Italian market, combining strong development potential underpinned by a sound income stream. Elsewhere in Continental Europe we continue to benefit from the strong customer relationships developed in the UK with international companies headquartered within our portfolio. Building on these successes, we are currently working on further potentially significant off-market acquisitions, sale and leasebacks and other corporate partnering deals. LEASING The incremental annualised increase in rental income from leases which started during the period was Â£3.5 million - net of space returned. Â£5 million of new income has been generated by the high level of leasing, with 168,000 sq m of new and existing space. A further 59,000 sq m of pre-lets were also signed during the period which will deliver additional rental income of Â£2 million per annum. Most notably during the period we delivered 60,000 sq m of lettings in Poland, with almost another 58,000 sq m pre-lets signed. Germany also showed significant progress with the take-up of over 30,000 sq m of space leased up in 17 separate transactions. A significant new lease was also signed in France with Canal Toys for 18,100 sq m of logistics space at Marly La Ville, close to Charles de Gaulle airport for a five year lease at a rent of Â£607,000 per annum. A lease renewal has also been agreed with ODS at the 17,000 sq m Mariniere I logistics building in Bondoufle to the south of Paris representing rental income of Â£613,000 per annum. THE OCCUPIER MARKET Rental conditions have remained stable across the board, apart from selective rental growth in some French and German markets. Investment property vacancy levels have improved from 8.2 per cent at the end of December 2006 to 6.5 per cent at the end of June 2007 mainly due to the low vacancy levels in the investment assets within acquisition portfolios. In terms of outlook, although rental levels remain generally unchanged in our markets, we continue to see solid occupier demand and are generating high levels of enquiries in most locations. DEVELOPMENT In the first half of 2007 we completed 131,000 sq m of new construction of which 76 per cent (100,000 sq m) is leased. At the period end we had 263,000 sq m under construction across Continental Europe of which 30 per cent had been pre-leased. We have a number of pre-let build-to-suits underway across Continental Europe. At Pegasus Park in Brussels, we have started construction on the new Ernst and Young office headquarters which totals 17,081 sq m and will be ready in Autumn 2008. Also at Pegasus Park we are building 5,073 sq m of high quality offices, pre-leased to Canon, which will be completed and ready for occupation by the end of 2007. This is a 50:50 joint venture with KBC bank and we have agreed terms for a pre-sale to our partner. 171,000 sq m of construction starts are scheduled for H2 2007, with a further 1,067,000 sq m already scheduled in the development pipeline for 2008 and beyond. All of which represents a further investment to completion of Â£688 million. ACQUISITIONS Acquisitions of Â£73 million completed in the first half of the year. Having opened an office in Silesia, Poland at the beginning of the year we have now acquired a total of 19 hectares where we are building 58,000 sq m, of which 64 per cent is pre-let (Decathlon and Pregis). At De Hoek area near Schiphol Airport, SEGRO has purchased two existing business schemes, including a 20,982 sq m warehouse building for Â£11 million (including acquisition costs), on an initial yield of 7.5 per cent, let to Exel (DHL) until the end of the year. Furthermore, we have become the owner of a 4.62 hectare former McCain site. These transactions are part of the planned site assembly for our 'S' Park (security park) concept, which now totals 36 hectares of land, further enhancing the Group's presence close to Schiphol Airport and providing significant development opportunities. Construction work on the former McCain site is expected to start in early 2008. Since the period end at Almere, 37 kilometres north of Amsterdam we acquired a light industrial building with offices for Â£11 million, on an initial yield of 7.7 per cent. The buildings totalled 9,465 sq m and there is further development potential. They have been leased back to HEMA, the Dutch department store, on a lease expiring in 2015. In Aachen, Germany a 6,644 sq m warehouse building has been bought at a yield of circa 9 per cent. The 1.01 hectare site has further development potential and we are now negotiating to acquire the adjacent site. A 13,800 sq m logistics building, fully let to Bermes Logistik on a long-term lease and circa 0.75 ha of land for future development have been acquired for Â£4 million at Willich-Munchheide on the main road between Dusseldorf and Monchengladbach. At Bondoufle to the south of Paris, we acquired 21,252 sq m and three hectares of development land for a total investment of Â£13.5 million showing a 7.3 per cent initial investment yield including the development land where Evry Rotative have signed a fixed nine year lease. At Gonesse, which is close to Charles De Gaulle airport, we also acquired land and plan to build a 56,500 sq m business park, the first 20,000 sq m phase of which has just started and is due to complete at the end of 2008. We plan to start the first 22,901 sq m phase of a 50,000 sq m light industrial park at La Courneuve, on the existing Alstom site acquired via a sale and leaseback in 2005 and the last three buildings of Le Blanc Mesnil, a 36,540 sq m light industrial park where the existing 26,192 sq m is 100 per cent leased up. Both of these schemes are located just off the A1 motorway between Paris and CDG airport. SIGNIFICANT PROGRESS IN GERMANY In June SEGRO exchanged conditional contracts on its largest ever transaction in Continental Europe, the sale and leaseback from Neckermann (a KarstadtQuelle group company) of a major office and distribution campus in Frankfurt for approximately Â£133 million including all acquisition costs, on an initial yield of 7.9 per cent. This follows SEGRO's 2005/06 Â£110 million acquisition of a major logistics portfolio and land bank from the same group in a sale and leaseback corporate partnering transaction. Once the Neckermann portfolio has completed, Germany will represent 55 per cent of the total Continental European portfolio by area (up from 47 per cent) and 41 per cent in terms of revenue (up from 27 per cent). A new office has been operational in Frankfurt since January, where SEGRO currently has several live projects. This is already delivering good results with five additional units having already been let this year at the new Am Martinzehnten Business Park, including 1,200 sq m to PricewaterhouseCoopers and further units to Burkle, Pfeiffer, FRIMA and Otto Wolff. Construction is underway for new SEGRO Business Parks totalling 15,900 sq m at Berlin and Essen, where the first unit has already been pre-let. Construction has also started for 7,900 sq m of speculative logistics development on the next phase of the scheme at Kapellen. We see very positive economic signs in Germany and plan to open further offices there to support our continued growth with an office in Berlin planned within the next 12 months. EXCELLENT PROGRESS IN CENTRAL EUROPE In Poland a logistics pre-let has been signed at Strykow for 10,000 sq m to Investa on a ten year lease. Construction is under way with delivery expected in Q3, 2007. In addition, the last remaining unit at Strykow, a 3,250 sq m unit in Building 3, has been let to Lidl, the German retailer, bringing occupancy of the park to 100 per cent. Having opened an office in Silesia earlier this year, two logistics pre-lets have been signed, one to Pregis, the US manufacturer, for 16,000 sq m and the other to the large European retailer Decathlon for 21,000 sq m. 19 hectares of land for industrial development have been acquired in the area, adding to the Group's already substantial holdings in Poland. Construction has also started on two speculative warehousing buildings, 24,000 sq m in Poznan, and 25,000 square metres in Strykow. The first pre-lease has already been signed for the Poznan building with Masterlink taking 7,100 sq m. In Hungary the first phase of Vendel Park, a 13,000 sq m light industrial park, was completed in March this year and we have achieved our first letting to GEFCO for 1,929 sq m on a five year lease. We now have good customer interest in the remaining units. In March this year we also completed the first building at Tulipan Park, close to Prague airport in the Czech Republic. The first phase consists of 17,000 sq m of logistics space of which 4,800 sq m has been let to Kuhne and Nagel, and negotiations are underway for the remaining phase 1 units. In June we started 11,000 sq m of further construction with permitting process in hand for a further 36,000 sq m. CURRENT MARKET CONDITIONS Yields on the Continent are continuing to see further compression. SEGRO is well positioned to secure good quality acquisitions, through our market leading, and growing, network of local offices and local expertise across the Continent. The strength of the market has facilitated our disposal of surplus and non-core stock, whilst generating higher returns. Occupier demand remains strong with good take up in all our major markets continuing into H2 2007, especially in Germany where the economy is growing faster than we expected. Areas with slow take up are Hungary, which is recovering from the political and economic difficulties of last year, and Belgium where the office market remains slow. Rental growth in the office sector has been healthy across the board - both in Western and in Central Europe. We will harness this opportunity through more suburban office developments in main markets such as Paris, Dusseldorf, Frankfurt, Amsterdam Brussels and Milan. Generally industrial sector rental growth in real terms remains fairly flat, but we are experiencing consistently strong demand for product especially in Central Europe, most notable Poland. The trend for corporate occupiers to lease rather than own properties continues, especially in traditional owner occupier markets such as France and Germany. We continue to build on this opportunity, in particular through the significant corporate sale and leaseback deals, in which we now have a growing and successful track record. 3. FINANCIAL REVIEW DISPOSAL OF SLOUGH ESTATES USA The most significant financial event in the period was the agreement to dispose of the Group's US business to Health Care Property Investors, Inc., signed on 4 June. The headline consideration before the deduction of debt transferred with the business, taxes, transaction costs and certain estimated post-closing adjustments amounted to approximately $2.9 billion (Â£1.48 billion). The sale completed on 1 August 2007 and a special dividend of Â£250 million, payable out of the net proceeds, is due to be paid to shareholders on 31 August 2007. The special dividend has been accompanied by a share consolidation in August 2007, the effect of which is to reduce the number of existing ordinary shares in issue by approximately 8 per cent, with the result that each shareholder receives 12 new ordinary shares for every 13 existing ordinary shares held. Although following the share consolidation each shareholder holds fewer shares than before, his or her shareholding as a proportion of the total number of shares in issue, and therefore his or her ownership in SEGRO is the same immediately after the share consolidation as it was before subject to adjustments to reflect fractional entitlements. The share consolidation facilitates comparability of earnings per share and share prices before and after payment of the special dividend. The results from our US business for the first half of the year are separately shown as discontinued operations in the interim accounts and the net assets at 30 June 2007 of the business are shown within assets/liabilities held for resale. The estimated profit on sale which will be recorded in the second half of the year is set out below and is subject to final adjustments according to the terms of the sale agreement. ESTIMATED PROFIT ON SALE OF US BUSINESS Â£m IFRS book value of US net assets as at 30 June 2007 437.8 Less assets retained (21.6) Add estimated profits to date of completion 3.5 Net assets disposed of (excluding deferred tax) 419.7 Sales proceeds (net of selling expenses)1 852.9 Exchange differences (21.3) Profit on sale, before tax 411.9 Taxation (304.5) Profit on sale after tax (excluding deferred tax) 107.4 1. Net sales proceeds are comprised of Â£1,484.8m gross proceeds, less debt settlement (Â£606.9m) and transaction costs (Â£25m). A pro-forma statement showing the Group balance sheet as if the disposal of the US and the subsequent share consolidation and special dividend had been effective on 30 June 2007 can be found below. The sale is expected to give rise to an increase in pro-forma basic NAV per share of 37p and to a reduction in adjusted diluted NAV per share of 7p. KEY FINANCIAL RESULTS 30 June 31 December Increase/ 2007 2006 (Decrease) NAV per share 756p 718p 5.3% Adjusted diluted NAV per share 811p 775p 4.6% Six months to Six months to 30 June 2007 30 June 2006 Dividend paid in the period 12.1p 11.0p 10.0% Total return per share 51.1p* 62.0p (17.6%) Total return 6.6%* 9.1% ( 2.5%) Adjusted profit before tax** Â£86.5m Â£68.1m 27.0% Diluted adjusted EPS** 17.0p 12.3p 38.2% * After adding back the SIIC conversion charge of Â£14.2m (3.0 pence per share). ** Continuing and discontinued operations The principal drivers of the total return and the increase in adjusted diluted NAV are analysed further in the table below. Pence Â£m per share Adjusted diluted equity attributable to shareholders at 31 December 2006 3,648.8 774.9 Property gains 166.5 35.4 Adjusted profit after tax 80.4 17.1 SIIC conversion charge (14.2) (3.0) Currency translation differences (9.9) (2.1) Ordinary dividends paid (56.9) (12.1) Other items (6.1) (1.3) Dilution adjustment for movement in number of shares - 1.9 Adjusted diluted equity attributable to shareholders at 30 June 2007 3,808.6 810.8 The total return and NAV movement were primarily driven by the property gains of Â£166.5 million (35.4 pence per share) and adjusted profits after tax of Â£80.4 million (17.1 pence per share). We have also provided for the one-off SIIC conversion charge of Â£14.2 million which has reduced NAV by 3.0 pence per share. VALUATION MOVEMENTS Property gains on continuing operations, including the Group's share of continuing joint ventures, amounted to Â£137.0 million (2006: Â£228.9 million). Property gains on discontinued operations, including the Group's share of US joint ventures, were Â£29.5 million (2006: Â£40.7 million). H1 2007 H1 2006 Property valuation gains - continuing operations Â£m Â£m Valuations gains in income statement 115.2 222.8 Valuation gains in statement of recognised income and expense 10.7 4.4 Share of joint ventures' valuation gains 8.0 2.5 Total valuation gains from continuing operations 133.9 229.7 Profits from the sale of investment properties 3.1 (0.8) Total property gains from continuing operations 137.0 228.9 The strongest valuation gains experienced were in Central Europe, France and Belgium, driven by development activity and yield compression in the valuation of completed investment properties. As expected, valuation gains in the UK were lower than in 2006 due to the end of the yield compression with IPD UK industrial initial yields at 30 June 2007 standing at 5.26% compared with 5.31% at 31 December 2006. Valuation uplifts (excluding land) - geographical H1 2007 H1 2006 analysis % % UK - Industrial 1.3 7.0 UK - Offices 6.5 5.4 France 9.6 6.5 Germany 7.2 2.8 Belgium 8.4 0.2 Central Europe 23.9 - Group 3.1 6.3 ADJUSTED PROFIT BEFORE TAX Adjusted profit before tax of Â£86.5million (2006: Â£68.1 million) comprised Â£68.8 million (2006: Â£45.6 million) from continuing operations and Â£17.7 million (2006: Â£22.5 million) from the discontinued operations in the US. Adjusted profit before tax from continuing operations increased by 50.9 per cent primarily due to an increase in profits on sale of trading properties of Â£16.7 million to Â£16.9 million (2006: Â£0.2 million), with the gains mainly arising on the sale of Farnborough residential land (Â£9.7 million) and other UK property (Â£4.2 million). Net property rental income which increased by 3.4% to Â£96.9 million (2006: Â£93.7 million) also contributed to this impressive performance, as did reduced finance costs of Â£6.1 million. Finance costs benefited from the conversion of preference shares to ordinary shares in 2006 and interest earnedon receipt of a $285 million dividend from the US business paid in the second half of 2006 and a Â£3 million US Dollar exchange gain. These gains were partly offset by an increase in administration expenses of Â£4.4 million to Â£13.4 million (2006: Â£9.0 million). The increase is mainly attributable to additional, ongoing administration costs associated with the continued expansion of our Continental European business and also to a number of one-off costs including professional fees in connection with consultancy projects and with our rebranding. H1 2007 Reconciliation of adjusted profit before tax - continuing Â£m operations Adjusted profit before tax from continuing operations - first half of 2006 45.6 Increase in net rental income 3.2 Increased profits from sales of trading properties 16.7 Reduced finance costs 6.1 Increased administration expenses (4.4) Other changes 1.6 Adjusted profit before tax from continuing operations - first half of 2007 68.8 Adjusted profit and earnings per share are stated after adjusting for valuation gains/losses and similar items recommended by EPRA and exceptional items. The only exceptional items in the first half of 2007 were the SIIC conversion charge of Â£14.2 million, included within continuing operations, and a net repayment penalty cost of Â£8.8 million in discontinued operations related to the early redemption of US debt incurred as part of the disposal (H1 2006: none). Full details of all the EPRA and exceptional adjustments are provided in note 10 to the attached interim financial statements. RENTAL INCOME Gross rental income, excluding discontinued operations, increased by Â£9.0 million (8.2 per cent) to Â£119.1 million and net rental income, on the same basis, increased by 3.4 per cent to Â£96.9 million. The key drivers of the increase in net rental income are set out in the table below: Â£m Net rental income from continuing operations H1 2006 93.7 Acquisitions 5.9 Disposals (5.3) New developments, re-lettings & rent reviews 10.2 Space returned (6.5) Increase in property operating expenses (5.8) Lease surrender premiums 3.9 Other 0.8 Net rental income from continuing operations H1 2007 96.9 Acquisition led growth arose principally from the effect of acquisitions agreed in 2006, specifically Antalis properties (Â£1.7 million) and Hoofddorp, Netherlands, (Â£0.7m) in Europe and Treforest (Â£0.9m), Sunbury (Â£0.8m), Peterborough (Â£0.4m) and Pucklechurch (Â£0.5m) in the UK. This was offset by the loss of rents on disposals, including Â£4.3 million in the UK. Strong lettings, particularly of new developments in Central Europe (Â£1.0m) and the UK (Â£2.2 million) and strong income from re-lettings in the UK (Â£4.3 million), contributed significantly to the growth in net rental income. The increase in property operating expenses arose mainly due to the expansion of our Continental European portfolio. TAX - CONTINUING OPERATIONS The underlying tax charge on the adjusted profit before tax was 2 per cent (2006: 23 per cent) with the decrease primarily due to the effect of the Group's REIT and SIIC status in the UK and France, respectively. The Group achieved UK Real Estate Investment Trust ("REIT") status with effect from 1 January 2007 and is paying the estimated conversion charge of approximately Â£81.9 million in four equal, quarterly instalments commencing July 2007. As a REIT, all eligible investment property income and capital gains are tax exempt. During the period the Group also elected for Societes d'Investissements Immobiliers Cotees ('SIIC') status in France, with effect from 1 January 2007. This means that income and capital gains on the Group's eligible French investment activities will also be tax exempt. The SIIC conversion is an important element in the creation of the Group's efficient international structure with a low overall tax charge. The interim accounts already show the benefits of this structure, with an underlying tax charge of just Â£1.1 million for the period. The interim accounts also include a provision for the one-off SIIC conversion charge of up to Â£14.2 million, which is payable in four annual instalments commencing in December 2007 and which is more than offset by the release of Â£29.8 million of deferred tax no longer payable. EARNINGS PER SHARE AND DIVIDEND Basic earnings per share for the Group (including discontinued operations) were 48.0 pence (2006: 55.2 pence) and diluted adjusted earnings per share (including discontinued operations) increased 38.2% to 17.0 pence (2006: 12.3 pence). Diluted adjusted earnings per share for the continuing group increased by 69% to 14.2 pence (2006: 8.4 pence) and basic earnings per share for the continuing group was 41.3 pence (2006: 46.4 pence). The 69% increase in diluted adjusted earnings per share for the continuing group is higher than the increase in adjusted profit before tax for the continuing group (50.9%) mainly due to the reduction in the underlying tax charge of Â£9.1 million as explained above. The directors have proposed an interim dividend of 8.3 pence per share, an increase of 20.3 per cent from 2006, which will be paid on 5 October 2007 to those shareholders on the register on 7 September 2007. In the absence of unforeseen events, the directors anticipate that the full year dividend, including PID and regular dividend, will show a similar level of year on year increase. Under the REIT regime SEGRO is required to make Property Income Distributions ("PIDs") to shareholders, amounting to at least 90 per cent of the eligible UK property rental profits, after certain deductions. The Board would expect the total distribution for the year ordinarily to exceed the mandatory PID and to include a proportion of the additional profits from the Group's overseas recurring property rental income, worldwide trading property profits and other income. The interim dividend of 8.3 pence (2006: 6.9 pence) is to be paid entirely as part of the mandatory PID. The final dividend for 2007 will comprise both PID and regular dividend, the amount and split of which will be declared in March 2008. For UK shareholders who are eligible for exemption from the 22% withholding tax, an HM Revenue & Customs ("HMRC") Tax Exemption Declaration is available for download from the SEGRO website (www.SEGRO.com), or from HMRC. Validly completed forms must be received by the Company's registrars, Computershare Investor Services PLC no later than the 14 September 2007,otherwise the dividend will be paid after deduction of tax. Non-UK resident shareholders in countries with double tax treaties with the UK which provide for withholding tax on dividends at rates lower than 22%, may be able to make claims for repayment of the difference from HM Revenue & Customs. The above does not constitute advice and shareholders should seek their own professional guidance. SEGRO does not accept liability for any loss suffered arising from reliance on the above. CASH FLOW A summary of the cash flow for the period is set out in the table below: H1 2007 H1 2006 Â£m Â£m Cash flow from operations 110.9 80.8 Finance costs (net) (63.8) (59.9) Dividends received (net) 1.7 32.9 Tax paid (net) (1.7) (6.6) Free cash flow 47.1 47.2 Capital expenditure (266.7) (191.3) Property sales (including joint ventures) 203.9 51.7 Ordinary dividends (56.9) (51.6) Other items 7.5 7.8 Net funds flow (65.1) (136.2) Net increase in borrowings 41.5 72.7 Net cash outflow (23.6) (63.5) Opening cash and cash equivalents 151.0 166.9 Exchange rate changes (0.1) (0.3) Closing cash and cash equivalents 127.3 103.1 Cash flows generated from operations for the period were Â£110.9 million, an increase of 37% from 2006 as a result of higher proceeds from the sale of trading property developments. Cash flows generated from continuing operations were Â£76.9 million (2006: Â£45.5 million) and from discontinued operations were Â£34.0 million (2006: Â£35.3 million). Dividends received were significantly lower than in the first half of 2006, mainly due to a one-off dividend from the Group's joint venture with Tesco in 2006 which was not repeated in 2007. Finance costs of Â£63.8 million, net of interest income, were higher by Â£3.9 million due to property acquisitions in 2006 and 2007, partly offset by the interest paid in 2006 on the preference shares, which were converted into ordinary shares during 2006. Tax paid during the period of Â£1.7 million was lower than in 2006 (Â£6.6 million) mainly due to lower payments in France under the SIIC regime. After payment of the dividend, there was a net funds outflow of Â£65.1 million (2006 Â£136.2 million). Allowing for the lower increase in borrowings in 2007, the net cash outflow for the period was Â£23.6 million (2006 Â£63.5 million). Capital expenditure of Â£266.7 million (2006: Â£191.3 million) included development expenditure of Â£143.5 million (2006: Â£97.4 million) and investment property acquisitions of Â£90.1 million (2006: Â£88.9 million). The Group expects to continue to maintain its high rate of expenditure with between Â£300 million and Â£350 million of development expenditure expected for 2007 and Â£300 million to Â£400 million for 2008. We continue to have a good pipeline of acquisition opportunities in Europe and acquisition expenditure of some Â£220 million is already committed on transactions we expect to complete in the second half of the year. DISPOSALS AND ACQUISITIONS - INVESTMENT PROPERTIES (INCLUDING LAND) DISPOSALS Gain Price over book value Â£m % Juniper 1& 2 Basildon 29.9 - Huddersfield 29.7 12.9 Haresfield 9.6 3.6 Various properties sold to Legal and General 101.1 0.2 ACQUISITIONS Price (inc costs) Â£m UK Heston 32.7 Frimley 3.8 Belgium Kobbegem 12.4 Netherlands Hoofddorp 10.9 France Gonesse - land 7.2 Bondoufle 13.5 Germany Willich Munchheide 3.5 Aachen-Julich 3.9 Central Europe Silesia, Gliwice - land 2.2 FINANCIAL POSITION Set out below is a pro-forma statement of the Group balance sheet at 30 June 2007, prepared as if the disposal of the US business and subsequent share consolidation and special dividend had occurred on that date. Net assets Pro-forma at 30 June Continuing 2007 Group (as at 30 June reported) 2007 Â£m Â£m Assets Non-current assets 4,928.8 4,928.8 Current assets Trading properties 149.1 149.1 Cash and cash equivalents 128.9 773.5 Non-current assets classified as held-for-sale 1,272.9 - Debtors and other assets 158.5 158.5 1,709.4 1,081.1 Total assets 6,638.2 6,009.9 Liabilities Non-current liabilities Borrowings 1,841.9 1,841.9 Provisions for liabilities and charges 81.1 81.1 Trade and other payables 15.6 257.5 1,938.6 2,180.5 Current liabilities Borrowings 69.6 69.6 Creditors 325.8 325.8 Liabilities directly associated with assets classified as held-for-sale 752.4 - 1,147.8 395.4 Total liabilities 3,086.4 2,575.9 Net assets 3,551.8 3,434.0 Net assets per share - basic 756p 792p - diluted 755p 791p Adjusted net assets per share - basic 812p 805p - diluted 811p 804p At 30 June 2007, the Group's borrowings, including Â£490.4 million relating to the US group, totalled Â£2,401.9 million (31 December 2006: Â£2,384.8 million). Cash balances totalled Â£137.2 million (2006: Â£161.4 million), including Â£8.3 million relating to the US group, resulting in reported net debt amounting to Â£2,264.7 million (2006: Â£2,223.4 million). The weighted average maturity of the debt portfolio was 10 years (11.7 years on a pro-forma basis). On a pro-forma basis excluding the US, the continuing Group's borrowings totalled Â£1,911.5 million. Cash balances totalled Â£773.5 million resulting in reported net debt amounting to Â£1,138.0 million. Unsecured borrowings represent 97 per cent of gross debt at the period end and 97 per cent on a pro-forma basis. Secured debt totalled Â£81.8 million representing some historical mortgage debt domiciled in the Group's overseas operations. Â£1,425.1 million of debt domiciled in the UK was unsecured and was issued by the Parent Company without any supporting up-stream guarantees. Â£895.0 million of unsecured debt was issued by subsidiary companies located overseas. Reported financial gearing was 64 per cent (2006: 66 per cent) or 59 per cent (2006: 61 per cent) after adding back deferred tax of Â£264.4 million (2006: Â£276.1 million). The loan to value ratio (net debt divided by property assets) of the Group at 30 June 2007 was 38 per cent (2006: 38 per cent). On a pro-forma basis reported financial gearing was 33 per cent or 32.6 per cent after adding back deferred tax of Â£53 million and the loan to value ratio was 23 per cent. Interest cover based upon adjusted profit before interest and tax and adjusted net finance costs was 2.5 times (2006: 2.4 times), or 2.1 times (2006: 1.9 times) if capitalised interest is included. The market value of borrowings of the Group at the end of June 2007 was Â£1.6 million lower than the book value. Funds availability at 30 June totalled Â£988.3 million, comprised of Â£137.2 million of cash deposits and Â£851.1 million of undrawn bank facilities. On a pro-forma basis, after payment of the special dividend and taxes arising on the sale of the US business, funds availability at 30 June was approximately Â£1.3 billion. Only Â£25 million of the Group's facilities is uncommitted overdraft lines with the balance of undrawn facilities being fully committed and with Â£766 million remaining available to 2010/12. HEDGING POLICIES The Group has set policies on interest rate and foreign currency translation exposures, liquidity and funding. These policies state that around 85 per cent of the Group's debt portfolio should attract a fixed or capped rate of interest and that between 75 per cent - 90 per cent of foreign currency assets should be matched with liabilities of the same currency. INTEREST RATE EXPOSURE As at 30 June 2007, 79 per cent (2006: 87 per cent) of the debt portfolio attracted a fixed or capped rate of interest at a weighted average rate of 6.0 per cent (2006: 6.1 per cent). Much of this debt was in the form of fixed rate debt issues raised through Sterling Eurobonds and US dollar private placements. Such fixed-rate debt issues are held in the balance sheet at amortised cost. Interest rate swaps, caps, collars and forward rate agreements are also used to convert variable rate bank debt to fixed rate. The 21 per cent of debt remaining at a variable rate of interest brought the overall weighted average cost of debt down to 5.9 per cent (2006: 5.8 per cent). The interest rate position was non compliant with policy at 30 June 2007 because the Board was of the opinion it did not make sense to enter new interest rate hedging transactions for any US dollar borrowings pending the sale of SEUSA. The Group has decided not to elect to hedge account its interest rate derivatives portfolio. Therefore movements in the fair value are taken to the Income Statement but, in accordance with EPRA recommendations, these gains and losses are eliminated from adjusted profit before tax and adjusted EPS. FOREIGN CURRENCY TRANSLATION EXPOSURE Due to the nature of the Group's business it has no cross-border trading transactions and therefore, foreign exchange transaction exposure is negligible. However, it does have operations located overseas which transact business in the domestic currency of the country in which the business is located - mostly in US dollars and Euros. The Group's main currency exposure therefore is the translation risk associated with converting net currency assets back into sterling in the Group consolidated accounts at each balance sheet date. As mentioned above, the policy is that between 75 per cent - 90 per cent of currency denominated assets must be matched with liabilities of the same currency. At 30 June 2007, Â£143.2 million or 4 per cent of currency denominated net assets were exposed to exchange movements. A 10 per cent movement in the value of sterling against all currencies in which the Group operates would therefore change net assets by Â£14.3 million and net assets per share by 3 pence or 0.4 per cent. Independent review report to SEGRO plc Introduction We have been instructed by the Company to review the financial information for the six months ended 30 June 2007 which comprises the Group income statement, the statement of recognised income and expense, the Group balance sheet, the Group cash flow statement and related notes 1 to 18. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with Bulletin 1999/4 issued by the Auditing Practices Board. Our work has been undertaken so that we might state to the Company those matters we are required to state to them in an independent review report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company, for our review work, for this report, or for the conclusions we have formed. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules of the Financial Services Authority which require that the accounting policies and presentation applied to the interim figures are consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with the guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit performed in accordance with International Standards on Auditing (UK and Ireland) and therefore provides a lower level of assurance than an audit. Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2007. Deloitte & Touche LLP Chartered Accountants London 28 August 2007 Group income statement For the six months ended 30 June 2007 Half year to 30 June 2007 Half year to 30 June 2006 Year to 31 December 2006 ------------------------- ------------------------- ------------------------ Adjusted Total Adjusted Total Adjusted Total income & Adjust- income & income & Adjust- income & income & Adjust- income & expense(1) ments(2) expense expense(1) ments(2) expense expense(1) ments(2) expense Continuing operations Note Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m ------ ----- ------ ------ ------ ------ ------ ----- ------ Revenue 2 184.3 - 184.3 133.3 - 133.3 307.7 - 307.7 ------ ----- ------ ------ ------ ------ ------ ----- ------ Gross property rental income 119.1 - 119.1 110.1 - 110.1 228.6 - 228.6 Property operating expenses (22.2) - (22.2) (16.4) - (16.4) (39.8) - (39.8) ------ ----- ------ ------ ------ ------ ------ ------ ------ Net property rental income 96.9 - 96.9 93.7 - 93.7 188.8 - 188.8 Profit on sale of trading properties 16.9 - 16.9 0.2 - 0.2 5.9 - 5.9 Share of profits from property joint ventures and associates after tax 4 1.2 6.0 7.2 0.4 2.5 2.9 5.5 4.2 9.7 Net income from utilities 0.8 - 0.8 0.5 - 0.5 2.1 - 2.1 Other investment income 6.2 - 6.2 5.7 - 5.7 8.5 - 8.5 Administration expenses (13.4) - (13.4) (9.0) - (9.0) (25.5) - (25.5) Property gains 3 - 118.3 118.3 - 222.0 222.0 - 397.5 397.5 ------ ----- ------ ------ ------ ------ ------ ------ ------ Operating profit 108.6 124.3 232.9 91.5 224.5 316.0 185.3 401.7 587.0 Finance income 5 14.0 3.1 17.1 15.2 6.1 21.3 28.4 4.7 33.1 Finance costs 6 (53.8) - (53.8) (61.1) (0.5) (61.6) (112.0) (0.5) (112.5) ------ ----- ------ ------ ------ ------ ------ ----- ------ Profit before tax 68.8 127.4 196.2 45.6 230.1 275.7 101.7 405.9 507.6 Tax(charge)/ credit - current (0.6) (14.2) (14.8) (3.1) - (3.1) (11.3) (71.1) (82.4) - deferred (0.8) 14.2 13.4 (7.4) (61.0) (68.4) (2.8) 391.1 388.3 ------ ----- ------ ------ ------ ------ ------ ----- ------ Total tax 7 (1.4) - (1.4) (10.5) (61.0) (71.5) (14.1) 320.0 305.9 ------ ----- ------ ------ ------ ------ ------ ----- ------ Profit from continuing operations 67.4 127.4 194.8 35.1 169.1 204.2 87.6 725.9 813.5 ------ ----- ------ ------ ------ ------ ------ ----- ------ Discontinued operations Profit after tax from discontinued operations 18 13.0 18.5 31.5 19.3 20.3 39.6 27.3 78.3 105.6 ------ ----- ------ ------ ------ ------ ------ ----- ------ Profit for the period 80.4 145.9 226.3 54.4 189.4 243.8 114.9 804.2 919.1 ------ ----- ------ ------ ------ ------ ------ ----- ------ Attributable to equity shareholders 79.6 145.4 225.0 53.8 188.5 242.3 113.9 802.6 916.5 Attributable to minority interests 0.8 0.5 1.3 0.6 0.9 1.5 1.0 1.6 2.6 ------ ----- ------ ------ ------ ------ ------ ----- ------ 80.4 145.9 226.3 54.4 189.4 243.8 114.9 804.2 919.1 ------ ----- ------ ------ ------ ------ ------ ----- ------ Earnings per share From continuing and discontinued operations Basic earnings per share 9 48.0p 55.2p 201.8p Diluted earnings per share 9 47.9p 52.5p 196.0p From continuing operations Basic earnings per share 9 41.3p 46.4p 179.0p Diluted earnings per share 9 41.3p 44.3p 174.0p Notes 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 10. Statement of recognised income and expense (SORIE) For the six months ended 30 June 2007 Half year to Half year to Year to 30 June 30 June 31 December 2007 2006 2006 Continuing and discontinued operations Note Â£m Â£m Â£m -------- ------- -------- Revaluation gains on properties in the course of development 3 2.3 5.2 22.3 Revaluation gains on properties in the course of development in joint ventures 3 0.5 - - Exchange movement arising on translation of international operations (4.6) (23.3) (34.3) Actuarial gains on defined benefit pension schemes 9.8 8.2 10.2 Increase in value of available-for-sale investments 5.0 2.1 7.5 Tax on items taken directly to equity 0.1 (4.1) (10.9) -------- -------- -------- Net gain/(loss) recognised directly in equity 13.1 (11.9) (5.2) Transfer to income statement on sale of available-for-sale investments (2.3) (2.7) (6.2) Profit for the period from continuing operations 194.8 204.2 813.5 Profit for the period from discontinued operations 31.5 39.6 105.6 -------- ------- -------- Total recognised income and expense for the period 237.1 229.2 907.7 -------- ------- -------- Attributable to - equity shareholders 235.8 227.7 905.8 - minority interests 1.3 1.5 1.9 -------- ------- -------- 237.1 229.2 907.7 -------- ------- -------- Group balance sheet 30 June 30 June 31 December As at 30 June 2007 2007 2006 2006 Note Â£m Â£m Â£m ------- --------- --------- Assets Non-current assets Goodwill 0.7 0.7 0.7 Investment properties 12 4,485.7 4,614.2 5,090.0 Development and owner occupied properties 12 272.6 482.6 469.7 Plant and equipment 48.3 45.7 48.1 Investments in joint ventures and associates 13 70.7 79.0 84.5 Finance lease receivables 10.5 10.8 10.6 Available-for-sale investments 40.3 45.6 44.1 ------- --------- --------- 4,928.8 5,278.6 5,747.7 Current assets Trading properties 149.1 201.8 232.3 Trade and other receivables 151.2 114.1 185.7 Cash and cash equivalents 128.9 105.4 161.4 Tax recoverable 5.2 8.4 5.1 Non-current assets held for sale 18 1,272.9 108.3 56.6 Finance lease receivables 0.1 0.1 0.2 Inventories 2.0 1.4 1.0 ------- --------- --------- 1,709.4 539.5 642.3 Total assets 6,638.2 5,818.1 6,390.0 ------- --------- --------- Liabilities Non-current liabilities Borrowings 14 1,841.9 2,137.4 2,307.2 Provisions for liabilities and charges 15 81.1 735.4 316.2 Trade and other payables 15.6 3.0 31.7 ------- --------- --------- 1,938.6 2,875.8 2,655.1 Current liabilities Borrowings 14 69.6 47.8 77.6 Tax liabilities 100.1 6.4 82.5 Trade and other payables 225.7 156.1 192.4 Liabilities directly associated with assets classified as held for sale 18 752.4 - - ------- --------- --------- 1,147.8 210.3 352.5 Total liabilities 3,086.4 3,086.1 3,007.6 ------- --------- --------- Net assets 3,551.8 2,732.0 3,382.4 ------- --------- --------- Equity Share capital 118.0 117.8 118.0 Share premium 368.0 364.7 367.3 Own shares held (17.3) (10.3) (10.6) Revaluation reserve 2,240.4 1,605.0 2,129.3 Other reserves 78.4 56.6 70.4 Retained earnings 759.7 588.9 698.3 ------- --------- --------- Total shareholders' equity 3,547.2 2,722.7 3,372.7 Minority interests 4.6 9.3 9.7 ------- --------- --------- Total equity 16 3,551.8 2,732.0 3,382.4 ------- --------- --------- Net assets per ordinary share Basic 9 756p 581p 718p Diluted 9 755p 579p 716p Group cash flow statement Half year to Half year to Year to For the six months ended 30 June 2007 30 June 30 June 31 December 2007 2006 2006 Note Â£m Â£m Â£m -------- ------- -------- Cash inflow generated from operations 17(i) 110.9 80.8 137.6 Interest received on deposits and loans 3.7 5.9 13.1 Dividends received 3.0 33.4 36.5 Interest paid (67.5) (60.6) (130.7) Dividend paid to preference shareholders - (5.2) (5.2) Minority dividends paid (1.3) (0.5) (0.8) Tax paid (1.7) (6.6) (11.6) -------- ------- -------- Net cash inflow from operating activities 47.1 47.2 38.9 -------- ------- -------- Cash flows from investing activities Purchase and development of investment properties (125.5) (125.5) (262.6) Sales of investment properties 194.4 51.6 158.3 Purchase and development of property, plant and equipment (108.1) (60.8) (189.3) Sale of property, plant and equipment 0.4 0.1 5.8 Purchase of available-for-sale investments (0.4) (2.7) (4.7) Proceeds from disposal of available-for-sale investments 8.7 11.9 15.7 Investment and loans to joint ventures and associates (16.1) (5.0) (21.3) Repayment of loans by joint ventures 9.1 - 9.2 Acquisition of minority interests (17.0) - - Transfer to restricted deposits (1.5) - (3.9) -------- ------- -------- Net cash used in investing activities (56.0) (130.4) (292.8) -------- ------- -------- Cash flows from financing activities Dividend paid to ordinary shareholders (56.9) (51.6) (84.0) Proceeds from new loans 23.6 - 66.9 Repayment of loans (12.3) (9.4) (10.1) Net increase in other borrowings 30.2 82.1 264.6 Proceeds from the issue of ordinary shares 0.7 2.6 5.9 Purchase of own shares - (4.0) (4.5) -------- ------- -------- Net cash (used in)/from financing activities (14.7) 19.7 238.8 -------- ------- -------- Net decrease in cash and cash equivalents (23.6) (63.5) (15.1) Cash and cash equivalents at the beginning of the period 151.0 166.9 166.9 Effect of foreign exchange rate changes (0.1) (0.3) (0.8) -------- ------- -------- Cash and cash equivalents at the end of the period 127.3 103.1 151.0 -------- ------- -------- Cash and cash equivalents per balance sheet 128.9 105.4 161.4 Cash and cash equivalents included in the assets held for sale 8.3 - - Less restricted deposits (5.4) - (3.9) -------- ------- -------- 131.8 105.4 157.5 Bank overdrafts (4.5) (2.3) (6.5) -------- ------- -------- Cash and cash equivalents per cash flow 127.3 103.1 151.0 -------- ------- -------- Notes to the financial statements Basis of preparation The interim financial statements for the six months ended 30 June 2007 were approved by the Board of Directors on 28 August 2007. The unaudited financial information contained in this report does not constitute statutory accounts within the meaning of section 240 of the Companies Act. The financial information for the year to 31 December 2006 is an abridged statement of the financial statements for that year which were prepared under International Financial Reporting Standards (IFRS) and were delivered to the Registrar of Companies. The auditors' opinion on these accounts was unqualified and did not contain a statement made under S237(2) or S237(3) of the Companies Act 1985. The interim financial report has been prepared using policies set out in the financial statements for the year ended 31 December 2006 which are consistent with IFRS. SEGRO plc Notes to the financial statements (continued) 1(i) Analysis of profit before tax from continuing and discontinued operations Half year to 30 June 2007 Half year to 30 June 2006 Year to 31 December 2006 -------------- -------------- -------------- Adjusted Total Adjusted Total Adjusted Total income & Adjust- income & income & Adjust- income & income & Adjust- income & expense ments expense expense ments expense expense ments expense Continuing Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m operations ------ ------ ------ ------ ------ ------ ------- ----- ------ Net property rental income 96.9 - 96.9 93.7 - 93.7 188.8 - 188.8 Profit on sale of trading properties 16.9 - 16.9 0.2 - 0.2 5.9 - 5.9 Share of profits from property joint ventures and associates after tax 1.2 6.0 7.2 0.4 2.5 2.9 5.5 4.2 9.7 Net income from utilities 0.8 - 0.8 0.5 - 0.5 2.1 - 2.1 Other investment income 6.2 - 6.2 5.7 - 5.7 8.5 - 8.5 Administration expenses (13.4) - (13.4) (9.0) - (9.0) (25.5) - (25.5) Property gains - 118.3 118.3 - 222.0 222.0 - 397.5 397.5 ------ ------ ------ ------ ------ ------ ------- ----- ------ Operating profit 108.6 124.3 232.9 91.5 224.5 316.0 185.3 401.7 587.0 Net finance costs (39.8) 3.1 (36.7) (45.9) 5.6 (40.3) (83.6) 4.2 (79.4) Profit before tax from ------ ------ ------ ------ ------ ------ ------- ----- ------ continuing operations 68.8 127.4 196.2 45.6 230.1 275.7 101.7 405.9 507.6 ------ ------ ------ ------ ------ ------ ------- ----- ------ Discontinued operations Net property rental income 33.8 - 33.8 28.3 - 28.3 58.4 - 58.4 Profit on sale of trading properties - - - - - - 0.2 - 0.2 Share of profits from property joint ventures and associates after tax 0.8 1.2 2.0 0.9 0.1 1.0 1.5 2.1 3.6 Administration expenses (1.7) - (1.7) (1.7) - (1.7) (3.4) - (3.4) Property gains - 36.2 36.2 - 39.8 39.8 - 139.5 139.5 ------ ------ ------ ------ ------ ------ ------- ----- ------ Operating profit 32.9 37.4 70.3 27.5 39.9 67.4 56.7 141.6 198.3 Net finance costs (15.2) (14.2) (29.4) (5.0) - (5.0) (15.8) - (15.8) ------ ------ ------ ------ ------ ------ ------- ----- ------ Profit before tax from discontinued operations 17.7 23.2 40.9 22.5 39.9 62.4 40.9 141.6 182.5 ------ ------ ------ ------ ------ ------ ------- ----- ------ Continuing and discontinued operations Net property rental income 130.7 - 130.7 122.0 - 122.0 247.2 - 247.2 Profit on sale of trading properties 16.9 - 16.9 0.2 - 0.2 6.1 - 6.1 Share of profits from property joint ventures and associates after tax 2.0 7.2 9.2 1.3 2.6 3.9 7.0 6.3 13.3 Net income from utilities 0.8 - 0.8 0.5 - 0.5 2.1 - 2.1 Other investment income 6.2 - 6.2 5.7 - 5.7 8.5 - 8.5 Administration expenses (15.1) - (15.1) (10.7) - (10.7) (28.9) - (28.9) Property gains - 154.5 154.5 - 261.8 261.8 - 537.0 537.0 ------ ------ ------ ------ ------ ------ ------- ----- ------ Operating profit 141.5 161.7 303.2 119.0 264.4 383.4 242.0 543.3 785.3 Net finance costs (55.0) (11.1) (66.1) (50.9) 5.6 (45.3) (99.4) 4.2 (95.2) ------ ------ ------ ------ ------ ------ ------- ----- ------ Profit before tax from continuing and discontinued operations 86.5 150.6 237.1 68.1 270.0 338.1 142.6 547.5 690.1 ------ ------ ------ ------ ------ ------ ------- ----- ------ Tax - continuing and discontinued operations (6.1) (4.7) (10.8) (13.7) (80.6) (94.3) (27.7) 256.7 229.0 ------ ------ ------ ------ ------ ------ ------- ----- ------ Profit after tax 80.4 145.9 226.3 54.4 189.4 243.8 114.9 804.2 919.1 ------ ------ ------ ------ ------ ------ ------- ----- ------ Notes to the financial statements (continued) 1(ii) Segmental analysis United Kingdom* Continental Europe Group ------------------------- ---------------------- -------------------------- Half Half Half Half Half Half year year Year year year Year year year Year 2007 2006 2006 2007 2006 2006 2007 2006 2006 Adjusted Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m profit - ------ ------ ------ ------ ------ ----- ------ ------ ------ continuing operations Segment revenue 155.3 113.7 237.7 29.0 19.6 70.0 184.3 133.3 307.7 ------ ------ ------ ------ ------ ----- ------ ------ ------ Net property rental income 79.9 79.0 160.6 17.0 14.7 28.2 96.9 93.7 188.8 Profit on sale of trading properties 14.0 - - 2.9 0.2 5.9 16.9 0.2 5.9 Net profit from utilities 0.8 0.5 2.1 - - - 0.8 0.5 2.1 Share of profits from property joint ventures and associates after tax 1.2 0.3 5.0 - 0.1 0.5 1.2 0.4 5.5 Other income and expenses (3.9) (1.5) (12.4) (3.3) (1.8) (4.6) (7.2) (3.3) (17.0) ------ ------ ------ ------ ------ ----- ----- ------ ------ Operating profit 92.0 78.3 155.3 16.6 13.2 30.0 108.6 91.5 185.3 Net finance costs (30.3) (41.4) (73.4) (9.5) (4.5) (10.2) (39.8) (45.9) (83.6) ------ ------ ------ ------ ------ ----- ------ ------ ------ Profit before tax 61.7 36.9 81.9 7.1 8.7 19.8 68.8 45.6 101.7 Taxation - current 0.3 (1.9) (8.7) (0.9) (1.2) (2.6) (0.6) (3.1) (11.3) - deferred (1.8) (7.3) (1.7) 1.0 (0.1) (1.1) (0.8) (7.4) (2.8) ------ ------ ------ --- ------ ------ ----- --- ------ ------ ------ Adjusted profit after tax from continuing operations 60.2 27.7 71.5 7.2 7.4 16.1 67.4 35.1 87.6 ------ ------ ------ ------ ------ ----- ------ ------ ------ EPRA adjustments Property gains 64.7 212.6 374.9 53.6 9.4 22.6 118.3 222.0 397.5 Other income and expenses 4.7 2.5 4.1 1.3 - 0.1 6.0 2.5 4.2 Net finance costs 0.6 5.6 0.9 2.5 - 3.3 3.1 5.6 4.2 Deferred - (56.7) 415.3 14.2 (4.3) (10.0) 14.2 (61.0) 405.3 tax ------ ------ ------ ------ ------ ----- ------ ------ ------ Total EPRA adjustments 70.0 164.0 795.2 71.6 5.1 16.0 141.6 169.1 811.2 ------ ------ ------ ------ ------ ----- ------ ------ ------ Exceptional adjustments Current tax - - (71.1) - - - - - (71.1) Deferred tax - - (14.2) (14.2) - - (14.2) - (14.2) ------ ------ ------ ------ ------ ----- ------ ------ ------ Total exceptional adjustments - - (85.3) (14.2) - - (14.2) - (85.3) ------ ------ ------ ------ ------ ----- ------ ------ ------ Total adjustments 70.0 164.0 709.9 57.4 5.1 16.0 127.4 169.1 725.9 ------ ------ ------ ------ ------ ----- ------ ------ ------ Profit after tax from continuing operations 130.2 191.7 781.4 64.6 12.5 32.1 194.8 204.2 813.5 ------ ------ ------ ------ ------ ----- ------ ------ ------ Summary balance sheet Continuing operations Total property assets** 4,187.3 3,984.7 4,192.8 874.4 593.7 707.7 5,061.7 4,578.4 4,900.5 Other assets (excluding cash) 220.1 175.4 121.1 44.9 14.8 34.8 265.0 190.2 155.9 ------ ------ ------ ------ ------ ----- ------ ------ ------ Segment 4,407.4 4,160.1 4,313.9 919.3 608.5 742.5 5,326.7 4,768.6 5,056.4 assets Deferred tax liability (10.3) (472.0) (7.1) (55.9) (60.4) (70.8) (66.2) (532.4) (77.9) Other liabilities (excluding borrowings) (371.9) (233.0) (261.0) (74.7) (27.4) (40.5) (446.6) (260.4) (301.5) ------ ------ ------ ------ ------ ----- ------ ------ ------ Segment liabilities (382.2) (705.0) (268.1) (130.6) (87.8) (111.3) (512.8) (792.8) (379.4) ------ ------ ------ ------ ------ ----- ------ ------ ------ Net segment assets 4,025.2 3,455.1 4,045.8 788.7 520.7 631.2 4,813.9 3,975.8 4,677.0 ------ ------ ------ ------ ------ ----- ------ ------ ------ Net external borrowings (1,320.0) (1,533.9) (1,346.5) (462.6) (300.8) (366.0) (1,782.6) (1,834.7) (1,712.5) Net inter-segment borrowings 153.0 91.2 72.9 (48.7) (12.7) (57.6) 104.3 78.5 15.3 ------ ------ ------ ------ ------ ----- ------ ------ ------ Net assets continuing 2,858.2 2,012.4 2,772.2 277.4 207.2 207.6 3,135.6 2,219.6 2,979.8 ------ ------ ------ ------ ------ ----- Net assets of discontinued operations (US) 416.2 512.4 402.6 ------ ------ ------ Net assets 3,551.8 2,732.0 3,382.4 ------ ------ ------ * The figures for United Kingdom include income from US available-for-sale investments which are not part of the disposal group. In prior periods, this income was classified in the US segment. ** Includes the Group's share of properties held by joint ventures (excluding those held in the US). Notes to the financial statements (continued) 2. Revenue Half year to Half year to Year to 30 June 2007 30 June 2006 31 December 2006 Â£m Â£m Â£m -------- ---------- ---------- Rental income from investment properties 109.8 103.1 207.2 Surrender premiums 4.1 0.2 5.2 Interest received on finance lease assets 0.4 0.4 0.8 Service charge income 2.7 2.1 7.0 -------- ---------- ---------- Investment and development property rental income 117.0 105.8 220.2 Trading property rental income 2.1 4.3 8.4 -------- ---------- ---------- Gross property rental income 119.1 110.1 228.6 Proceeds from sale of trading properties 45.7 1.6 35.8 Sale of utilities 19.5 21.6 43.3 -------- ---------- ---------- Total revenue from continuing operations 184.3 133.3 307.7 -------- ---------- ---------- 3. Property gains Half year to Half year to Year to 30 June 2007 30 June 2006 31 December 2006 Continuing operations Â£m Â£m Â£m -------- ---------- ---------- Income statement - valuation surpluses 115.2 222.8 392.7 - profits/(losses) from the sale of investment properties 3.1 (0.8) 4.8 -------- ---------- ---------- Total property gains per income statement 118.3 222.0 397.5 Statement of recognised income and expense - valuation surpluses 10.7 4.4 15.6 -------- ---------- ---------- Total property gains from continuing operations 129.0 226.4 413.1 -------- ---------- ---------- Discontinued operations Income statement - valuation surpluses 36.2 39.8 139.5 Statement of recognised income and expense - valuation (deficits)/surpluses (7.9) 0.8 6.7 -------- ---------- ---------- Total valuation surpluses from discontinued operations 28.3 40.6 146.2 -------- ---------- ---------- Total valuation surpluses from continuing and discontinued operations 154.2 267.8 554.5 -------- ---------- ---------- The valuation surpluses/(deficits) arise on the following properties: Investment properties 155.8 263.4 535.5 Development and owner occupied properties (2.1) 4.4 19.0 Investment in joint ventures (taken directly to equity) 0.5 - - -------- ---------- ---------- 154.2 267.8 554.5 Net valuation surpluses of joint ventures and associates included within the Group's share of their profits in the income statement - continuing operations 8.0 2.5 7.2 Net valuation surpluses of joint ventures and associates included within profit after tax from discontinued operations 1.2 0.1 2.1 -------- ---------- ---------- Total valuation surpluses 163.4 270.4 563.8 -------- ---------- ---------- Notes to the financial statements (continued) 4. Share of profits from joint ventures and associates after tax (continuing operations) Half year to Half year to Year to 30 June 2007 30 June 2006 31 December 2006 Â£m Â£m Â£m -------- ---------- ---------- Revenue 7.4 6.9 42.6 -------- ---------- ---------- Gross property rental income 3.5 2.7 6.2 Property operating expenses (0.7) (0.2) (1.5) Proceeds on sale of trading properties 3.9 4.3 36.4 Carrying value of trading properties sold (3.4) (4.4) (29.9) Finance costs (1.9) (2.0) (3.9) -------- ---------- ---------- 1.4 0.4 7.3 Valuation surpluses 8.0 2.5 7.2 -------- ---------- ---------- Profit before tax 9.4 2.9 14.5 Current tax (0.2) - (2.0) Deferred tax (2.0) - (2.8) -------- ---------- ---------- Group share of profit after tax 7.2 2.9 9.7 -------- ---------- ---------- Analysed between: Investment properties 7.2 3.2 5.9 Trading properties - (0.3) 3.8 -------- ---------- ---------- 7.2 2.9 9.7 -------- ---------- ---------- 5. Finance income (continuing operations) Half year to Half year to Year to 30 June 2007 30 June 2006 31 December 2006 Â£m Â£m Â£m -------- ---------- ---------- Interest received on bank deposits 2.9 3.4 8.3 Fair value gains on interest rate swaps and other derivatives 3.1 6.1 4.7 Return on pension assets less unwinding of discount on pension liabilities 0.3 0.2 0.5 Exchange differences 10.8 11.6 19.6 -------- ---------- ---------- Total finance income 17.1 21.3 33.1 -------- ---------- ---------- Notes to the financial statements (continued) 6. Finance costs (continuing Half year to Half year to Year to operations) 30 June 2007 30 June 2006 31 December 2006 Â£m Â£m Â£m -------- ---------- ---------- Interest on overdrafts and loans 52.2 51.5 105.1 Interest on convertible redeemable preference shares - 4.1 4.1 Unwinding of discount on the pension liabilities less return on assets 0.1 - 0.2 -------- ---------- ---------- Total borrowing costs 52.3 55.6 109.4 Less amount capitalised on the development of: Trading properties (1.0) (0.8) (1.6) Investment and development properties (4.9) (5.9) (14.2) -------- ---------- ---------- Net borrowing costs 46.4 48.9 93.6 Fair value losses on interest rate swaps and other derivatives - 0.5 0.5 Exchange differences 7.4 12.2 18.4 -------- ---------- ---------- Total finance costs 53.8 61.6 112.5 -------- ---------- ---------- 7. Tax on profit (continuing operations) Half year to Half year to Year to 30 June 2007 30 June 2006 31 December 2006 Â£m Â£m Â£m -------- ---------- ---------- Current tax United Kingdom Corporation tax is charged at 30 per cent (2006 30 per cent) REIT conversion charge - - 81.9 (Over)/under provision in earlier years (1.4) 0.8 (2.9) -------- ---------- ---------- (1.4) 0.8 79.0 -------- ---------- ---------- International Current tax charge 2.0 2.3 4.4 SIIC conversion charge 14.2 - - Over provision in earlier years - - (1.0) -------- ---------- ---------- 16.2 2.3 3.4 -------- ---------- ---------- Total current tax 14.8 3.1 82.4 -------- ---------- ---------- Deferred tax Release on conversion to SIIC / REIT in respect of investment properties (29.6) - (416.1) Origination and reversal of timing differences 2.4 5.8 3.3 Charged/(released) in respect of property disposals in the period - 1.5 (0.4) On valuation surpluses 12.2 53.7 6.7 -------- ---------- ---------- Total deferred tax in respect of investment properties (15.0) 61.0 (406.5) Other deferred tax 1.6 7.4 18.2 -------- ---------- ---------- Total deferred tax (13.4) 68.4 (388.3) -------- ---------- ---------- Total tax on profit on ordinary activities 1.4 71.5 (305.9) -------- ---------- ---------- 8. Dividends Half year to Half year to Year to 30 June 30 June 31 December 2007 2006 2006 Â£m Â£m Â£m -------- ---------- ---------- Ordinary dividends paid Interim dividend for the year ended 31 December 2006 @ 6.9p per share - - 32.4 Final dividend for the year ended 31 December 2005 @ 11.0p per share - 51.6 51.6 Final dividend for the year ended 31 December 2006 @ 12.1p per share 56.9 - - -------- ---------- ---------- 56.9 51.6 84.0 -------- ---------- ---------- The board have proposed an interim dividend of 8.3 pence per ordinary share (2006 6.9 pence). A special dividend of 53 pence per existing ordinary share will be paid on 31 August 2007. These dividends have not been recognised in the financial statements. Notes to the financial statements (continued) 9. Earnings and net assets per ordinary share 9(i) Earnings per ordinary share Basic Diluted -------------------- --------------------- Half Half Full Half Half Full year year year year year year 2007 2006 2006 2007 2006 2006 pence pence pence pence pence pence Continuing and discontinued operations Earnings per ordinary share e1/a,f1/c 48.0 55.2 201.8 47.9 52.5 196.0 Adjusted earnings per ordinary share g1/a,h1/c 17.0 12.3 25.1 17.0 12.3 25.1 Continuing operations Earnings per ordinary share e2/a,f2/c 41.3 46.4 179.0 41.3 44.3 174.0 Adjusted earnings per ordinary share g2/a,h2/c 14.3 8.0 19.3 14.2 8.4 19.6 9(ii) Number of shares Weighted average in period In issue at period end ------------------------- ------------------------- Half Half Full Half Half Full year year year year year year 2007 2006 2006 2007 2006 2006 millions millions millions millions millions millions The number of shares used in calculating earnings and net assets per share is: Shares in issue 472.0 441.1 456.4 472.2 471.0 472.0 Less shares held by the (3.3) (2.2) (2.2) (3.3) (2.2) (2.2) ESOP ------- ------- ------- ------- ------- ------- Basic number of shares a,b 468.7 438.9 454.2 468.9 468.8 469.8 Dilution adjustment for - 28.9 14.3 - - - preference shares Dilution adjustment for share options 0.8 1.5 1.1 0.8 1.4 1.1 and save-as-you-earn schemes ------- ------- ------- ------- ------- ------- Diluted number of shares c,d 469.5 469.3 469.6 469.7 470.2 470.9 ------- ------- ------- ------- ------- ------- 9(iii) Earnings Basic Diluted -------------------- --------------------- Half Half Full Half Half Full year year year year year year 2007 2006 2006 2007 2006 2006 Earnings used in calculating Â£m Â£m Â£m Â£m Â£m Â£m earnings per share are: Continuing and discontinued operations Profit attributable to equity shareholders 225.0 242.3 916.5 225.0 242.3 916.5 Adjustment for interest on preference shares - - - - 4.1 4.1 ------- ------- ------- ------- ------- ------- e1,f1 225.0 242.3 916.5 225.0 246.4 920.6 EPRA adjustments (note 10) (168.9) (189.4) (889.5) (168.9) (189.4) (889.5) Minority interest on EPRA adjustments 0.5 0.9 1.6 0.5 0.9 1.6 Adjustments for exceptional items (note 10) 23.0 - 85.3 23.0 - 85.3 ------- ------- ------- ------- ------- ------- Adjusted earnings g1,h1 79.6 53.8 113.9 79.6 57.9 118.0 ------- ------- ------- ------- ------- ------- Continuing operations Profit attributable to equity shareholders 193.7 203.6 813.1 193.7 203.6 813.1 Adjustment for interest on preference shares - - - - 4.1 4.1 ------- ------- ------- ------- ------- ------- e2,f2 193.7 203.6 813.1 193.7 207.7 817.2 EPRA adjustments (note 10) (141.6) (169.1) (811.2) (141.6) (169.1) (811.2) Minority interest on EPRA adjustments 0.5 0.6 0.6 0.5 0.6 0.6 Adjustments for exceptional items (note 10) 14.2 - 85.3 14.2 - 85.3 ------- ------- ------- ------- ------- ------- Adjusted earnings g2,h2 66.8 35.1 87.8 66.8 39.2 91.9 ------- ------- ------- ------- ------- ------- 9(iv) Net assets per ordinary share Basic Diluted -------------------- --------------------- Half Half Full Half Half Full year year year year year year 2007 2006 2006 2007 2006 2006 Net asset values (NAV) are as follows: pence pence pence pence pence pence NAV i/b,i/d 756 581 718 755 579 716 Adjustment for deferred tax on investment properties - capital allowances 18 50 20 18 50 20 - valuation surpluses 38 102 39 38 102 39 ------- ------- ------- ------- ------- ------- Adjusted NAV j/b,j/d 812 733 777 811 731 775 Fair value of debt net of tax - (12) (17) - (12) (16) Deferred tax in respect of capital (18) (50) (20) (18) (50) (20) allowances Deferred tax in respect of valuation (38) (102) (39) (38) (102) (39) surpluses Unrecognised indexation allowances - 22 - - 22 - ------- ------- ------- ------- ------- ------- Triple net NAV (NNNAV) 756 591 701 755 589 700 ------- ------- ------- ------- ------- ------- 9(v) Net assets Basic and diluted ------------------------ Half Half Full year year year 2007 2006 2006 Equity used for the calculation of net assets per Â£m Â£m Â£m ordinary share is: Total equity attributable to ordinary shareholders 3,564.5 2,733.0 3,383.3 Less shares held by the ESOP (17.3) (10.3) (10.6) --------- -------- -------- i 3,547.2 2,722.7 3,372.7 Deferred tax attributable to investment and development properties 261.4 713.3 276.1 --------- -------- -------- Adjusted equity attributable to j ordinary shareholders 3,808.6 3,436.0 3,648.8 --------- -------- -------- Notes to the financial statements (continued) 10. Adjustments for EPRA, exceptional items and related tax The Group has presented the income statement in a three-column format, so as to present adjusted amounts to exclude the impact of EPRA adjustments, exceptional items and related tax. The Directors consider that the adjusted figures give a useful comparison for the periods shown in the consolidated financial statements. EPRA adjustments arise from adopting the recommendations of the Best Practices Committee of the European Public Real Estate Association as appropriate. Exceptional items are items that are disclosed separately due to their size or incidence to enable a better understanding of performance. Continuing Discontinuing operations operations Total Details of adjustments Income statement Â£m Â£m Â£m line Half year to 30 June 2007 EPRA adjustments Gains after tax on Share of profits from property valuations property joint ventures and associates 6.0 1.2 7.2 Revaluation surplus Property gains 115.2 36.2 151.4 Profit on sale of investment properties Property gains 3.1 - 3.1 Adjustments for fair value of derivatives Finance income 3.1 1.0 4.1 `` -------- -------- ------ EPRA adjustments before tax 127.4 38.4 165.8 Deferred tax on investment and development property which does not crystallise unless sold Deferred tax 15.0 (10.7) 4.3 Other deferred tax Deferred tax (0.8) (0.4) (1.2) -------- -------- ------ Total EPRA adjustments 141.6 27.3 168.9 after tax -------- -------- ------ Exceptional items Debt repayment penalty on early US loan redemption Finance costs - (15.2) (15.2) French SIIC conversion charge Current tax (14.2) - (14.2) -------- -------- ------ Total exceptional items (14.2) (15.2) (29.4) before tax Tax effect of exceptional items Current tax - 6.4 6.4 -------- -------- ------ Total exceptional items (14.2) (8.8) (23.0) after tax -------- -------- ------ Total adjustments 127.4 18.5 145.9 -------- -------- ------ Half year to 30 June 2006 EPRA adjustments Gains after tax on Share of profits from property valuations property joint ventures and associates 2.5 0.1 2.6 Revaluation surplus Property gains 222.8 39.8 262.6 Loss on sale of investment properties Property gains (0.8) - (0.8) Adjustments for fair value Finance costs (0.5) - (0.5) of derivatives Adjustments for fair value of derivatives Finance income 6.1 - 6.1 -------- -------- ------ EPRA adjustments before 230.1 39.9 270.0 tax Deferred tax on investment and development property which does not crystallise unless sold Deferred tax (61.0) (19.6) (80.6) -------- -------- ------ Total EPRA adjustments 169.1 20.3 189.4 after tax -------- -------- ------ Total adjustments 169.1 20.3 189.4 -------- -------- ------ Year to 31 December 2006 EPRA adjustments Gains after tax on Share of profits from property valuations property joint ventures and associates 4.2 2.1 6.3 Revaluation surplus Property gains 392.7 139.5 532.2 Profit on sale of investment properties Property gains 4.8 - 4.8 Adjustments for fair value of derivatives Finance costs (0.5) (0.1) (0.6) Adjustments for fair value of derivatives Finance income 4.7 - 4.7 -------- -------- ------ EPRA adjustments before 405.9 141.5 547.4 tax Deferred tax on investment and development property which does not crystallise unless sold Deferred tax 406.5 (63.2) 343.3 Other deferred tax Deferred tax (1.2) - (1.2) -------- -------- ------ Total EPRA adjustments 811.2 78.3 889.5 after tax -------- -------- ------ Exceptional items 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 (85.3) - (85.3) after tax -------- -------- ------ Total adjustments 725.9 78.3 804.2 -------- -------- ------ SEGRO plc Notes to the financial statements (continued) 11. Property assets Properties are included in the balance sheet as follows: Properties carried at valuation: 30 June 30 June 31 December 2007 2006 2006 Â£m Â£m Â£m Investment properties 4,485.7 4,614.2 5,090.0 Development and owner occupied properties 272.6 482.6 469.7 Non-current assets held for sale 1,156.6 108.3 56.6 --------- -------- -------- Total assets externally valued 5,914.9 5,205.1 5,616.3 Group's share of investment properties within joint ventures and associates 128.6 114.3 137.3 -------- -------- -------- Total properties carried at valuation 6,043.5 5,319.4 5,753.6 --------- -------- -------- Properties carried at cost: Trading properties 149.1 201.8 232.3 Group's share of trading properties within joint ventures and associates 25.7 38.4 27.2 --------- -------- -------- Total properties carried at cost 174.8 240.2 259.5 --------- -------- -------- Total properties 6,218.3 5,559.6 6,013.1 Less US disposal group (1,156.6) (981.2) (1,112.6) --------- -------- -------- Total properties continuing group 5,061.7 4,578.4 4,900.5 --------- -------- -------- The investment properties in the United Kingdom and Continental Europe were externally valued as at 30 June 2007 by CB Richard Ellis, DTZ Debenham Tie Leung, Colliers CRE or King Sturge. The investment properties in the US were valued as at 30 June 2007 by Walden-Marling Inc. The valuation basis is fair value, conforms to international valuation standards and was arrived at by reference to market evidence of the transaction prices for similar properties. All the valuers listed above are qualified valuers who hold a recognised and relevant professional qualification and have recent experience in the relevant location and category of the properties being valued. Notes to the financial statements (continued) 12. Investment and development properties 12(i) Investment properties Continental UK Europe US Total Â£m Â£m Â£m Â£m At 1 January 2007 3,798.2 406.2 925.6 5,130.0 Exchange movement - (4.0) (25.3) (29.3) Acquisitions 36.5 43.0 - 79.5 Additions 23.8 7.5 25.8 57.1 Disposals (167.2) - - (167.2) Transfer from development properties 108.9 23.5 52.3 184.7 Transfer from trading properties - 91.0 - 91.0 Revaluation surplus during the period from continuing operations 66.9 51.4 - 118.3 Revaluation surplus during the period from discontinued operations - - 37.5 37.5 -------- -------- -------- -------- At 30 June 2007 3,867.1 618.6 1,015.9 5,501.6 Less classified as non-current assets held for sale - - (1,015.9) (1,015.9) -------- -------- -------- -------- 3,867.1 618.6 - 4,485.7 -------- -------- -------- -------- At 31 December 2006 3,798.2 406.2 925.6 5,130.0 Less classified as non-current assets held for sale (40.0) - - (40.0) -------- -------- -------- -------- 3,758.2 406.2 925.6 5,090.0 -------- -------- -------- -------- At 30 June 2006 3,643.5 354.9 724.1 4,722.5 Less classified as non-current assets held for sale (108.3) - - (108.3) -------- -------- -------- -------- 3,535.2 354.9 724.1 4,614.2 -------- -------- -------- -------- 12(ii) Development and owner occupied properties Continental UK Europe US Total Â£m Â£m Â£m Â£m Cost or valuation At 1 January 2007 252.4 74.6 161.4 488.4 Exchange movement - (0.7) (3.7) (4.4) Acquisitions - 10.6 20.0 30.6 Additions 40.1 17.0 24.4 81.5 Disposals (0.4) - - (0.4) Transfer to investment properties (108.9) (23.5) (52.3) (184.7) Transfer from trading properties - 6.7 - 6.7 Surplus on valuation (3.6) 10.6 (9.1) (2.1) -------- -------- -------- ------- At 30 June 2007 179.6 95.3 140.7 415.6 -------- -------- -------- ------- Depreciation At 1 January 2007 2.1 - - 2.1 Additions 0.2 - - 0.2 -------- -------- -------- ------- At 30 June 2007 2.3 - - 2.3 -------- -------- -------- ------- Net book value at 30 June 2007 177.3 95.3 140.7 413.3 Less classified as non-current assets held for sale - - (140.7) (140.7) -------- -------- -------- ------- At 30 June 2007 177.3 95.3 - 272.6 -------- -------- -------- ------- Net book value at 31 December 2006 250.3 74.6 161.4 486.3 Less classified as non-current assets held for sale (16.6) - - (16.6) -------- -------- -------- ------- At 31 December 2006 233.7 74.6 161.4 469.7 -------- -------- -------- ------- Net book value at 30 June 2006 217.1 33.5 232.0 482.6 Land for or under development and owner occupied buildings are valued on the same basis as investment properties. The valuers are detailed within note 11. Notes to the financial statements (continued) 13. Investments in joint ventures and associates The Group's investments in joint ventures and associates and their results are accounted for using the equity method of accounting. Under the equity method of accounting, the Group accounts for its share of the joint ventures' and associates' profits and losses after tax in the income statement. 30 30 31 June June December 2007 2006 2006 Â£m Â£m Â£m Cost or valuation at 1 January 84.5 100.1 100.1 Exchange movement (0.7) (1.4) (2.8) Additions 4.2 8.0 17.8 Movement on loans 2.7 - (9.2) Dividends received (3.0) (31.6) (34.7) Valuation surpluses (through income statement) 9.2 2.6 9.3 Valuation surpluses (through SORIE) 0.5 - - Deferred taxation on valuation surplus (2.1) - (3.0) Share of profits net of tax 2.1 1.3 7.0 -------- -------- -------- Cost or valuation at end of period 97.4 79.0 84.5 Less classified as non-current assets held for sale (26.7) - - -------- -------- -------- Cost or valuation at end of period 70.7 79.0 84.5 -------- -------- -------- Analysed as follows: Cost 45.5 30.3 48.1 Valuation surplus net of deferred tax 50.8 53.7 56.6 Share of retained losses (25.6) (5.0) (20.2) -------- -------- -------- 70.7 79.0 84.5 -------- -------- -------- Summarised financial information of Group's share of joint ventures and associates 30 30 31 June June December 2007 2006 2006 Â£m Â£m Â£m Balance sheet Investment properties 126.4 114.3 137.3 Development properties 2.2 - - -------- -------- -------- Total non-current assets 128.6 114.3 137.3 -------- -------- -------- Trading properties 25.7 38.4 27.2 Other receivables 7.6 13.7 10.6 Cash 8.1 8.4 9.4 -------- -------- -------- Total current assets 41.4 60.5 47.2 -------- -------- -------- Total assets 170.0 174.8 184.5 -------- -------- -------- Mortgages and loans 71.0 76.6 74.5 Deferred tax 21.0 11.7 14.6 Other liabilities 0.1 1.9 0.5 -------- -------- -------- Total non-current liabilities 92.1 90.2 89.6 -------- -------- -------- Other liabilities 7.2 5.6 10.4 -------- -------- -------- Total current liabilities 7.2 5.6 10.4 -------- -------- -------- Total liabilities 99.3 95.8 100.0 -------- -------- -------- Group's share of net assets 70.7 79.0 84.5 -------- -------- -------- Group's share of revenue for the period 7.4 8.4 45.0 -------- -------- -------- Group's share of profit after tax for the period 7.2 2.8 9.7 -------- -------- -------- The Group has consolidated its interest in joint ventures and associates using the equity method of accounting, even where its interest is greater than 50 per cent, as the terms of the venture agreements prevent the Group from exercising control over the individual ventures. Notes to the financial statements (continued) 14. Borrowings 30 30 31 June June December 2007 2006 2006 Â£m Â£m Â£m The maturity profile of borrowings is as follows: In one year or less 272.4 47.8 77.6 In more than one year but less than two 25.9 35.6 30.7 In more than two years but less than five 905.2 722.1 991.0 In more than five years but less than ten 186.0 312.8 272.8 In more than ten years 1,012.4 1,066.9 1,012.7 -------- -------- --------- Total debt 2,401.9 2,185.2 2,384.8 Less transferred to liabilities directly associated with assets classified as held for sale (490.4) - - -------- -------- --------- Total debt per balance sheet (continuing operations) 1,911.5 2,185.2 2,384.8 -------- -------- --------- Total debt is split between secured and unsecured borrowings as follows: Secured (on land and buildings) 81.8 77.8 77.1 Unsecured 2,320.1 2,107.4 2,307.7 -------- -------- --------- Total debt 2,401.9 2,185.2 2,384.8 -------- -------- --------- Currency profile of total borrowings Sterling 1,285.3 1,285.4 1,286.1 US dollars 538.2 514.5 581.4 Canadian dollars 11.7 12.1 10.9 Euros 566.7 373.2 506.4 -------- -------- --------- Total debt 2,401.9 2,185.2 2,384.8 -------- -------- --------- Maturity profile of undrawn borrowing facilities In one year or less 343.5 47.8 37.1 In more than one year but less than two 2.8 17.4 11.1 In more than two years 504.8 601.1 461.7 -------- -------- --------- Total available undrawn facilities 851.1 666.3 509.9 -------- -------- --------- Fair value of financial instruments Book value of debt 2,401.9 2,185.2 2,384.8 Derivatives (17.3) (8.1) (6.3) -------- -------- --------- Book value of debt including derivatives 2,384.6 2,177.1 2,378.5 Net fair market value 2,382.3 2,254.6 2,462.2 -------- -------- --------- Pre-tax mark to market adjustment 2.3 (77.5) (83.7) Tax relief due on early redemption/termination (0.7) 23.2 5.5 -------- -------- --------- After tax mark to market adjustment 1.6 (54.3) (78.2) -------- -------- --------- 15. Provisions for liabilities and charges, retirement benefit schemes and deferred tax Retirement benefit Deferred Other schemes tax liabilities Total Â£m Â£m Â£m Â£m Balance at 1 January 2007 17.5 298.5 0.2 316.2 Exchange movement (0.1) (6.0) - (6.1) Charge/(credit) to income statement - continuing operations 1.5 (13.4) 9.4 (2.5) Charge to income statement - discontinued operations 0.1 10.5 - 10.6 (Credit)/charge to SORIE - continuing operations (9.4) 2.2 - (7.2) Credit to SORIE - discontinued operations (0.4) (3.4) - (3.8) Paid (2.0) - - (2.0) -------- -------- -------- --------- Balance at 30 June 2007 7.2 288.4 9.6 305.2 Less amounts shown as liabilities (2.0) (222.1) - (224.1) relating to assets held for sale -------- -------- -------- --------- Balance at 30 June 2007 (continuing 5.2 66.3 9.6 81.1 operations) -------- -------- -------- --------- Balance at 30 June 2006 19.5 715.7 0.2 735.4 -------- -------- -------- --------- The other liabilities relate principally to provisions for onerous leases on rented properties, being the estimated liability of future rentals and dilapidation costs less sub-letting receipts over the length of the contract. 30 30 31 June June December 2007 2006 2006 Deferred taxation is in respect of: Â£m Â£m Â£m Investment properties 264.4 713.3 276.1 Pension scheme (0.8) (5.8) (1.0) Deferred tax assets (4.8) - (9.0) Others 29.6 8.2 32.4 -------- -------- --------- 288.4 715.7 298.5 Less amounts shown as liabilities relating to (222.1) - - assets held for sale -------- -------- --------- 66.3 715.7 298.5 -------- -------- --------- Notes to the financial statements (continued) 16. Summary of changes in equity Retained Other Balance profit items Balance 1 Jan Exchange for in Shares Dividend Reserve 30 June 2007 Movement Period SORIE(1) issued Other paid transfers 2007 Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Â£m Revaluation reserve(2) 2,129.3 (6.7) - 4.7 - - - 113.1 2,240.4 Share based payments reserves 4.5 - - - - 1.7 - (0.1) 6.1 Fair value reserve for AFS(3) 7.4 (0.1) - 1.1 - - - - 8.4 Translation 58.5 - - 5.4 - - - - 63.9 -------- ------- ------ ------ ------ ------ ------ ------ -------- Total revaluation and other reserves 2,199.7 (6.8) - 11.2 - 1.7 - 113.0 2,318.8 Retained earnings 698.3 (3.0) 225.0 9.4 - - (56.9) (113.1) 759.7 Ordinary share capital 118.0 - - - - - - - 118.0 Share premium 367.3 - - - 0.7 - - - 368.0 Own shares held (10.6) - - - - (6.8) - 0.1 (17.3) -------- ------- ------ ------ ------ ------ ------ ------ -------- Total equity attributable to equity shareholders 3,372.7 (9.8) 225.0 20.6 0.7 (5.1) (56.9) - 3,547.2 -------- ------- ------ ------ ------ ------ ------ ------ -------- Minority interests 9.7 (0.1) 1.3 - - (5.0) (1.3) - 4.6 -------- ------- ------ ------ ------ ------ ------ ------ -------- Total equity 3,382.4 (9.9) 226.3 20.6 0.7 (10.1) (58.2) - 3,551.8 -------- ------- ------ ------ ------ ------ ------ ------ -------- 1. SORIE is the term used for the "Statement of recognised income and expense". Items in the SORIE are net of tax. 2. The revaluation reserve is shown net of deferred tax. 3. AFS is the term used for "Available-for-sale investments" and is shown net of deferred tax. Notes to the financial statements (continued) 17. Notes to the Group cash flow statement 17(i) Reconciliation of cash generated from operations Half Half year year Year to to to 30 30 31 June June Dec 2007 2006 2006 Continuing operations Â£m Â£m Â£m Operating profit 232.9 316.0 587.0 Adjustments for: Depreciation of property, plant and equipment 2.5 2.3 4.7 Share of profits from joint ventures and associates (7.2) (2.9) (9.7) (Profit)/loss on sale of investment properties (3.1) 0.8 (4.8) Revaluation surplus on investment properties (115.2) (222.8) (392.7) Other income reallocated (6.2) (5.7) (8.5) Other provisions (1.0) - (2.0) -------- ------- ------- 102.7 87.7 174.0 Changes in working capital: Increase in trading properties (22.9) (53.4) (108.8) (Increase)/decrease in inventories (1.0) 0.2 0.6 (Increase)/decrease in debtors (22.4) 16.2 (11.7) Increase/(decrease) in creditors 20.5 (5.2) 31.1 -------- ------- ------- Net cash inflow generated from continuing operations 76.9 45.5 85.2 -------- ------- ------- Discontinued operations Operating profit 70.3 67.4 198.3 Adjustments for: Share of profits from joint ventures and associates (2.0) (1.0) (3.6) Revaluation surplus on investment properties (36.2) (39.8) (139.5) Other provisions - - 0.9 -------- ------- ------- 32.1 26.6 56.1 Changes in working capital: (Increase)/decrease in debtors (1.7) 11.6 (2.2) Increase/(decrease) in creditors 3.6 (2.9) (1.5) -------- ------- ------- Net cash inflow generated from discontinued operations 34.0 35.3 52.4 -------- ------- ------- Net cash inflow generated from operations 110.9 80.8 137.6 -------- ------- ------- 17(ii) Cash flows from discontinued operations The net cash flows after tax of the US disposal group are as follows: Net cash flows from operating activities 15.5 23.9 20.8 Net cash flows from investing activities (89.1) (39.7) (116.3) Net cash flows from financing activities 76.8 15.3 97.9 -------- ------- -------- Net cash inflows/(outflows) 3.2 (0.5) 2.4 -------- ------- ------- 17(iii) Issue of shares Ordinary share Share capital premium Total Â£m Â£m Â£m Balance at 1 January 2007 118.0 367.3 485.3 Ordinary shares issued for cash - 0.7 0.7 -------- ------- ------ Balance at 30 June 2007 118.0 368.0 486.0 -------- ------- ------ SEGRO plc Notes to the financial statements (continued) 17(iv) Reconciliation of net cash flow to movement in net debt Half Half year year Year to to to 30 June 30 June 31 Dec 2007 2006 2006 Â£m Â£m Â£m Decrease in cash in the period (23.6) (63.5) (15.1) Increase in debt (53.8) (82.1) (331.5) Repayment of debt 12.3 9.4 10.1 Restricted deposit 1.5 - 3.9 --------- --------- -------- Change in net debt resulting from cash flows (63.6) (136.2) (332.6) Translation difference 23.2 42.8 96.2 Conversion of preference shares - 106.5 106.5 Non-cash adjustments (0.9) (0.6) (1.2) --------- --------- -------- Movement in net debt in the period (41.3) 12.5 (131.1) Net debt brought forward (2,223.4) (2,092.3) (2,092.3) --------- --------- -------- Net debt (2,264.7) (2,079.8) (2,223.4) --------- --------- -------- 17(v) Analysis of net debt At At 1 January Cash Non-cash Exchange 30 June 2007 flow adjustment** Movement 2007 Â£m Â£m Â£m Â£m Â£m Bank loans and loan capital (2,378.3) (41.5) (0.9) 23.3 (2,397.4) Bank overdrafts (6.5) 2.0 - - (4.5) --------- -------- -------- -------- -------- Total borrowings (2,384.8) (39.5) (0.9) 23.3 (2,401.9) Cash in hand and at bank * 157.5 (25.6) - (0.1) 131.8 Restricted deposits * 3.9 1.5 - - 5.4 ---------- -------- -------- -------- -------- Net debt (2,223.4) (63.6) (0.9) 23.2 (2,264.7) ---------- -------- -------- -------- -------- * Cash and deposits per balance sheet of Â£128.9 million and Â£8.3 million included within the disposal group. ** The non-cash adjustment relates to the amortisation of issue costs offset against borrowings. 18. Disclosures of the disposal group The disposal group comprises the Group's US property business operations. The agreement to dispose of the US business was signed on 4 June 2007 and the disposal completed on 1 August 2007. The assets and liabilities of the US business have been reclassified into a disposal group and presented as current assets and liabilities on the balance sheet in accordance with IFRS 5. Notes to the financial statements (continued) 18. Disclosure of the disposal group (continued) Income statement details of the disposal group The profit for the period from discontinued operations in the Group income statement is analysed below. Half Half year year Year to to to 30 June 30 June 31 December 2007 2006 2006 Summarised income statement of disposal group Â£m Â£m Â£m Revenue 45.4 35.8 76.4 -------- -------- ---------- Profit before tax 40.9 62.4 182.5 Tax credit/(charge) - current 1.1 (2.0) (6.8) - deferred (10.5) (20.8) (70.1) -------- -------- ---------- Profit after tax 31.5 39.6 105.6 -------- -------- ---------- Statement of recognised income and expense (SORIE) of the disposal group Half year to 30 June 2007 Â£m Revaluation gains on properties in course of development (7.9) Exchange movement arising on translation of international (11.0) operations Other items taken directly to equity 3.5 -------- Net loss recognised directly in equity (15.4) Profit for period from discontinued operations 31.5 -------- Total recognised income and expense for the period 16.1 -------- As at 30 June 2007 Summarised balance sheet of the disposal group Â£m Investment properties 1,015.9 Development and owner occupied properties 140.7 Investments in joint ventures and associates 26.7 Other assets 89.6 --------- Total assets classified as held for sale 1,272.9 --------- Borrowings 490.4 Deferred tax provision 222.1 Other liabilities 39.9 --------- Liabilities directly associated with assets classified as held for sale - per balance sheet 752.4 Loan from SEGRO plc 104.3 --------- Liabilities directly associated with assets classified as held for sale 856.7 --------- Net assets of disposal group 416.2 --------- GLOSSARY OF TERMS Adjusted earnings per share: EPS based on adjusted profit before tax and excluding deferred tax on investment properties. Adjusted net asset value per share: NAV per share adjusted to add back deferred tax associated with investment properties, as recommended by EPRA. Adjusted profit before tax: Reported profit before tax, after reflecting EPRA adjustments and excluding items 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 the relevant share of joint ventures' properties. Continuing operations: The remaining ongoing operations of the group after excluding the operations of the Group's USA business. Development pipeline: The Group's current programme of developments authorised or in the course of construction at the balance sheet date, together with potential schemes not yet commenced on land owned or controlled by the Group or its joint ventures. Diluted figures: Reported amounts adjusted to reflect the dilutive effects of convertible preference shares and of shares held by the employee share ownership plan trusts. Discontinued operations: The operations of the Group's US business (disposal group) which was sold on 1 August 2007. On 4 June 2007 the Group entered into a conditional contract to sell the US operations. Under IFRS 5, these operations are required to be accounted for as discontinued and disclosed separately 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 the weighted average number of ordinary shares in issue during the year. EPRA adjustments: Adjustments to income statement and balance sheet amounts reported under IAS arising from adopting the recommendations of the Best Practices Committee of the European Real Estate Association ("EPRA"). The adjustments to income statement amounts principally relate to the exclusion of valuation gains and losses, whilst the balance sheet adjustments relate to the exclusion of deferred tax on investment properties. Equivalent yield: The internal rate of return from an investment property, based on the value of the property assuming the current passing rent reverts to ERV and assuming the property becomes fully occupied over time. Estimated rental value (ERV): The estimated annual market rental value of lettable space as determined biannually by the Company's valuers. This will normally be different from the rent being paid. Estimate to complete (ETC): Costs still to be expended on a development or redevelopment to practical completion (not to complete lettings), including attributable interest. Finance lease: A lease that transfers substantially all the risks and rewards of ownership from the lessor to the lessee. Gearing (net): Total borrowings, including bank overdrafts, less short-term deposits, corporate bonds and cash, at book value, plus non-equity shareholders' funds as a percentage 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. Lease incentives, initial costs and any contracted future rental increases are amortised on a straight line basis over the lease term Hectares (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 property valuation. IPD: Investment Property Databank. Joint venture: An entity in which the Group holds an interest and which is jointly controlled by the Group and one or more partners under a contractual arrangement whereby decisions on financial and operating policies essential to the operation, performance and financial position of the venture require each partner's consent Net asset value (NAV) per share: Equity shareholders' funds divided by the number of ordinary shares in issue at the period end. Net rental income: Gross rental income less ground rents paid, service charge expenses and property operating expenses Over-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 balance sheet date (which may be more or less than the ERV - see over-rented and reversionary). 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 Investment Trust for tax purposes. In the UK, such entities must be listed on a recognised stock exchange, must be predominantly engaged in property investment activities and must meet certain ongoing qualifications. SEGRO plc and its UK subsidiaries elected 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. In the case of portfolio data, the reversionary yield assumes all properties are fully occupied. SIIC: (Societes d'Investissements Immobiliers Cotees). A qualifying entity which has elected to be a French Real Estate Investment Trust. In France, such entities must be listed on a recognised stock exchange, must be predominantly engaged in property investment activities and must meet certain ongoing qualifications. SIICs are exempt from corporation tax. SEGRO plc, whose shares are listed on Euronext Paris, and its eligible French subsidiaries elected for SIIC status with effect from 1 January 2007. Square metres (sq m): The area of buildings measurements used in this report. The conversion factor used, 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 the property on commencement of development, together with all finance costs capitalised during the development. Total property return: The valuation surplus, profit/(loss) on sale of investment properties and net rental income in respect of investment properties, expressed as a percentage of the closing book value of the investment property portfolio. Total return: Dividends per share plus annual growth in diluted adjusted net asset value per share, expressed as a percentage of the opening diluted adjusted net asset value per share. Trading properties: Properties held for trading purposes and shown as current assets in the Balance Sheet. Voids: The area in a property or portfolio, excluding developments, which is currently available for letting.

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