Approved by the Audit Committee in July 2016 to take effect on 1 August 2016

When considering the appointment of the external auditor (currently, PwC) for non-audit work relating to Group companies, the FRC’s implementation of the EU Audit Regulation and Directive and parts of the Competition and Markets Authority final Order should be adhered to (the ‘Legislation’). Consideration should also be given to the FRC’s Guidance on Audit Committees April 2016 (the ‘Guidance’).

In particular, the skills and experience of the external auditor to perform the required services, the effect of the non-audit services on the audited financial statements, the potential impact of each project on the external auditor’s independence and objectivity, and the resulting ratio of non-audit to audit fees will be taken into consideration.

Non-audit services will fall into one of three categories:

  • Projects where PwC will not be used;
  • Projects for which PwC may be used, subject to Chief Financal Officer (‘CFO’) approval; and
  • Projects where PwC may be used, subject to Audit Committee approval.

1. Services for which PwC will not be used

The external auditor will not be used for the following services or projects, either because use of the auditor for such services is prohibited under the Legislation, because such services may impact on the auditor’s independence or objectivity, or because there is no requirement for, or significant benefit from, its existing knowledge of the business and the services can be provided by a number of other firms:

  • Projects which are subject to a contingent success fee (other than the completion of specific Business Rates advisory projects which the Company engaged PwC to perform prior to the implementation of the Legislation);
  • Systems work or IT consultancy which involves the design, development or implementation of any systems used in accounting or the production of financial statements;
  • Bookkeeping, payroll services and preparing accounting records and financial statements;
  • Design, development or implementation of internal control or risk management frameworks;
  • Investment services, investment or financial strategy and management advice;
  • Promoting, dealing in or underwriting shares in the Company;
  • Human Resources and recruitment services;
  • Legal services;
  • Valuation work;
  • Any work that may result in a situation where PwC could be auditing their own work; and
  • Any projects where PwC is making or could otherwise be deemed to be involved in making management decisions.

2. Services for which PwC may be used, subject to CFO approval

There are certain services and transactions where, due to their knowledge of SEGRO’s business and their ability to act quickly and confidentially, PwC may be in the best position to perform non-audit services for SEGRO.

In these circumstances PwC may be used, provided such work is not likely to impair the independence or objectivity of the auditor, and provided that the nature of such work is considered to be ‘insignificant and immaterial’ (in accordance with paragraph 73 of the Guidance), both in respect of its monetary value and of any direct or material potential impact on the audited financial statements.

These minor projects will each be below £30,000 and will require approval by the CFO (or CEO in his absence) (whose authority to approve such projects will be capped at a cumulative value of £150,000 in any one financial year). In providing any such approval, the CFO will also need to consider whether PwC provide the best mix of cost, speed and quality as compared with other potential suppliers.

Examples of such projects might include:

  • Information which the Company is required to provide to its existing lending banks and bondholders, including covenant compliance certificates;
  • Assurance work on non-financial data, including environmental and sustainability statistics;
  • Assurance work provided to the Company’s Remuneration Committee, including verification of bonus/LTIP calculations;
  • Tax services, including tax advisory and compliance work and preparation of tax forms, provided that the effect of such work on the financial statements is explained in an additional report to the Audit Committee noting how the work is considered to have an inconsequential effect on the financial statements;
  • Advice on best practice in respect of external reporting, including environmental/sustainability reporting; and
  • Preparation and issuance of comfort letters or similar in connection with the issue of a shareholder or bondholder circular or prospectus (or similar document).

3. Services for which PwC may be used, subject to Audit Committee approval

For projects which are not considered ‘insignificant and immaterial’ and where there is an obvious and compelling reason to use the external auditor (for example, due to PwC’s expertise or ability to provide the services), PwC will only be awarded the work if the Audit Committee is satisfied that the nature of the work to be provided and the basis of their remuneration (i) present no threat to the actual or perceived independence of the auditor; and (ii) will not have a direct or material effect on the audited financial statements.

All proposed projects within this category will be considered on a case by case basis by the Audit Committee. All projects must be recommended to the Audit Committee by the CFO (or CEO in his absence) who will advise what impact the proposed work will have on (i) the audited financial statements, confirming how such estimation has been arrived at; and (ii) the independence of PwC. The Audit Committee will have ultimate discretion to approve or reject the recommendation.
In seeking pre-approval, evidence will also be required to show that PwC provide the best mix of cost, speed and quality as compared with other potential suppliers.

Fees

Save for any fees payable for non-audit work required to be carried out by PwC by law or regulation, the total fees payable to PwC for non-audit services should be limited to no more than 70 per cent of the average of the audit fees paid in the last three consecutive financial years for the audit of the Company and its Group.

Reporting

A report of all non-audit fees payable to the external auditor will be provided to the Audit Committee at each Audit Committee meeting, including both actual fees for the year to date and a forecast for the full year, analysed by project and into the categories above as applicable.

Employment of former employees of the external auditor

The Group will not employ an individual in the capacity of a Director (including as a non-executive director) of any Group company or in a key management position (defined as a member of the Leadership Team) where that person has acted as the Group’s audit engagement partner (or as an engagement quality control reviewer, or key partner involved in the audit) at any time in the last two years.

The Group may appoint an individual other than a partner in the capacity of a Director (including as a non-executive director) of any Group company or in a key management position (defined as member of the Leadership Team) where that person has been a member of the Group’s audit team in the last two years, subject to prior approval of the CFO and CEO, who will be expected to first consult with the Chairman of the Audit Committee.

Appointments of individuals who are current members of the Group’s audit teams to any other role in the Group are subject to prior approval of the CFO and (where above £80,000 or equivalent base salary threshold) CEO and they will have regard to FRC Guidance.

The Audit Committee will annually review the number of former employees of the external auditor currently employed in senior roles (Manager or above) to confirm there has been no impairment, or appearance of impairment, of the auditor’s independence and objectivity in respect of the audit.

Joint Ventures

Where possible this policy will apply to joint venture companies, recognising however that SEGRO is not always in a position to influence such matters.