Interim Results

Lok'n Store Group PLC 12 April 2005 12 April 2005: for immediate release LOK'NSTORE GROUP PLC ('Lok'nStore' or 'the Group') Interim Results for the six months to 31 January 2005 Lok'nStore Group Plc, one of the leading companies in the fast-growing self-storage market, which operates 19 stores in the South East, announces interim results for the six months ended 31 January 2005. Highlights • Turnover increased by 24% to £3.89 million (£3.14m: six months to 31.1.04) • Operating profit £320,261 (Loss -£131,827 *: six months to 31.01.04) • Profit before tax of £75,903 (Loss - £169,237 *: six months to 31.01.04) • Store EBITDA of £1.233 million (six months to 31.01.04: £0.734 million) • Customers up 21.2% to 5,790 from 4,776 in January 2004 • Properties valued at £33.6 million (NBV £18.4 m) • Further significant uplift in value expected from potential Kingston residential development. • Planning permission for high-density residential scheme at Kingston site granted. Permission is for 124 flats, and a new GP surgery of approximately 7,000 square feet. * After 31/01/2004 exceptional items - £127,407 Andrew Jacobs, Chief Executive, commented: 'Lok'nStore's market position, leading brand and the increasing strength of our balance sheet demonstrates that we are well positioned to take advantage of this under-developed market. Trading is good and we continue to see attractive opportunities to grow the number of stores. The increased valuation of our properties provides financial flexibility for us. The Board is confident in its ability to continue to deliver growth in shareholder value.' 12 April 2005 Lok'nStore Group plc Andrew Jacobs, Chief Executive Today: 020 7831 3113 Ray Davies, Finance Director Thereafter: 020 8247 1861 Financial Dynamics Tel: 020 7831 3113 Billy Clegg Jonathan Brill CHAIRMAN'S STATEMENT Overview I am pleased to report another period of progress for the Group. During the period our revenue grew and the business moved into profit as we continued to fill our centres. The operation is showing encouraging growth of EBITDA with stores producing over £1.23 million in the period. The increased property valuations discussed below emphasise the Group's financial strength and provides flexibility for future growth. The Board remains committed to finding high quality self-storage sites whilst examining profitable opportunities to enhance the value of the existing stores. We continue to believe that the South and South East of England presents the greatest opportunity for the Group, and our site acquisition strategy remains driven by rate of return, site location and visibility. Our tactical as well as strategic approach to acquisition continues to offer opportunities. Our priorities remain: • improving the operating performance of existing stores • maximising the potential value of existing stores • increasing the number of stores • optimising the group's capital structure Turnover Growth Turnover for the six months to 31 January 2005 increased by 24% to £3.89 million (£3.14 million). Trading is following its usual seasonal pattern with annualised revenues rising to £8.1 million at 31 March 2005. The Group achieved an operating profit of £320,261, after taking account of the development and launch of our new Tonbridge store, which incurred a loss of £124,296 in the five months since opening. This compares with an operating loss for the Group of £131,827 for the corresponding 2004 period. The Group made pre-tax profit for the period of £75,903 compared with a loss of £169,237 for the corresponding period in 2004. Basic earnings per share was 0.31p per share (2004: loss of 0.59p per share). Store earnings before interest, tax, depreciation and amortisation (EBITDA) were £1.233 million for the period (six months to 31.01.2004: £0.734 million). Packing materials, insurance and other sales broadly kept pace with storage income at 7.5% of turnover, an increase of 15.8% over the period. At the period end, the number of customers had risen to 5,790 from 4,776 in January 2004, an increase of 21.2% over the year. The business handled 3,593 ' move-ins' during the period compared to 3,386 in the corresponding period in 2004. The total area let increased by 21.6% to 489,123 sq. ft (31.01.2004: 402,346 sq. ft). Financial strength and balance sheet efficiency Strong cash flows continue to demonstrate the cash generative nature of the underlying business. Cash inflow from operating activities before interest and capital expenditure was just under £0.87million for the period, compared to £0.18 million for the corresponding 2004 period. Capital expenditure totalled £0.8 million. At 31 January 2005, the Group had cash balances of £0.55 million (31 July 2004: £0.65 million) and £7.65 million of borrowings representing gearing of 66% on net debt of £7.1 million (31 July 2004: 66%). Gearing is 28% when calculated using current market values of properties. (See below). On 31 January 2005, professional valuations were prepared by external valuers, Cushman & Wakefield Healey & Baker, in respect of all trading freehold and leasehold properties as operational self-storage businesses. Since the freehold site at Farnborough was only acquired on 30 July 2004, it has not been revalued. This Report was prepared on the basis of Market Value/Existing Use Value, having regarded its trading potential as appropriate, in accordance with RICS Appraisal and Valuation Standards but on the special assumption that any potential for residential development was excluded. (See note 2 in the notes to the accounts for a more detailed description of valuation methodology). The Report indicates a total for properties valued of £31.84 million. Including Farnborough, (NBV £1.76 million), this gives a total value of properties held of £33.6 million. (NBV £18.4 million). These valuations do not account for any further uplift in values, arising from the planning permission achieved for housing at the Kingston site, nor any successful outcome of the planning application for housing at the Reading site. While the Company does not envisage routinely revaluing its properties it will do so when appropriate. This increase in property valuations provides the Group with increased financial flexibility and strength enhancing our ability to borrow. It makes the value created more transparent and gives the Group the potential to release more value to shareholders,whilst continuing to grow.. Planning permission granted We are pleased to report that planning permission has been granted for high-density residential development at the site of the Company's current Kingston operation. The permission is for two 6-8 storey buildings containing 78 private flats, 16 key worker (shared equity) and 30 social units (43 one bedroom, 75 two bedroom and 6 three bedroom), and a new GP surgery of approximately 7,000 square feet. The planning permission is subject to the signing of the Section 106 Agreement. The Kingston site was purchased in 1996 for £905,000. It has been operational as one of the Companies self-storage facilities for 8 years. The book value of this site is currently £1.2 million. The Kingston site was valued by Cushman Wakefield Healey and Baker as an operational self storage site at £2.75m The Board is progressing discussions to maximise the proceeds and profit from this redevelopment. Outlook Lok'nStore's market position, leading brand and the increasing strength of our balance sheet demonstrates that we are well positioned to take advantage of this under-developed market. Trading is good and we continue to see attractive opportunities to grow the number of stores. The increased valuation of our freehold and leasehold sites provides financial flexibility for us. The Board is confident in its ability to continue to deliver growth in shareholder value. Simon Thomas Chairman 11 April 2005 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the six months ended 31 January 2005 Notes Unaudited Unaudited Audited Six months Six months Year 31 January 31 January 31 July 2005 2004 2004 £ £ £ TURNOVER Continuing operations 3,885,117 3,135,997 6,611,911 Operating expenses (3,564,856) (3,140,418) (6,490,237) Exceptional items - (127,406) (127,407) -------------- -------------- -------------- OPERATING PROFIT/(LOSS) 320,261 (131,827) (5,733) Loss on disposal fixed assets - - (870) Interest receivable 13,562 36,950 Interest payable (244,358) (50,972) (199,451) -------------- -------------- -------------- PROFIT/(LOSS) ON ORDINARY ACTIVITIES BEFORE TAXATION 75,903 (169,237) (169,104) Taxation 3 - - - -------------- -------------- -------------- PROFIT/ (LOSS) ON ORDINARY ACTIVITIES AFTER TAXATION 75,903 (169,237) (169,104) ============== ============== ============== EARNINGS PER SHARE Basic 5 0.31 p (0.59) p (0.64) p Fully diluted 5 0.28 p (0.59) p (0.64) p ============== ============== ============== There are no other recognised gains or losses. CONSOLIDATED BALANCE SHEET 31 January 2005 Unaudited Unaudited Audited 31 January 31 January 31 July 2005 2004 2004 £ £ £ FIXED ASSETS Intangible assets 371,196 395,450 383,323 Tangible assets 18,611,312 13,684,285 18,162,957 -------------- -------------- -------------- 18,982,508 14,079,735 18,546,280 -------------- -------------- -------------- CURRENT ASSETS Stock 87,443 89,604 103,880 Debtors 1,296,618 1,203,851 1,948,711 Cash at bank and in hand 550,545 642,693 654,361 -------------- -------------- -------------- 1,934,606 1,936,148 2,706,952 CREDITORS: Amounts falling due within one year (2,601,913) (1,966,778) (3,094,644) -------------- -------------- -------------- NET CURRENT (LIABILITIES)/ASSETS (667,307) (30,630) (387,692) -------------- -------------- -------------- TOTAL ASSETS LESS CURRENT LIABILITIES 18,315,201 14,049,105 18,158,588 CREDITORS: Amounts falling due after more than one year (7,650,000) - (7,600,000) -------------- -------------- -------------- 10,665,201 14,049,105 10,558,588 ============== ============== ============== CAPITAL AND RESERVES Called up share capital 250,711 284,687 250,481 Share premium 4 51,976 21,496 21,496 Capital redemption reserve 4 34,205 - 34,205 Merger reserve 6,295,295 6,295,295 6,295,295 Other distributable reserve 4 5,903,002 9,907,951 5,903,002 Profit and loss account (1,360,402) (1,436,438) (1,436,305) ESOP shares (509,586) (1,023,886) (509,586) -------------- -------------- -------------- SHAREHOLDERS' FUNDS 10,665,201 14,049,105 10,558,588 ============== ============== ============== CONSOLIDATED CASH FLOW STATEMENT For the six months ended 31 January 2005 Notes Unaudited Unaudited Audited Six months Six months Year 31 January 31 January 31 July 2005 2004 2004 £ £ £ Cash flow from operating activities 6a 870,510 178,432 934,854 Returns on investments and servicing of (251,115) (37,410) (122,163) finance Taxation - - - Capital expenditure and financial investment (804,751) (614,827) (5,429,344) -------------- -------------- -------------- CASH OUTFLOW BEFORE FINANCING (185,356) (473,806) (4,616,653) Financing 81,540 14,690 4,169,204 -------------- -------------- -------------- (DECREASE) IN CASH IN THE PERIOD (103,816) (459,116) (447,449) ============== ============== ============== RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS/(DEBT) 31 January 31 January 31 July 2005 2004 2004 £ £ £ Decrease in cash in the period (103,816) (459,116) (447,449) Change in net funds/(debt) resulting from cash flows (49,851) 2,310 (7,597,153) -------------- -------------- -------------- MOVEMENT IN NET FUNDS IN PERIOD (153,667) (456,806) (8,044,602) NET FUNDS BROUGHT FORWARD (6,945,788) 1,098,814 1,098,814 -------------- -------------- -------------- NET FUNDS CARRIED FORWARD 6b (7,099,455) 642,008 6,945,788 ============== ============== ============== NOTES TO THE INTERIM RESULTS 1. BASIS OF PREPARATION The interim results have been prepared on the basis of the accounting policies as set out in the statutory financial statements for the year ended 31 July 2004. The interim results, which were approved by the Directors on 11 April 2005, are unaudited but have been reviewed in accordance with Auditing Practices Board bulletin 'Review of Interim Financial Information' by the auditors. The interim results do not constitute statutory financial statements within the meaning of section 240 of the Companies Act 1985. Comparative figures for the year ended 31 July 2004 are an abridged version of the Group's full accounts, which carry an unqualified audit report and have been delivered to the Registrar of Companies. 2. MARKET VALUATION OF FREEHOLD LAND AND BUILDINGS On 31 January 2005, professional valuations were prepared by external valuers, Cushman & Wakefield Healey & Baker, in respect of all trading freehold land leasehold properties as operational self-storage businesses. The freehold site at Farnborough, acquired on 30 July 2004 was not valued on this occasion. This Report was prepared on the basis of Market Value/Existing Use Value, having regarded its trading potential as appropriate, in accordance with RICS Appraisal and Valuation Standards but on the special assumption that any potential for residential development was excluded. (See note 2 in the notes to the accounts for a more detailed description of valuation methodology). The Report indicates a total for properties valued of £31.84 million. Including Farnborough, (NBV £1.76 million), this gives a total value of properties held of £33.6 million. (NBV £18.4 million). These valuations do not account for any further uplift in values, which would result from the planning permission achieved for housing at the Kingston site, nor any successful outcome of the planning application for housing at the Reading site. While the Company does not envisage routinely revaluing its properties it will do so when appropriate. Valuation Methodology Background The USA has over 40,000 self-storage centres trading in a highly fragmented market with the largest 5 operators accounting for less than 16% of market share based on net rentable square footage. The vast majority of centres are owned and managed singly or in small portfolios. These properties have a well established track record of being traded and are therefore considered as liquid property assets. Many valuations of this asset class are undertaken by appraisers in the USA and the accepted valuation approach is to value the properties having regard to trading potential. This approach is recognised in the RICS Appraisal & Valuation Standards published by The Royal Institution of Chartered Surveyors and is adopted for other categories of property that are normally bought and sold on the basis of their trading potential. Examples include hotels, bars, restaurants, marinas and petrol stations. In the UK the scope for active trading of these property assets is likely to be less, in a smaller market. However there is now some evidence that there will be liquidity as the market continues to develop. Cushman & Wakefield Healey & Baker ('C&W/H&B') believe that the valuation methodology adopted in the USA is the most appropriate for the UK market. Methodology C&W/H&B have adopted different methodologies for the valuation of the leasehold and freehold assets as follows: Freehold The valuation is a discounted cash flow of the net operating income projected over a ten-year period and notional sale of the asset at the end of the tenth year. Assumptions A. Net operating income is based on actual revenue received less actual operating costs together with a central administration charge representing 7% of the estimated annual revenue. The initial net operating income is calculated by estimating the net operating income in the first twelve months following the valuation date. B. The net operating income in future years is calculated assuming straight-line absorption from day 1 actual occupancy to an estimated stabilised/ mature occupancy level. In the valuation the assumed stabilised occupancy level for the eighteen stores (both freehold and leaseholds) averages 78%. The projected revenues and costs have been adjusted for estimated cost inflation and revenue growth. C. Capitalisation rates of existing and future net cashflow have been estimated by reference to underlying yields for industrial and retail warehouse property, bank base rates, ten-year money rates and inflation. On average, for all eighteen stores, the yield (net of purchaser's costs) arising from the first year of the projected cashflow is 6%. This rises to 12.86% based on the projected cashflow for the first full cashflow year following estimated stabilisation in respect of each property. D. The notional sale of the freeholds at the end of the tenth year has been calculated at an average weighted exit yield of 9.66%. E. The future net cashflow projections (including revenue growth and cost inflation) have been discounted at a rate that reflects the risk associated with each asset. The weighted average annual discount rate adopted (for both freeholds and leaseholds) is 12.5%. F. On all assets, purchaser's costs of 5.75% have been assumed initially and sale and purchaser's costs totalling 7.75% are assumed on the notional sales in the tenth year in relation to the freehold stores. Leasehold The same methodology has been deployed as for freeholds, except that no sale of the assets in the tenth year is assumed but the discounted cash flow is extended to the expiry of the lease .The average unexpired term (unweighted) of the Group's leaseholds is approximately 11 years and 1 month. 3. TAXATION There is no charge to corporation tax for the Group due to the availability of brought forward trading losses. No value is ascribed to the Group's tax losses, as their recovery in the foreseeable future is considered to be uncertain. 4. SHARE CAPITAL Unaudited Unaudited Audited 31 Jan 2005 31 Jan 2004 31 Jul 2004 £ £ £ Authorised: 350,000 350,000 350,000 35,000,000 ordinary shares of 1p each (2004: 35,000,000) 250,711 284,687 250,481 Allotted, issued and fully paid: 25,071,144 ordinary shares of 1p each (2004: 25,048,144) Authority to make market purchases of its shares Following approval by shareholders of a special resolution at the AGM on 16 December 2004, the company has authority to make market purchases of up to 5,845,299 shares. The authority expires on 15 December 2005, but is expected to be renewed at the next annual general meeting. Exercise of Share Options On 25 January 2005, Colin Jacobs, a director of the Company, exercised an option to acquire 23,000 Ordinary Shares at 37 pence per share pursuant to an unapproved option arrangement dated 20 June 2000. In addition, Colin Jacobs sold on 25 January 2005, 20,496 Ordinary Shares in the Company at 150 pence per share. The share sale was affected through the company and as at 31 January 2005, the company owes Mr Jacobs £11,683 in respect of the proceeds of sale. No interest is payable on the sum. Following these transactions, Colin Jacobs total beneficial holding (including family interests) in the Company increased from 12,496 to 15,000 Ordinary Shares. 5. EARNINGS PER ORDINARY SHARE The calculation of earnings per ordinary share is based on the profit for the period of £75,903 (year to 31 July 2004 - loss of £169,104, period to 31 January 2004 - loss of £169,237) and on the weighted average number of shares in issue during the period of 24,421,519 shares (31 July 2004- 26,300,997 shares; 31 January 2004 - 28,468,693). Fully diluted earnings per share includes shares held under the directors' option scheme and is based on a profit for the period of £75,903 (period to 31 July 2004 - loss of £169,104, period to 31 January 2004 - loss of £169,237) and on a weighted average number of shares during the period of 26,900,125 shares (31 July 2004 - 27,436,581 shares; 31 January 2004 - 30,346,523 shares). 6. CASH FLOWS Unaudited Unaudited Audited 31 January 31 January 31 July 2005 2004 2004 £ £ £ (a) Reconciliation of operating profit to net cash flow from operating activities Operating profit/(loss) 320,261 (131,827) (5,733) Depreciation 356,397 329,179 664,153 Amortisation 12,126 12,127 24,255 Decrease/(Increase) in stocks 16,437 12,179 (2,097) Decrease/(Increase) in debtors 657,781 323,929 (420,932) (Decrease)/Increase in creditors (492,492) (367,155) 675,208 -------------- -------------- -------------- Net cash flow from operating activities 870,510 178,432 934,854 ============== ============== ============== At 31 July Other non- At 2004 Cash flow cash changes 31 Jan 2005 £ £ £ £ (b) Analysis of net funds/(debt) Cash at bank and in hand 654,361 (103,816) - 550,545 Debt due within one year - - - - Debt due after one year (7,600,000) (50,000) - (7,650,000) Finance leases (149) 149 - - -------------- -------------- -------------- -------------- TOTAL (6,945,788) (153,667) - (7,099,45) -------------- -------------- ------------- -------------- INDEPENDENT REVIEW REPORT TO LOK'N STORE GROUP PLC Introduction We have been instructed by the company to review the financial information set out on pages 4 to 11 and we have read the other information in the interim statement and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report, including the conclusion, has been prepared for and only for the company for the purpose of their interim statement and for no other purpose. We do not, therefore, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Directors' responsibilities The interim statement, 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 Statement in accordance with the Alternative Investment Market Rules which require that the accounting policies and presentation applied to the interim figures must be consistent with those that will be adopted in the company's annual accounts. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board as if that Bulletin applied. 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 Auditing Standards 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 31 January 2005. BAKER TILLY Chartered Accountants 2 Bloomsbury Street London WC1B 3ST 11 April 2005 This information is provided by RNS The company news service from the London Stock Exchange

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