Final Results

Big Yellow Group PLC 21 May 2007 21 May 2007 Big Yellow Group PLC ("Big Yellow", "the Group" or "the Company") AUDITED RESULTS FOR THE YEAR AND FOURTH QUARTER ENDED 31 MARCH 2007 Big Yellow Group PLC, the self storage company, is pleased to announce results for the year and for the fourth quarter ended 31 March 2007. 4th quarter 3rd quarter Year Year ended ended ended ended 31 Mar 31 Dec 31 Mar 31 Mar 2007 2006 % 2007 2006 % Revenue Â£13.9m Â£12.9m +8 Â£51.2m Â£41.9m +22 Profit before tax Â£152.8m Â£118.5m +29 Adjusted profit before tax(1) Â£14.2m Â£12.6m +13 Basic earnings per share 192.97p 82.10p +135 Adjusted earnings per share(2) 10.01p 8.86p +13 Dividend - final ord 5.5p 3.0p +83 - total 9.0p 5.0p +80 Adjusted NAV per share(3) 437.8p 297.0p +47 Cash flow from operations Â£30.2m Â£24.4m +24 ------------------------------- Occupied Space 1,835k sq ft 1,748k sq ft +5 1,835k sq ft 1,672k sq ft +10 ------------------------------- (1) See note 10 (2) See note 12 (3) See notes 12 and 14 â€¢ Revenue increase of 22% in the year â€¢ Strong growth in basic and adjusted pre-tax profit and basic and adjusted earnings per share â€¢ Cash flow from operations continues to improve with maturing store portfolio â€¢ Full year dividend increased by 80% to 9.0p â€¢ Adjusted net assets per share up significantly to 437.8p â€¢ 43 stores open at 31 March 2007 providing 2.6 million sq ft of self storage space â€¢ Six planning consents obtained in the second half and nine freehold sites acquired during the year, five in London, plus sites in Sheffield, Poole, High Wycombe and Nottingham â€¢ Three freehold sites acquired since the year end - Reading, Birmingham and Camberley â€¢ Pipeline of 23 sites to provide an additional 1.5m sq ft at an estimated total cost of Â£221 million, 64% by capacity in London Commenting on the outlook Nick Vetch, Chairman, said: "We are currently enjoying good trading conditions and we expect this to continue into the summer. We have secured six planning consents in the second half of the year, two since we last reported in January. Planning remains a significant obstacle, but with a pipeline of 23 sites, of which 14 are in London , we hope that this will deliver a steady stream of freehold store openings over the coming years. In the meantime we intend to continue adding sites to the pipeline. "We believe that the three value drivers of our business, development, occupancy growth and rental growth, fuelled by the location of our stores, branding, marketing and management will continue to deliver strong returns to shareholders." - Ends - For further information, please contact: Big Yellow Group PLC 01276 477 811 Nicholas Vetch, Chairman James Gibson, Chief Executive Officer Weber Shandwick Financial 020 7067 0700 Louise Robson/ John Moriarty/ Charlie Hooper Notes to Editors Big Yellow Group PLC is one of the leading and most dynamic self-storage groups in the UK. It was founded in 1998 by Nicholas Vetch, Philip Burks and James Gibson and listed on AIM in May 2000, moving to the Official List of the London Stock Exchange in 2002. Big Yellow has expanded rapidly and now operates from 43 stores in London and the South, and one in Leeds, with a further 23 stores in development and of the 66, 57 are held freehold and two long leasehold. All the stores have the distinct yellow branding, in accessible main road locations, with the majority being within the M25 or in strong urban conurbations. When fully built out the portfolio will provide approximately 4.1 million sq ft of flexible storage space. The Group has pioneered the development of the latest generation of self-storage facilities, which utilise state of the art technology and are located in high profile, main road locations. Its focus on the location and visibility of its buildings, coupled with excellent customer service, has created the most recognised brand name in the UK self-storage industry. 21 May 2007 Big Yellow Group PLC ("Big Yellow", "the Group" or "the Company") AUDITED RESULTS FOR THE YEAR AND FOURTH QUARTER ENDED 31 MARCH 2007 CHAIRMAN'S STATEMENT Big Yellow Group PLC is pleased to announce results for the year and for the fourth quarter ended 31 March 2007. Overall, we are satisfied with the Group's trading performance over the year. A good summer was followed by a modest December quarter. Activity levels saw a significant pick up early in the New Year resulting in a strong fourth quarter to the end of March. This is a seasonal business and we expect to see the usual build up in occupancy and hence revenue over the forthcoming summer months. We were pleased to receive approval by HMRC for conversion to a Real Estate Investment Trust ("REIT"), backdated to 15 January 2007. This is an important part of the Group's strategy and was the culmination of several months of hard work. Financial Results Revenue for the fourth quarter has shown a significant 8% rise to Â£13.9 million from Â£12.9 million for the third quarter ended 31 December 2006. Revenue for the year was Â£51.2 million (2006: Â£41.9 million), an increase of 22%. Profit before tax for the year was Â£152.8 million up from Â£118.5 million last year. After adjusting for the gain on the revaluation of investment properties and other matters (see note 10), the Group made an adjusted profit before tax in the period of Â£14.2 million, up 13% from Â£12.6 million in 2006. The basic earnings per share for the year was 192.97 pence (2006: 82.10 pence) and the fully diluted earnings per share was 190.31 pence (2006: 80.47 pence). A significant proportion of this improvement is due to the release of deferred taxation following the Group's conversion to a REIT (see note 9). Adjusted earnings per share based on adjusted profit after tax was 10.01 pence (2006: 8.86 pence) (see note 12). Cash generated from operations rose to Â£30.2 million in the year (2006: Â£24.4 million), an increase of 24%. Net bank debt of Â£187.9 million at 31 March 2007 (2006: Â£142.1 million) represents approximately 27% (2006: 30%) of the Group's investment property and development property assets totalling Â£686.5 million (2006: Â£468.5 million) and 38% (2006: 44%) of the adjusted net assets of Â£491.2 million (2006: Â£322.3 million). We are therefore conservatively geared, with significant balance sheet capacity on which to secure future borrowings. We have credit approval for an increase of Â£50 million in our bank facilities to Â£275 million. This will result in facilities available for drawdown of Â£85 million on completion. Dividend The Board has proposed a final dividend of 5.5 pence per share, which brings the total declared dividend in respect of the results of the financial year to 9.0 pence per share (2006: 5.0 pence per share). For further information on the dividend, see the Financial Review. Valuation and Net Asset Value The value of the investment property portfolio at the 31 March 2007 was Â£590.1 million, up Â£179.6 million from Â£410.5 million at 31 March 2006. The increase in valuation in the same store portfolio is Â£92.9 million, representing a 22.6% total uplift, of which we estimate 11.5% is a function of capital growth, and 11.1% operational performance. The balance of Â£86.7 million is a valuation of new stores open in the period comprising capital expenditure of Â£39.1 million and a revaluation uplift of Â£47.6 million. The net yield on the portfolio based on the net operating income at store level in the first year after the projected stabilisation of each store is 6.80% (March 2006: 7.49%). Whilst we believe there is unlikely to be any further significant yield contraction for UK Real Estate assets, it is arguable that there is still significant potential for yield compression for these types of self storage assets, due to a number of drivers: - the yields compare favourably with more conventional Real Estate assets, as the March UK All Property IPD yield stands at 5.39% (March 2006: 5.84%) - the yields on the Group's portfolio are post administration costs against IPD yields which are pre administration - the Group's self storage assets have enjoyed 4.6% average annual net storage rent increases over the last five years and over the same period, same store NOI margins (post allocation of administration costs) have increased from 48% to 58% - this is an institutional asset class in North America and Australia, and is growing globally and will benefit from increasing institutional interest in the UK particularly for purpose built, well located modern facilities The increase in value of the Group's investment properties, together with an adjustment to the valuation assumptions results in a 140.8p increase in the adjusted fully diluted net asset value per share over the year. The valuation of these assets is a business asset valuation, assuming an acquisition of not just the property, but also the operating cash flow. This by definition requires the sale of the operational contracts (customer, employment and maintenance etc) attached to the property which is difficult to achieve except in a corporate structure. Accordingly the adjusted net asset per share this year reflects the assumption that the assets are valued in accordance with the RICS Red Book assuming a sale in a corporate structure. The assets are still held in the Group balance sheet on the basis of the prior year RICS Red Book valuation assuming a direct property sale. A full disclosure of the rationale and impact is contained in the Financial Review and in note 14. 90% by value of the Group's 43 open stores and sites held for development are freehold (including one long leasehold). The freehold proportion will increase as we open stores in the development pipeline, all of which are freehold. We strongly believe that these assets will materially outperform our short leasehold assets due to the wasting nature of the latter. This is illustrated by the fact that the freeholds within the same store portfolio showed a valuation uplift in the year of 24%, compared to an uplift of 12% in respect of the nine short leasehold stores. Real Estate Investment Trusts The Group has succeeded in converting to a REIT, effective from 15 January 2007. In essence, a REIT will exempt qualifying companies from paying corporation tax on their qualifying earnings in return for distributing 90% of qualifying profits to shareholders. Certain rules apply to a REIT limiting the amount of development, debt gearing and non-qualifying trading activities. The cost of conversion represents 2% of gross property assets, which based on the value of the Group's properties at the 15th of January this year totalling Â£599.9 million, would represent a liability of Â£12.0 million. The final charge will be subject to agreement with the tax authorities. This sum will be paid in July 2007. Conversion to a REIT represents a significant step forward for the Group, largely eliminating the Group's corporation tax liability going forward and completely eliminating an estimated Â£95 million of contingent capital gains tax liability as at 15 January 2007. Furthermore, Big Yellow has a significant development pipeline of self storage assets, within the REIT ringfence and the development gains arising will generally be tax-free. Stores and the Market Self storage, we believe, will become increasingly mainstream as a sector, which will inevitably mean increased financial and human capital availability, resulting in increased competition over a period of time. Supply of self storage, however, will remain largely constrained by the availability of land, planning consents and competition from other uses, particularly in London and the larger provincial cities and towns. At the period end, occupied space represented 1,835,000 sq ft, up 10% from 1,672,000 sq ft at the same time last year. This represents 71% occupancy rate across all 43 stores open at the period end. We have included, as usual, a table summarising the performance of all our stores over the year. The portfolio of 30 stores that were open for more than two years at the beginning of the period was 85% occupied at the end of the year, with an average occupancy during the year of 85%. In addition these 30 stores achieved EBITDA margins of 64% (2006: 62%) and, after an allocation of central overhead, net operating income margins of 58% (2006: 56%). The 21 freehold stores within this 30 achieved EBITDA margins of 71% in the year. Same store revenue for these 30 stores increased 8% year on year, 6% as a result of increases in average prices and yield management; 1% average occupancy growth and the balance improved packing material and insurance sales. In addition from May 2007, we have successfully put through our target annual storage price rise of approximately 4.2% across the whole 43 store portfolio. Property We acquired nine freehold sites in the year, five in London and four outside London at Sheffield, Nottingham, Poole and High Wycombe. Since the year end, we have acquired a further three sites in Reading, Birmingham, and Camberley. As part of our expansion strategy, we continue to seek sites in the Midlands and the North and have recently acquired sites in Birmingham (since the year end) and Nottingham to add to our existing sites in Manchester, Liverpool and Sheffield. After a frustrating first six months we secured six planning consents in the second half of the year. Importantly all six were in London, where the process is at its most complex. These, together, with our site in Fulham result in seven stores being constructed at present or with planning. The government has imposed a target timescale of 13 weeks for Local Authorities to resolve applications. This has proved untenable in our experience, and accordingly a substantial amount of pre-application consultation is necessary before submission. This process in general is taking longer than the application process itself. We now have five further sites with applications submitted, with five more close to being submitted following extensive consultations. One site is subject to an appeal to the Secretary of State for further determination and the balance have more recently been acquired and are in the feasibility phase. We now have 23 stores in the pipeline (including one extension site at our Richmond store), which when fully developed, will represent an additional 1.5 million sq ft and when open will provide the Group with a total of 66 stores and 4.1 million sq ft. The result is an estimated development programme of Â£221 million. The build up in the pipeline should ensure a faster opening schedule in future years. 61% of our total stores and sites are located within the M25 and 57 are freehold or long leasehold. In the year we have opened six stores - three in London, and one each in Tunbridge Wells, Bristol (South) and Gloucester. At 31 March 2007, there was surplus land held in the balance sheet of Â£29.7 million, and since the year end, we have sold land at our development site in Merton for Â£7.7 million. Further surplus land will be disposed of in due course. International Franchise I am pleased to announce that in October 2006 we signed our first International Franchise Agreement for the United Arab Emirates with Big Yellow FZ LLC, a privately backed business set up to exploit the opportunities for development of a network of Big Yellow stores in the Gulf Cooperation Council states. The site for the first store in Dubai has been acquired and has now started construction to develop a 280,000 sq ft Big Yellow Self Storage centre, which is expected to open in spring 2008. Furthermore, since the year end we have signed a Franchise Agreement with the same partner for the Kingdom of Bahrain. As is typical of franchise structures, we are not investing capital in this business but are providing operating know-how and the licensing of the Big Yellow brand for an upfront fee and a share of future revenues. We are now reviewing other opportunities to expand the business internationally using this franchise model and have taken steps to protect the trademark in selected territories. Our People As we have consistently reported on over the last seven years, the Big Yellow team has remained largely stable, both at Head Office and within the stores. Never complacent on this issue however, we are constantly investing in our people, which we believe is reflected in the very high customer satisfaction responses that we receive. 97% of our customers would recommend using Big Yellow to a friend. For some four years, James Gibson has combined the roles of Chief Executive Officer and Finance Director of the Group, but as the Group becomes larger and more complex, we have resolved to split these functions. Accordingly, John Trotman has been appointed as Chief Financial Officer and will be joining the Company on 25 June this year. It is the Board's intention to promote John to the Board in due course. John is a Chartered Accountant and former Senior Manager at Deloitte & Touche LLP, where he specialised in the real estate sector and self storage. Since leaving Deloitte in 2005, John has been working for a subsidiary of the Kajima Corporation involved in the large Silvertown Quays regeneration project. Additionally, as reported above, we are intending to expand our international franchise operations and have appointed Tom Wilcockson as International Franchise Director and we expect him to join the Group in July of this year. Tom previously held the same position at Early Learning Centre, where he was largely responsible for the implementation of that Group's international franchise expansion. I would like to take the opportunity of thanking all the people who work at Big Yellow for their continued efforts, loyalty and hard work which, at the risk of repetition, really does make the difference between success and failure in our business. The last word goes to Philip Burks, a co-founder of the Group and its Property Director for the last seven years who has surrendered his executive role to become a non-executive. Through his contacts, experience and expertise, Philip has played a critical role over the years in the expansion and success of Big Yellow and on behalf of the Board, I would like to thank him for his contribution. Furthermore I remain grateful that he will remain close to Big Yellow and I am pleased to say he will be available as and when we need his advice or access to his connections. Outlook We are currently enjoying good trading conditions and we expect this to continue into the summer. We have secured six planning consents in the second half of the year, two since we last reported in January. Planning remains a significant obstacle, but with a pipeline of 23 sites, of which 14 are in London, we hope that this will deliver a steady stream of freehold store openings over the coming years. In the meantime we intend to continue adding sites to the pipeline. We believe that the three value drivers of our business, development, occupancy growth and rental growth, fuelled by the location of our stores, branding, marketing and management will continue to deliver strong returns to shareholders. Nicholas Vetch Chairman BUSINESS REVIEW Introduction Big Yellow has achieved substantial total returns for its shareholders in the year under review, which arise from a combination of factors including: - a prime portfolio of self storage properties - successful acquisition and development of new stores - the strength of operational management - occupancy and revenue growth - improving cash flow and margins - flexible and conservative financing Business Objectives In recent years, Big Yellow has established itself as the leading self storage brand in the UK (MORI National Survey, July 2006), a key objective set at flotation. The Group's strategy is to continue to invest in quality assets at the premium end of the self storage market and to build on our brand leadership nationally. We intend to measure our progress by commissioning quantitative research each year. We opened our first store outside our core area, in Leeds in 2005 and now have sites in development in Manchester, Liverpool and Sheffield, and have recently acquired further sites in Nottingham and Birmingham. The main elements of our strategy remain: - the roll-out of new stores in major urban conurbations throughout the UK, in addition to retaining a focus on London - conservative financing using flexible bank borrowings secured against a prime freehold portfolio - locating stores in visible, convenient and accessible locations - an unwavering focus on customer service - excellent operational and financial management generating strong cash-flow growth - innovative and creative marketing - an entrepreneurial and passionate culture, with accessible senior management encouraging innovation and dialogue throughout the business - recruiting and retaining quality people into the business Financing Objectives Big Yellow's financing policy is to fund its current needs through a mix of debt and equity in building out the existing portfolio and strategic growth objectives, which we believe improves returns for shareholders. We aim to ensure that there are sufficient medium term facilities in place to finance our committed development program, secured against the freehold portfolio with debt serviced by our growing strong operational cashflows. The business is financed by a mixture of debt and equity which improves returns to shareholders. The level of bank debt in the business is closely monitored against the Board's policy guidelines, which currently require that the ratio of net debt to gross property assets is no greater than 50% and interest cover not less than 2.25 times based on Group net operating income, comfortably ahead of its banking covenants. However, it is acknowledged that there may be limited periods where income cover temporarily falls slightly below 2.25 as a result of known factors, for example a number of new store openings, as new freehold stores make a loss for the first three to six months before breaking even at the net operating income level. Risk Management The management of risk is a fundamental part of how we have controlled the development of Big Yellow since its formation in September 1998. Self Storage Market Risk Economic growth in the UK returned to trend in 2006, and the economy has continued to grow satisfactorily in 2007, with consumer spending remaining strong. This is in spite of the recent increases in interest rates and increased taxes and other costs, which may in due course have an impact on the consumer and the housing market. Approximately 50% of our customers are in some way linked to the housing market, for example with customers renting storage space between house moves or whilst moving within the rental sector. We estimate that 15% of customers rent storage space as a spare room for lifestyle purposes and approximately 20% of customers use the product because some event has occurred in their lives generating the need for storage; they may be moving abroad for a job, have inherited furniture, are getting married or divorced, are students who need storage during the holidays, or homeowners developing into their lofts or basements. The balance of 15% of our customers are businesses ranging from start ups and market traders to retailers and larger multinationals storing stock, documents, equipment, or promotional materials all requiring a convenient flexible solution to their storage either to get started or to free up more expensive space. Self storage is an immature market with further opportunity for significant growth. Awareness of self storage and how it can be used by domestic and business customers is relatively low throughout the UK, although higher in London. The rate of growth in branded self storage on main roads in good locations continues to be limited by the difficulty of acquiring sites at affordable prices and obtaining planning consent. Big Yellow only invests in prime locations, developing high quality self storage centres in the large urban conurbations where the drivers in the self storage market and the barriers to competition are at their strongest. We have a large current storage customer base of over 30,000 spread across the portfolio of open stores and many thousands more have used Big Yellow over the years. In any month customers move in and out at the margin but the solidity of the occupancy of our stores when they lease up to maturity can be seen from the Portfolio Summary. Property Risk The acquisition of eight to ten sites a year for development into self storage is a key strategic objective of the business. We continue to face significant competition for sites for these quality main road locations from other uses such as residential, hotel, car showroom and offices. In addition we are seeing increasing competition from our main self storage competitors for sites. The planning process remains difficult with planning taking approximately nine to twelve months to achieve on average. In this competitive environment, we do take planning risk as it is necessary for us to acquire sites unconditionally, with planning and other property due diligence carried out under tight timescales. Big Yellow's management has significant experience in the property industry generated over many years and in particular in acquiring property on main roads in high profile locations and obtaining planning consents. In the year under review we were successful in acquiring 9 sites, five in London and sites in Sheffield, Nottingham, High Wycombe and Poole, and we have acquired a further three sites since year end, in Camberley, Reading and Birmingham. We now have a portfolio of 66 stores and sites (including one extension site) of which 43 are currently open and a further seven have planning consents. We manage the construction of our properties very tightly. The building of each site is handled through a design and build contract, with the fit out project managed in-house using an established professional team of external advisors and sub-contractors who have worked with us for many years to our Big Yellow specification. Treasury Risk The Group borrows in sterling at floating rates of interest and uses swaps to hedge its interest rate exposure. The Group has derivatives in place to ensure at least 35-40% of bank borrowings are hedged, the balance is left floating paying margin over rolling 3 month LIBOR. Our portfolio is relatively high yielding and we believe this flexible approach to our hedging is appropriate for our strategic aims, given the conservative levels of interest cover and gearing. Interest Cover and Balance Sheet Risk The Group reviews the current and forecast projections of cash flow, borrowing and interest cover as part of its monthly management accounts. In addition, an analysis of the impact of significant transactions is carried out regularly, as well as a sensitivity analysis assuming movements in interest rates on gearing and interest cover. Credit Risk Our customers are required to pay a deposit when they start to rent a self storage unit and are also required to pay in advance for their four-weekly storage charges. The Group is therefore not exposed to a significant credit risk. Taxation Risk The Group is exposed to changes in the tax regime affecting the cost of corporation tax, VAT and Stamp Duty Land Tax ("SDLT"). We regularly monitor proposed and actual changes in legislation with the help of our professional advisors and through trade bodies to understand and, if possible, mitigate or benefit from their impact. REIT Risk The Group converted to a REIT with effect from 15 January 2007. The Group is therefore exposed to potential tax penalties or loss of its REIT status by failing to comply with the REIT legislation. The Group has internal monitoring procedures in place to ensure that the appropriate rules and legislation are complied with. Human Resources Risk At Big Yellow we have developed a professional, lively, enjoyable and fun working environment and believe our success stems from attracting and retaining the right people. We encourage all our staff to build on their skills, through appropriate training and regular performance reviews. We believe in an accessible and open culture and everyone at all levels is encouraged to review and challenge accepted norms, so as to contribute to the performance of the Group. Reputational Risk Big Yellow's reputation with all its stakeholders is something we value highly and will always look to protect and enhance. We aim to communicate clearly with our customers, suppliers, local authorities and communities, employees and shareholders and to listen to and take account of their views. The Big Yellow's Intranet and Website (www.bigyellow.co.uk) are important avenues of communication for both employees and shareholders. We signed our first international franchise in October 2006 in respect of the United Arab Emirates, with expansion rights for the remaining GCC states. We carried out due diligence on our local partners and were advised on the Development Agreement by Eversheds Franchise Team. The Development Agreement provides the requisite controls typical of arrangements of this nature to protect our reputation and brand. We have appointed an experienced International Franchise Director with over 20 years experience in franchising, who will be responsible for growing this aspect of our business. Corporate and Social Responsibility Big Yellow develops stores in environments in which people live and work. We build storage centres for our customers who live or work within a three to five mile radius providing a storage solution for businesses and households. 85% of our customers are householders renting storage rooms primarily for household contents, 15% of our customers occupying 30% of the net lettable space are businesses requiring flexible storage space to operate and expand, thus contributing to job creation and generating wealth for the local economy. We survey all customers at moveout to assess their views on a number of issues and seek to respond to all feedback and views in order to improve our performance and meet our customers' changing needs. We work closely with our suppliers to ensure they understand our aims and objectives and can share in the Big Yellow vision of reinforcing our position as the leading brand in the UK self storage market. As a Board we are committed to ensuring that our development activities do not place an unnecessary burden on future generations. Big Yellow is well aware of its corporate social responsibility and recognises the positive contribution it can make to address environmental concerns and sustainability issues. A more detailed explanation of our approach to managing and minimising the impact of our development on the environment is set out below. Big Yellow has a committed and skilled staff of 208 people. We have a responsibility to provide an attractive and safe working environment, equal opportunities, training to improve skills and, where practicable for a business of this size, career progression. Remuneration is linked to performance and assessed against relevant markets at all levels. Our shareholders and bankers are our providers of capital and we aim through our reporting, our Investor Relations website and announcements to keep them informed about the progress of the business. Furthermore we have a responsibility through the successful performance and growth of the business to provide our shareholders with an attractive total return on their investment through dividends and share price growth. The success of Big Yellow has allowed us to put something back into the local communities in which we operate through the support of local causes and into society generally through donations to charities. For the first time, Big Yellow has appointed a Charity of the Year, which in 2007 is Cancer Research. Employees have carried out a number of events to raise money for the charity, and the Group has matched all amounts raised by staff. Additionally, we are liaising with representatives from Cancer Research with regards to the collection of household items which could be donated at stores by customers and then sold at their charity shops. Environmental Policy Maintaining and improving the quality of the built environment in which we live is an important concern for the Group, its staff, customers, suppliers and the communities in which we operate. Big Yellow endeavours to balance the triple bottom line of financial, social and environmental concerns. The Directors of Big Yellow are committed to ensuring its development and operational activities do not place an unnecessary burden on future generations. Big Yellow is well aware of its corporate social responsibility and the company recognises the positive contribution it can make to address environmental concerns and sustainability issues. James Gibson, CEO, has responsibility to the Board on all matters of environmental policy. In recognition of the UK regulatory objectives and growing environmental awareness of consumers, Big Yellow has initiated simple, straightforward alterations to its behaviour to reduce its carbon footprint. Furthermore the Group are investing over Â£1.0 million in renewable energy technologies in new developments at Barking, Balham, Fulham and Kennington. This investment forms a key part of a detailed study into the building design to quantify the energy, material and waste usage and benefits of the new technologies in use and to consider where improvements could be introduced within the existing and new stores portfolio. Big Yellow will endeavour to use less energy, use energy from renewable sources and supply energy efficiently where practicable. To demonstrate our commitment to the environment we are recruiting a full time environmental manager to increase the pace of change within the company. There are many ways in which Big Yellow currently achieves its 'environmental' objectives, the main examples of which are set out below: - We clean up previously contaminated 'brown' field sites as part of the redevelopment; we do not build on green field sites or previously undeveloped land. - Access for each site is a key criteria and is therefore highly sustainable given its close proximity to the road network and public transport, stores benefit from good pedestrian and cycle routes. - Big Yellow are respectful of local communities and all new Construction Sites are registered with the Considerate Contractors scheme. - We recycle demolition materials and endeavour to minimise construction waste. Store Operations generate minimum quantities of waste although facilities are provided for recycling. - We are designing new stores with products that are more sustainable. We select building materials responsibly with low embodied energy, with easy reuse and from sustainable sources The buildings are in the main part constructed of steel, a material which could be recycled in the future. The mezzanine floors offers flexibility such that the building can be used for different purposes. - Big Yellow is not a high user of energy, nonetheless we meet building regulations which require high insulation standards to the building envelope even though large areas of the building are unheated. We only heat or cool our reception areas which on a standard store occupy approximately 3% of the gross floor area. - We are investing in renewable energy sources where practicable and financially viable at our stores in Barking, Balham, Fulham and Kennington. The benefits will be monitored and form the basis of a model concept for future new eco stores. - We are encouraging and improving bio diversity by replacing previously lost habitat with green walls/green roofs and the reintroduction of landscaping. - We now install low energy lighting throughout our newer stores and plan to upgrade existing stores over a period of time. Big Yellow obtains its electricity supplies from a services provider with a green energy policy which generates electricity from a renewable source or with a company policy of investing in research into renewable capacity. - On our recent stores we have moved from hydraulic lifts to more energy efficient 'traction' lifts. - We are now providing facilities on our new stores to encourage the use of public transport and cycling by store staff, a requirement of planning. - We conserve water resources by minimising the number of sanitary fittings and include flow control systems within the staff kitchen and store facilities. - Sustainable Urban Drainage Systems (SUDS) and rainwater harvesting are being installed at stores under construction to meet Environment Agency requirements for surface water attenuation and irrigation. - We are raising environmental awareness and encouraging suppliers, staff and customers to change their behaviour and encourage sustainable solutions. Stores During the year we opened six stores, three in London (at Finchley (East), Kingston & Edmonton), one at Tunbridge Wells, a second store at Bristol (South), and one at Gloucester. These store openings bring the number now trading to 43. The available net lettable space increased by 360,000 sq ft over the year to 2.6 million sq ft with the opening of these six stores. The maturity profile across the 43 stores open at the end of the year is set out in the Portfolio Summary and shows a blended occupancy for the portfolio of 71% (1.84 million sq ft occupied), with the 30 stores more than two years old at an average occupancy of 85%. There are a further 23 freehold sites (including an extension site at Richmond) at various stages of planning and construction which, when fully developed, will increase the total capacity of the portfolio to 4.1 million sq ft. 14 of the 23 stores in the development pipeline (including the extension site to our first Richmond store) are located in Greater London, which we believe will continue to improve the quality of our store portfolio. Our store in Leeds continues to perform ahead of budget. We have therefore also continued with our stated intention to acquire sites in key Northern Cities and have recently bought sites in Birmingham and Nottingham to add to our existing acquisitions in Manchester, Liverpool and Sheffield. We continue to work on obtaining planning consents for these future stores. We expect to open seven stores in the current financial year. We have received planning permission in the year to demolish our existing 25,000 sq ft storage facility in Sheen and replace this with a new 60,000 sq ft facility. We expect to start work on this in July, with opening of the new store planned for early 2008. During the year we moved in over 42,000 customers taking 2.5 million sq ft compared to 38,400 customers taking 2.3 million sq ft last year. This resulted in the stores increasing occupancy by 163,000 sq ft (202,000 sq ft last year). Customer move-ins per store averaged 86 per month over the year, down from the 92 per month last year, reflecting a larger and more mature store portfolio, with less availability, and hence less potential activity. Of the 43 stores open at year end 41 are now trading profitably with the other two being the most recent to open. The Big Yellow store model is now well established. The "typical" store contains 60,000 sq ft and takes some 2.5 years to achieve 85% occupancy, leasing up at an average rate of 1,700 sq ft per month. The average room size is some 60 sq ft and the average rental achieved last year across the 43 stores was Â£23.79 per sq ft per annum (the average rent in London is higher at Â£27.36 per sq ft per annum). The store is initially run by three staff - adding a part timer once the store occupancy justifies the need for the extra administrative and sales workload. Given that the operating costs of these assets are relatively fixed, larger stores in bigger urban conurbations, particularly London, drive higher revenues and higher operating margins. The drive to improve store operating standards and consistency across the portfolio remains a key focus for the Group. Excellent customer service is at the heart of our business objectives, as a satisfied customer is our best marketing tool. From our surveys 97% amount of customers would recommend Big Yellow to a friend. We measure customer service standards through a programme of mystery shoppers and ex-customer surveys. We now have in place a team of Area Managers (who between them have a total of 40 years experience in self storage) to develop and support the stores and to continue to drive the growth of the business. The store bonus structure rewards sales growth and cost control through setting quarterly targets based on store profitability, including the contribution from ancillary sales of insurance and packing materials. Information on bonus build up is circulated monthly and stores are involved in preparing their own targets and budgets, leading to improved visibility, a better understanding of sales lines and control of operating costs. The Group manages the construction and fit-out of its stores in-house as we believe it provides better control and we have an excellent record of building stores on time and within budget. The total construction spend in the year was Â£30 million and is expected to be approximately Â£45 million in 2007/8. We currently have seven new stores on site, all of which are new stores under construction. We believe that as a customer facing real estate business it is paramount to maintain the quality of our estate and customer offering. We therefore continue to invest in a rolling programme of store makeovers, preventative maintenance, store cleaning and the repair and replacement of essential equipment, such as internal and external gates. Sales and Marketing During the year we conducted a strategic review of our Marketing programme. This was driven by a comprehensive customer research project, using both quantitative and qualitative techniques. Highlights of the survey include: - Big Yellow has achieved brand awareness of 35 to 40% in our target customer groups in London and the South - Our Brand awareness is more than double that of our nearest competitor - London and the South East have the highest regional awareness of self storage at 25-30% - Across the UK, 77% of the public are either unaware if self storage, or have heard of it but know nothing about it - 80% of our customers fall within the top three ACORN customer categories, (Wealthy Achievers, Urban Prosperity and Comfortably Off, with Urban Prosperity the largest) The survey was carried out by IPSOS Mori in July 2006. The findings of this research confirm the success of our previous marketing activity, and justify our Brand positioning at the quality end of the market. The high standards of our stores, our people and our locations have successfully attracted customers who are looking for quality and value. Our customers are particularly attracted by our modern, purpose built stores, our state of the art security systems and convenient locations. The customer research helped to set the direction for our marketing strategy. Following the research we appointed Clemmow Hornby Inge as our advertising agency, with a brief to overhaul all of our marketing communications materials, and launch a new advertising campaign. This campaign was launched in April 2007, and has been led by an intensive TV campaign on Channel 4 and linked satellite channels, supported by additional advertising in national press, online and through direct marketing. The campaign is already achieving good awareness after a short period of time, and is due to last throughout the summer. We continually monitor local market conditions and review our promotions monthly. Our policy is to offer targeted promotions to ensure we are offering the best value available to our customers. Our embedded discount varies by store maturity: stores with 85% occupancy and over have discount levels of 7%, 60-85% have 9% and new stores have 12%. The average across the Group is 8%. The success of this strategy is confirmed by the high occupancy achieved by our mature store portfolio - 85% over the year for stores with an average size of 60,000 sq ft, which is significantly higher than most of our competitors. We see the internet as an increasing source of prospects and customers and continue to invest in developing our e-commerce platform. We have recently launched a ground breaking fully integrated online reservation service for the self storage industry, and we will continue to stay at the forefront of innovations in this area. Local marketing, selling standards and customer service at store level are also critical to building the brand and achieving customer loyalty and recommendations. We invest significantly in training and have a reward structure and performance monitoring systems which focus specifically on achieving sales and customer service objectives. During the year the Group spent approximately Â£2 million, (4% of our turnover), on above the line marketing, in line with the previous year. It is our intention to continue to invest this proportion of our turnover to increase awareness of Big Yellow in existing and new markets, particularly as we expand into the new cities in the country that we have not previously had a presence in. People At Big Yellow we aim to provide a lively, fun and enjoyable work environment, without losing our commitment to the best customer service and standards of performance. As the business has grown it has been necessary to formalise the means by which ideas and policy changes are communicated and discussed with employees. We hold regular consultation meetings with employees, both formally and informally, and our directors and senior management spend significant time in the stores and are accessible to employees at all levels. An annual Employee Attitude Survey provides the management with key feedback and guidance as to where to focus its resources in each year. We encourage a partnership culture within the business and believe in staff participating in corporate performance through share incentives. Many employees have benefited, or continue to benefit, from share options granted in previous years and an Inland Revenue approved Sharesave Scheme. This provides an opportunity to invest in the future success of Big Yellow at a discount to the prevailing share price at the date of each invitation. In addition, a stakeholder pension scheme managed by Friends Provident provides pension provision within the Group and is available to all employees after six months. We had 226 full, part time and casual employees in the business at the year end (2006: 185 employees), and recruiting and retaining the right calibre people remains critical to the continued success of Big Yellow. We promote the individual development of staff through training and regular performance appraisals and delivered over 500 days training to employees in the last year, equating to an average of approximately 3 days training per employee. We have a policy on flexible working to meet individual needs where possible, without compromising corporate objectives. Security The safety and security of our customers and stores remains a key priority. To achieve this we invest in state of the art access control systems, individual room alarms, digital CCTV systems, intruder and fire alarm systems and the remote monitoring of our stores out of hours. We have implemented customer security procedures in line with advice from the Metropolitan Police and continue to work with the regulatory authorities on issues of security, reviewing our operational procedures regularly. The importance of security and the need for vigilance is communicated to all store staff and reinforced through training and we have continue to run courses to enhance the awareness and effectiveness of our procedures in relation to security, entitled "You and your customer". FINANCIAL REVIEW International Financial Reporting Standards ("IFRS") This report is prepared in accordance with IFRS and includes the Group's IFRS accounting policies together with further details on key performance measures in the notes to the accounts. REIT Conversion The most significant financial event for the Group in the year was the approval by HMRC of the Group's election to convert to a REIT with effect from 15 January 2007. The required changes to the Group's articles commensurate with conversion to a REIT were subsequently approved at an EGM on 4 May 2007. This was the culmination of several months of hard work to achieve this successful outcome for the Group. The cost of conversion represents 2% of gross property assets, which based on the value of the Group's properties at the 15th of January this year totalling Â£599.9 million, would represent a liability of Â£12.0 million. The final charge will be subject to final agreement with the tax authorities. This sum will be paid in July 2007. REIT conversion means that the income and capital gains from the Group's eligible UK activities will be tax exempt. Accordingly, the accounts for the year ended 31 March 2007 include the release at 15 January 2007 of Â£95 million of contingent capital gains tax liability. Furthermore, Big Yellow has a significant development pipeline of self storage assets, within the REIT ringfence and the future revaluation gains on these developments and its existing open stores will be largely free from capital gains tax. Dividends As stated in our interim accounts to 30 September 2006, the Group's policy in anticipation of conversion to a REIT, was to significantly increase the interim dividend and to pay a total dividend in excess of the minimum property income dividend ("PID") required under the regulations. Dividends will be set based on 90% of qualifying post depreciation earnings, without further deduction for additional shadow capital allowances. We are recommending a final dividend payment of 5.5p per share. Taken together with the interim dividend of 3.5p, this makes a full year declared dividend of 9.0p per share (2006: 5.0p), which represents an 80% increase. The Group's dividend now consists of two components; the PID from the REIT qualifying activities and a dividend distribution from our non-qualifying activities (non-PID). The aggregate of these two components will still be known as our total dividend. We are obliged to withhold tax from certain shareholders, currently at a rate of 22% (decreasing to 20% from 6 April 2008), from the PID element of the dividend. Our total dividend is therefore a gross dividend. Since Big Yellow only became a REIT on 15 January 2007, over three-quarters of this financial year fell outside REIT status. Shareholders will find an explanation of the individual components of the total dividend on the tax voucher sent out with the payment on 18 July 2007. Of the proposed final dividend of 5.5p, only 0.4p is a PID. This is subject to 22% withholding tax for relevant shareholders. Next year we expect a higher proportion of the total dividend payments to be in the form of a PID. Subject to approval by shareholders at the Annual General Meeting to be held on 11 July 2007, the final dividend will be paid on 18 July 2007 to shareholders on the Register on 15 June 2007. Dividend Table Interim Final Total Dividend Dividend Dividend p p p ----------------------------------------------------------- Property income distribution - 0.4 0.4 Non-property income distribution 3.5 5.1 8.6 ----------------------------------------------------------- Total 3.5 5.5 9.0 ----------------------------------------------------------- Financial Results Annualised revenue, the measure of store related revenue being billed (net of all discounts) at the end of the year, increased to Â£50.9 million, up from Â£43.4 million last year, an increase of 17%. Revenue for the year was Â£51.2 million, up 22% from Â£41.9 million for 2006. Included in revenue in 2007 is a lease surrender premium received of Â£1.2 million. This is a one-off non-recurring item. Other sales (included within the above), comprising the selling of packaging materials, insurance and storage related charges represented 16% of storage income for the year (2006: 14%) and generated revenue of Â£6.7 million for the year, up from Â£5.2 million in 2006. The Group made a profit before tax in the year of Â£152.8 million, up significantly from the Â£118.5 million in the prior year. After adjusting for the gain on the revaluation of investment properties and other matters shown in the table below the Group made an adjusted profit before tax in the year of Â£14.2 million, up 13% from Â£12.6 million in 2006. ------------------------------------------------------------------ Profit before Tax Analysis 2007 2006 Â£m Â£m ------------------------------------------------------------------ Profit before tax 152.8 118.5 Gain on revaluation of investment properties (138.3) (106.2) Movement in fair value on interest rate derivatives (0.7) 0.2 Loss on non-current assets 1.1 0.1 Tenant surrender premium (1.2) - REIT conversion costs 0.5 - ------------------------------------------------------------------ Adjusted profit before tax 14.2 12.6 ------------------------------------------------------------------ The loss on non-current assets of Â£1.1 million is a write down to net realisable value of surplus land at one of our development sites. The basic earnings per share for the year was 192.97p (2006: 82.10p) and the fully diluted earnings per share was 190.31p (2006: 80.47p). A significant proportion of this improvement is due to the release of deferred taxation following the Group's conversion to a REIT (see note 9). Adjusted earnings per share based on adjusted profit after tax was 10.01p (2006: 8.86p) (see note 12). Administration Expenses including the cost of construction management were higher at Â£5.6 million million compared to Â£4.7 million in 2006. There were additional costs in 2007 relating to the conversion to a REIT of Â£0.5 million (including irrecoverable VAT), coupled with additional head office staff and inflationary increases. Net Interest Expense on Bank Borrowings for the year increased to Â£10.5 million up from Â£7.4 million in 2006 reflecting the increase in net borrowing over the period, coupled with the rise in interest rates. The average cost of borrowing including margin at 31 March is set out below: -------------------------------------------------------------------- 2007 2006 -------------------------------------------------------------------- Average interest rate on fixed rate debt 6.0% 6.1% Average interest rate on variable rate debt 6.4% 5.6% Overall weighted average interest rate 6.3% 5.7% -------------------------------------------------------------------- Balance Sheet The Group's 43 open stores at 31 March 2007, which are classified as investment properties, have been re-valued by Cushman & Wakefield (C&W) and this has resulted in a gross property asset value of Â£686.5 million, comprising Â£521.4 million (76%) for the 34 freehold (including one long leasehold) open stores, Â£68.7 million (10%) for the nine short leasehold open stores and Â£96.4 million (14%) for development properties. The properties held for development have not been externally valued and have been included in the balance sheet at a historical cost less provision for impairment. Change in Valuation Assumption for Purchaser's Costs The Group's investment property assets have been valued for the purposes of the financial statements after deducting notional purchaser's cost of 5.75% of gross value, as if they were sold directly as property assets. The valuation is an asset valuation which is entirely linked to the operating performance of the business. They would have to be sold with the benefit of operational contracts, employment contracts and customer contracts, which would be very difficult to achieve except in a corporate structure. We believe therefore that the valuation assumptions should be adjusted to reflect the reality. This approach follows the logic of the valuation methodology in that the valuation is based on a capitalisation of the net operating income after allowing a deduction for operational cost and an allowance for central administration costs. Sale in a corporate structure would result in a reduction in the assumed Stamp Duty Land Tax but an increase in other transaction costs reflecting additional due diligence resulting in a reduced notional purchaser cost of 2.75% of gross value. All the significant sized transactions that have been concluded in the UK in recent years were completed in a corporate structure. We therefore instructed C&W to carry out a Red Book valuation on the above basis, and this results in a higher property valuation at 31 March 2007 of Â£615,950,000 (Â£25,890,000 higher than the value recorded in the financial statements or 21.9 pence per share). We have included this revised valuation in the adjusted diluted net asset calculation (see note 12). We intend to consult with our industry peers, relevant regulatory bodies on whether this basis of valuation for operational assets of this type should be formally incorporated into the balance sheet. The revised valuation translates into an adjusted net asset value per share of 437.8 pence (2006: 297.0 pence) after the dilutive effect of outstanding share options (see table below). --------------------------------------------------------------------------- Analysis of Net Asset Value 2007 2006 --------------------------------------------------------------------------- Basic net asset value (Â£m) 488.0 244.3 Exercise of share options (Â£m) 3.3 5.8 --------------------------------------------------------------------------- Diluted net asset value (Â£m) 491.3 250.1 Adjustments: Deferred tax on revaluation (Â£m) - 72.1 Deferred tax on fair value of interest rate swaps (Â£m) (0.1) - --------------------------------------------------------------------------- Balance sheet adjusted net asset value (Â£m) 491.2 322.2 --------------------------------------------------------------------------- Basic net assets per share (pence) 428.3 239.2 Diluted net assets per share (pence) 416.0 230.5 Balance sheet adjusted net assets per share (pence) 415.8 297.0 Diluted shares used for calculation (million) 118.1 108.5 Balance sheet adjusted net asset value (as above) (Â£m) 491.2 Valuation methodology assumption (see note 14) (Â£m) 25.9 Adjusted net asset value (Â£m) 517.1 Adjusted net assets per share (pence) 437.8 * --------------------------------------------------------------------------- * There was no valuation carried out on the basis of a sale in a corporate structure at 31 March 2006. The recorded book value of the investment property portfolio at 31 March 2007 was Â£590.1 million up Â£179.6 million from the Â£410.5 million at 31 March 2006. Â£92.9 million is the increase in the valuation of the same store portfolio representing a 22.6% total uplift, of which 11.5% is a function of capital growth and 11.1% operational performance. The balance of Â£86.7 million is a valuation of new stores open in the period comprising capital expenditure of Â£39.1 million and a revaluation uplift of Â£47.6 million. The anticipated initial yield on the portfolio in the following year, as represented by net operating income at store level, is 5.24%, rising to 6.80% in the year following stabilisation of each store. The reduction in the stabilised yield from 7.49% at 31 March 2006 to 6.80% results in a 11.5% capital value increase. This yield reduction reflects a number of factors, including significant yield compression on other real estate assets in the UK and elsewhere and more specifically, a growing institutionalisation of self storage assets, particularly in the US. In common with other real estate groups, we have calculated the total return to our equity shareholders based on the increase in fully diluted net assets per share plus dividends paid in the year. As can be seen from the table below Big Yellow achieve total returns to shareholders of 49.6% (147.3 pence per share), or 53.1% (157.6 pence per share) after adding back the REIT conversion charge of Â£12 million (or 10.4 pence per share). 2007 2006 Increase NAV per share 428.3p 239.2p 79% Adjusted diluted NAV per share (see note 12) 437.8p 297.0p 47% Dividend paid per share 6.5p 3.5p 86% Total return per share 147.3p 109.4p 35% Total return 49.6% 57.2% Financing and Treasury The Group is strongly cash generative operationally and draws down from its longer term committed facilities as required to meet obligations. The Group's cash earnings continue to grow as reflected by the increase in cashflow from operating activities (pre financing costs) for the year to Â£30.2 million from Â£24.4 million last year. A summary of the cashflow for the year is set out in the table below: Year ended 31 March 2007 2006 Â£'000 Â£'000 Cash flow from operations 30,198 24,412 Finance costs (net) (13,472) (9,275) Free cash flow 16,726 15,137 Capital expenditure (96,007) (60,281) Asset sales 2,165 7,619 Ordinary dividends (7,051) (3,541) Issue of share capital 38,377 1,480 Net funds flow (45,790) (39,586) Increase in borrowings 33,707 47,400 Net cash (outflow)/inflow (12,083) 7,814 Opening cash and cash equivalents 14,193 6,379 Closing cash and cash equivalents 2,110 14,193 We focus on improving our cashflows and we currently have healthy interest cover of approximately 2.5 times with a relatively conservative debt structure secured principally against the freehold estate. The Group was comfortably in compliance with its bank covenants at 31 March 2007, and we forecast to be in compliance with our banking covenants in the foreseeable future. At the end of the year, the Group had net bank borrowings of Â£187.9 million, an increase of Â£45.8 million over last year following Â£96.0 million of capital expenditure, Â£13.5 million of net interest paid (including finance lease costs), dividend payments of Â£7.1 million, offset by net cash inflows from changes in share capital of Â£38.4 million, operating cash flow of Â£30.2 million, and land disposal proceeds of Â£2.2 million. The Group has a syndicated bank facility with the Royal Bank of Scotland, Bank of Ireland and Barclays of Â£225 million. This facility is secured on a portfolio of 31 freehold and leasehold assets. Net debt at the end of March was Â£187.9 million, leaving Â£37.1 million of available facilities to fund expansion with significant balance sheet space given the low level of gearing. Since year end the Group has obtained credit approval to increase this facility by a further Â£50 million. Treasury continues to be closely monitored and its policy approved by the Board. We maintain a close watch on medium and long term rates and the Group's policy in respect of interest rates is to maintain a balance between flexibility and hedging of interest rate risk. At 31 March 2007, the Group had total bank borrowings of Â£190 million of which 37% was hedged in the medium term. Â£70 million is hedged at maturities expiring between 2007 and 2011. The Group has historically had a relatively high level of variable debt to maintain flexibility and given the low level of gearing with loan to total gross assets of 25% and 12 month rolling interest cover of 2.5 times. Now that we have converted to a REIT, we intend to review the long term financing of the Group, and related hedging. The Group does not hedge account its interest rate derivatives. Therefore movements in the fair value are taken to the income statement, but as recommended by EPRA (European Public Real Estate Association), these are eliminated from adjusted profit before tax and adjusted earnings per share. Cash deposits are only placed with approved financial institutions in accordance with Group policy. Share Capital The share capital of the Company totalled Â£11.5 million at 31 March 2007 (2006: Â£10.3 million), consisting of 114,559,534 ordinary shares of 10p each (2006: 102,752,607 shares). On 12 July 2006 the Company placed 9.1 million new ordinary shares of 10p each with institutions, raising approximately Â£36.4 million before expenses. Shares issued for the exercise of options during the period amounted to 2,706,927 at an average exercise price of 99p. During the year there were no purchases of shares by the Group into Treasury. 615,000 shares were purchased in 2005 at an average price of 132p, and were subsequently transferred into an Employee Benefit Trust ("EBT"). These shares are shown as a debit in reserves and are not included in calculating earnings and net asset value per share. ----------------------------------------------------------------------- 2007 2006 No. No. ----------------------------------------------------------------------- Opening shares 102,752,607 100,725,537 Shares issued by way of Placing 9,100,000 - Shares issued for the exercise of options 2,706,927 2,027,070 ----------------------------------------------------------------------- Closing shares in issue 114,559,534 102,752,607 Shares held in EBT (615,000) (615,000) ----------------------------------------------------------------------- Closing shares for NAV purposes 113,944,534 102,137,607 ----------------------------------------------------------------------- 144,998,398 million shares were traded in the market during the year ended 31 March 2007 (2006: 72,903,317). The average mid market price of shares traded during the year was 513p with a high of 705p and a low of 362p. At 31 March 2007 there were 2,880,867 shares subject to share option awards to employees of the Group at an average strike price of 102p. In addition there are 1,052,164 nil paid options, granted under the Group's LTIP scheme and 234,858 share options granted under the Group's SAYE scheme at an average strike price of 165p. Taxation The current year tax credit for the Group of Â£60.4 million (2006: charge of Â£35.1 million) relates to a deferred tax credit of Â£75.1 million, a REIT conversion charge of Â£12.0 million and a corporation tax charge of Â£2.7 million. The movement in the deferred tax consists of the write back of the deferred tax provisions in the Group's Balance Sheet at 31 March 2006, as following our conversion to a REIT, we will no longer be liable to tax on the disposal of the assets. The REIT conversion charges has been calculated based on 2% of the valuations of our portfolio at the conversion date of 15 January 2007. This charge is payable in July 2007. The Group's actual cash tax liability for the year is Â£0.1 million as the group is entitled to claim a tax deduction in the year of Â£2.7 million in connection with share options exercised by employees. Under the provisions of IAS 12, however, the benefit of this tax deduction is taken straight to reserves rather than being accounted for through the tax charge for the year. REIT status gives the Group exemption from UK corporation tax on profits and gains from its qualifying portfolio of UK stores. Future revaluation gains on the Group's existing investment properties and development pipeline will largely be exempt from corporation tax on capital gains, provided certain criteria are met. Big Yellow Group PLC Portfolio Summary Years since opening March 2007 March March 2007 March 2006 March March 2006 as at 1 April 2006 2 years 2007 Total 2 years 2006 Total < 2 years < 2 years Number of stores 30 13 43 30 7 37 ================================================================================================== As at 31 March 2007 Total capacity (sq ft) 1,788,000 784,000 2,572,000 1,787,000 425,000 2,212,000 Occupied space (sq ft) 1,513,000 322,000 1,835,000 1,513,000 159,000 1,672,000 Percentage occupied 85% 41% 71% 85% 37% 76% Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 Annualised revenue 41,607 9,281 50,888 39,263 4,137 43,400 For the year: Average occupancy 85% 32% 68% 84% 27% 73% Average annual rent psf Â£23.97 Â£23.07 Â£23.79 Â£22.64 Â£19.96 Â£22.46 Self storage sales 36,434 5,788 42,222 33,978 2,290 36,268 Other storage related income(1) 5,350 1,391 6,741 4,693 543 5,236 Ancillary store rental income 70 16 86 57 30 87 -------------------------------------------------------------------------------------------------- Total Revenue 41,854 7,195 49,049 38,728 2,863 41,591 Direct store operating costs (excluding depreciation) (12,943) (4,274) (17,217) (12,471) (1,946) (14,417) Leasehold rent(2) (2,261) (43) (2,304) (2,206) - (2,206) -------------------------------------------------------------------------------------------------- Store EBITDA(3) 26,650 2,878 29,528 24,051 917 24,968 EBITDA Margin(4) 64% 40% 60% 62% 32% 60% Central overhead(5) (2,511) (503) (3,014) (2,324) (420) (2,744) -------------------------------------------------------------------------------------------------- Store Net Operating Income 24,139 2,375 26,514 21,727 497 22,224 NOI Margin 58% 33% 54% 56% 17% 53% -------------------------------------------------------------------------------------------------- Cumulative capital Â£m Â£m Â£m expenditure to 31 March 2007 140.5 81.9 222.4 to complete - 2.6 2.6 ---------------------------------------------------------------- Total cost 140.5 84.5 225.0 ---------------------------------------------------------------- (1) Packing materials, insurance and other storage related fees. (2) Rent for 9 short and one long leasehold property accounted for as investment properties and finance leases under IFRS with total self storage capacity of 595,000 sq ft. (3) Earnings before interest, tax, depreciation and amortisation. (4) Of stores open more than 2 years, 9 leaseholds achieved a store EBITDA of Â£6.7 million and EBITDA margin of 50%. 24 freeholds achieved a store EBITDA of Â£20.0 million and EBITDA margin of 71%. (5) Allocation of overhead based on 6% of estimated stabilised income. Big Yellow Group PLC Consolidated income statement Year ended 31 March 2007 Note 2007 2006 Â£'000 Â£'000 Revenue 3 51,248 41,889 Cost of sales (18,536) (15,519) ------------------------------------------------------------------------- Gross profit 32,712 26,370 Administrative expenses (5,645) (4,725) ------------------------------------------------------------------------- Operating profit before gains and losses on property assets 5 27,067 21,645 Gain on the revaluation of investment properties 13a 138,349 106,218 Losses on non-current assets 10 (1,078) (52) ------------------------------------------------------------------------- Operating profit 164,338 127,811 Investment income 7 1,250 135 Finance costs 8 (12,751) (9,399) ------------------------------------------------------------------------- Profit before taxation 152,837 118,547 Taxation 9 60,391 (35,112) ------------------------------------------------------------------------- Profit for the year (attributable to equity shareholders) 213,228 83,435 ========================================================================= Basic earnings per share 12 192.97p 82.10p ========================================================================= Diluted earnings per share 12 190.31p 80.47p ========================================================================= Adjusted earnings per share are shown in Note 12. All items in the income statement relate to continuing operations. Big Yellow Group PLC Consolidated balance sheet 31 March 2007 Note 2007 2006 Â£'000 Â£'000 Non-current assets Investment property 13a 590,060 410,470 Development property 13a 96,393 57,988 Interests in leasehold properties 13a 27,038 26,647 Plant, equipment and owner-occupied property 13b 3,170 3,036 Goodwill 13c 1,433 1,433 ------------------------------------------------------------------------ 718,094 499,574 ------------------------------------------------------------------------ Current assets Inventories 437 338 Trade and other receivables 15 6,982 6,009 Deferred tax asset 19. 650 - Cash and cash equivalents 2,110 14,193 Derivative financial instruments 17 512 - Non-current assets classified as held for sale 13d 18,227 6,300 ------------------------------------------------------------------------ 28,918 26,840 ------------------------------------------------------------------------ Total assets 747,012 526,414 ======================================================================== Current liabilities Trade and other payables 16 (25,586) (20,122) Derivative financial instruments 17 - (142) Obligations under finance leases 20 (2,306) (2,268) Current tax liabilities - REIT conversion charge 9 (11,997) - - Corporation tax liability (71) - ------------------------------------------------------------------------ (39,960) (22,532) ------------------------------------------------------------------------ Non-current liabilities Bank borrowings 18 (189,225) (155,608) Deferred tax liabilities 19 - (70,580) Obligations under finance leases 20 (24,732) (24,379) Other payables 16 (5,116) (8,996) ------------------------------------------------------------------------ (219,073) (259,563) ------------------------------------------------------------------------ Total liabilities (259,033) (282,095) ======================================================================== Net assets 487,979 244,319 ======================================================================== Equity Called up share capital 21 11,456 10,275 Share premium account 22 40,864 3,668 Reserves 22 435,659 230,376 ------------------------------------------------------------------------ Equity shareholders' funds 487,979 244,319 ======================================================================== Big Yellow Group PLC Consolidated statement of recognised income and expense Year ended 31 March 2007 2007 2006 Â£'000 Â£'000 --------------------------------------------------------------------- Current and deferred tax recognised in equity (1,230) 3,557 --------------------------------------------------------------------- Net (expense)/income recognised directly in equity for the year (1,230) 3,557 Profit for the year 213,228 83,435 --------------------------------------------------------------------- Total recognised income and expense for the period attributable to equity shareholders 211,998 86,992 ===================================================================== Big Yellow Group PLC Consolidated cash flow statement Year ended 31 March 2007 2007 2006 Â£'000 Â£'000 (restated) Operating profit 164,338 127,811 Gain on the revaluation of investment properties (138,349) (106,218) Losses on non current assets 1,078 52 Depreciation 1,349 1,288 Employee share options 336 220 Increase in inventories (99) (84) Increase in receivables (978) (825) Increase in payables 2,523 2,168 ----------------------------------------------------------------- Cash generated from operations 30,198 24,412 Interest paid (14,073) (9,422) Interest received 601 147 ----------------------------------------------------------------- Cash flows from operating activities 16,726 15,137 ----------------------------------------------------------------- Investing activities Sale of non-current assets 2,165 7,619 Purchase of non-current assets (96,007) (60,281) ----------------------------------------------------------------- Cash flows from investing activities (93,842) (52,662) ----------------------------------------------------------------- Financing activities Issue of share capital 38,377 1,480 Equity dividends paid (7,051) (3,541) Increase in borrowings 33,707 47,400 ----------------------------------------------------------------- Cash flows from financing activities 65,033 45,339 ----------------------------------------------------------------- Net (decrease)/increase in cash and cash equivalents (12,083) 7,814 Opening cash and cash equivalents 14,193 6,379 ----------------------------------------------------------------- Closing cash and cash equivalents 2,110 14,193 ================================================================= The prior year cash flow statement has been restated to reflect a revised treatment of finance lease payments. The effect of this restatement is to reduce the prior year increase in payables and reduce the purchase of non-current assets by Â£988,000. Big Yellow Group PLC Reconciliation of net cash flow to movement in net debt Year ended 31 March 2007 2007 2006 Â£'000 Â£'000 Net (decrease)/increase in cash and cash equivalents in the year (12,083) 7,814 Cash inflow from increase in debt financing (33,707) (47,400) ---------------------------------------------------------------------- Change in net debt resulting from cash flows (45,790) (39,586) ---------------------------------------------------------------------- Movement in net debt in the year (45,790) (39,586) Net debt at the start of the year (142,100) (102,514) ---------------------------------------------------------------------- Net debt at the end of the year (187,890) (142,100) ====================================================================== Big Yellow Group PLC Notes to the financial statements Year ended 31 March 2007 1. GENERAL INFORMATION Big Yellow Group PLC is a company incorporated in the Great Britain under the Companies Act 1985. The nature of the group's operations and its principal activities are set out in note 4 and in the business review. These financial statements are presented in pounds sterling because that is the currency of the economic environment in which the group operates. 2. BASIS OF PREPARATION The financial information set out above (which was approved by the Board on 18 May 2007) has been compiled in accordance with IFRS, but does not contain sufficient information to comply with IFRS. That financial information does not constitute the Company's statutory accounts for the year ended 31 March 2007 for the purpose of Section 240 of the Companies Act 1985 which comply with IFRS, but is extracted from those accounts. The Company's statutory accounts for the year ended 31 March 2007 will be filed with the Registrar of Companies following the Annual General Meeting. The independent auditors' report on those accounts was unqualified and did not contain any statement under Section 237(2) or (3) of the Companies Act 1985. The Company's statutory accounts for the year ended 31 March 2006 have been filed with the Registrar of Companies. The independent auditors' report on those accounts was unqualified and did not contain any statement under Section 237(2) or (3) of the Companies Act 1985. The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) adopted for use in the European Union and therefore comply with Article 4 of the EU IAS Regulation and with those parts of the Companies Act 1985 that are applicable to companies reporting under IFRS. The Group has applied all accounting standards and interpretations issued by the International Accounting Standards Board and International Financial Reporting Interpretations Committee relevant to its operations and effective for accounting periods beginning on 1April 2006. IFRS 7 Financial Instruments: Disclosures and IFRS 8 Operating Segments were in issue at the date of authorisation of the financial statements but not yet effective. IFRS 7 and IFRS 8 affect only disclosures and therefore have no material impact on the financial statements of the Group. The financial statements have been prepared using accounting policies which have been applied consistently throughout the year and the preceding year. 3. REVENUE Analysis of the Group's operating revenue and costs can be found below and in the Portfolio Summary. 2007 2007 2006 2006 Â£'000 Â£'000 Â£'000 Â£'000 Open stores Self storage income 42,222 36,268 Other storage related income 6,741 5,236 Ancillary store rental income 86 87 ------------------------------------------------------------------------------- 49,049 41,591 Stores under development Non-storage income 927 298 Surrender premiums received 1,172 - ------------------------------------------------------------------------------- 2,099 298 Franchise income Franchise fee received 100 - ------------------------------------------------------------------------------- 100 - ------------------------------------------------------------------------------- Total revenue 51,248 41,889 =============================================================================== The Group also received investment income of Â£1,250,000 in the year ended 31 March 2007 (2006: Â£135,000). 4. SEGMENTAL INFORMATION Revenue represents amounts derived from the provision of self storage accommodation and related services which fall within the Group's ordinary activities after deduction of trade discounts and value added tax. The Group's net assets, revenue and profit before tax are attributable to one activity, the provision of self storage accommodation and related services. These all arise in the United Kingdom, with the exception of Â£100,000 of income which arose in the Emirate of Dubai. 5. PROFIT FOR THE YEAR a) Profit for the year has been arrived at after: 2007 2006 Â£'000 Â£'000 Depreciation of plant and equipment 652 656 Finance lease depreciation 697 632 Increase in fair value of investment property (138,349) (106,218) Cost of inventories recognised as an expense 897 788 Employee costs (see note 6) 6,460 5,645 Operating lease rentals 57 135 Auditors' remuneration for audit services (see below) 138 140 ===================================================================== b) Analysis of auditors' remuneration: 2007 2006 Â£'000 Â£'000 Fees payable to the Company's auditors for the audit of the Company's annual accounts 128 130 Other services - audit of the Company's subsidiaries' annual accounts 10 10 --------------------------------------------------------------------- Total audit fees 138 140 ===================================================================== Tax services - advisory - 17 Other services - IFRS transition - 45 - REIT conversion 50 - - other 3 - --------------------------------------------------------------------- Total non-audit fees 191 202 ===================================================================== 6. EMPLOYEE COSTS The average monthly number of employees (including Executive Directors) was: 2007 2006 Number Number Sales 157 146 Administration 34 32 ------------------------------------------------------------------------------- 191 178 =============================================================================== At 31 March 2007 the total number of Group employees was 208 (2006: 185) Â£'000 Â£'000 Their aggregate remuneration comprised: Wages and salaries 5,266 4,678 Social security costs 638 544 Other pension costs 220 203 Share-based payments 336 220 ------------------------------------------------------------------------------- 6,460 5,645 =============================================================================== 7. INVESTMENT INCOME 2007 2006 Â£'000 Â£'000 Interest receivable on bank deposits 596 135 Change in fair value of interest rate derivatives 654 - ------------------------------------------------------------------------------- 1,250 135 =============================================================================== 8. FINANCE COSTS 2007 2006 Â£'000 Â£'000 Interest on bank borrowings 11,124 7,579 Other interest payable 20 26 Interest on obligations under finance leases 1,607 1,574 Change in fair value of interest rate derivatives - 220 ------------------------------------------------------------------------------- 12,751 9,399 =============================================================================== 9. TAXATION UK current tax 2007 2006 Â£'000 Â£'000 Current tax: - Current year 2,739 1,165 - Adjustment in respect of prior year - (32) - REIT conversion charge 11,997 - Deferred tax (see note 19): - Current year (75,127) 34,419 - Adjustment in respect of prior year - (440) ------------------------------------------------------------------------------- (60,391) 35,112 =============================================================================== A reconciliation of the tax charge is shown below: 2007 2006 Â£'000 Â£'000 Profit before tax 152,837 118,547 ------------------------------------------------------------------------------- Tax charge at 30% thereon 45,851 35,564 Effects of: Adjustment in respect of prior year - (472) REIT conversion charge 11,997 - Revaluation of investment properties post-REIT (18,596) - Revaluation of investment properties pre-REIT (22,908) - Permanent differences (1,308) 20 REIT conversion release of deferred tax (75,427) - ------------------------------------------------------------------------------- Total tax (credit)/charge (60,391) 35,112 =============================================================================== Analysis of deferred tax (credit)/charge 2007 2006 Â£'000 Â£'000 On share options - 2,554 Accelerated capital allowances (3,068) - On revaluations and disposals (72,059) 31,865 Credit in respect of prior years - (440) ------------------------------------------------------------------------------- Deferred tax (credit)/charge (75,127) 33,979 =============================================================================== In addition to the current year income statement tax charge of Â£2.7 million, there is a debit to reserves of Â£3.9 million in respect of the current tax deduction and the deferred tax arising on potential future deductions under Schedule 23. From 15 January 2007, the Group has REIT status. As a result the Group will no longer pay UK corporation tax on the profits and gains from qualifying rental business in the UK provided that it meets certain conditions. Non-qualifying profits and gains of the Group continue to be subject to corporation tax as normal. On entering the REIT regime a conversion charge equal to 2% of the aggregate market value of the properties associated with the qualifying rental business is payable. Deferred tax accrued at the date of conversion in respect of the assets and liabilities of the qualifying rental business has been released to the income statement, as the relevant timing differences will no longer be taxable when they reverse. 10. ADJUSTED PROFIT BEFORE TAX 2007 2006 Â£'000 Â£'000 Profit before tax 152,837 118,547 ------------------------------------------------------------------------------- Gain on revaluation of investment properties (138,349) (106,218) Change in fair value of interest rate derivatives (654) 220 Losses on non-current assets 1,078 52 Tenant surrender premium (1,172) - REIT conversion costs 493 - ------------------------------------------------------------------------------- Adjusted profit before tax 14,233 12,601 =============================================================================== Adjusted profit before tax which excludes gains on revaluation of investment properties, changes in fair value of interest rate derivatives, losses on non-current assets and non-recurring items of income and expenditure have been disclosed to give a clearer understanding of the Group's underlying trading performance. The loss on non-current assets in 2007 is comprised of a provision against non-current assets held for sale of Â£1.1 million (2006: Â£nil) and a Â£22,000 profit (2006: Â£52,000 loss) on disposal of other development sites. 11. DIVIDENDS 2007 2006 Â£'000 Â£'000 Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 March 2006 of 3.0p (2005: 1.5p) per share. 3,065 1,511 Interim dividend for the year ended 31 March 2007 of 3.5p (2006: 2.0p) per share. 3,986 2,030 ------------------------------------------------------------------------------- 7,051 3,541 Proposed final dividend for the year ended 31 March 2007 of 5.5p (2006: 3.0p) per share. 6,267 3,064 =============================================================================== The proposed final dividend are subject to approval by shareholders at the Annual General Meeting and have not been included as liabilities in these financial statements. The ex-dividend date will be 13 June; the record date 15 June; with an intended payment date of 18 July. 12. EARNINGS PER ORDINARY SHARE Year ended 31 March 2007 Year ended 31 March 2006 Earnings Shares Pence per Earnings Shares Pence per Â£m Million share Â£m Million share Basic 213.23 110.50 192.97 83.44 101.62 82.10 Adjustments: Dilutive share options 1.54 (2.66) 2.07 (1.63) ------------------------------------------------------------------------------------------ Diluted 213.23 112.04 190.31 83.44 103.69 80.47 ------------------------------------------------------------------------------------------ Adjustments: Gain on revaluation of investment properties (138.35) (123.48) (106.22) (102.44) Change in fair value of interest rate swaps (0.65) (0.58) 0.22 0.21 Losses on non-current assets 1.08 0.96 (0.05) (0.05) Tenant surrender premium (1.17) (1.04) - - REIT conversion costs 0.49 0.44 - - REIT conversion charge 12.00 10.71 - - Deferred tax (75.13) (67.06) 31.85 30.72 Tax effect of non- recurring items* (0.28) (0.25) (0.05) (0.05) ------------------------------------------------------------------------------------------ Adjusted 11.22 112.04 10.01 9.19 103.69 8.86 ------------------------------------------------------------------------------------------ * - this takes into account the tax effect of the change in fair value of derivatives, the losses on non-current assets, and the REIT conversion costs. The calculation of basic earnings is based on profit after tax for the year. The weighted average number of shares used to calculate diluted earnings per share has been adjusted for the conversion of share options. Adjusted earnings per ordinary share before non-recurring items, gains on revaluation of investment properties and on change in fair value of interest rate swaps and associated deferred tax balances, have been disclosed to give a clearer understanding of the Group's underlying trading performance. The prior year figures have been adjusted to include losses on non-current assets. These were not included in the prior year. ADJUSTED NET ASSETS PER SHARE Analysis of net asset value As at As at 31 March 2007 31 March 2006 Â£'000 Â£'000 Basic net asset value 487,979 244,319 Exercise of share options 3,345 5,839 --------------------------------------------------------------------------------- Diluted net asset value 491,324 250,158 --------------------------------------------------------------------------------- Adjustments: Deferred tax on revaluation - 72,059 Tax on fair value of interest rate swaps (154) 43 --------------------------------------------------------------------------------- Balance sheet adjusted net asset value 491,170 322,260 --------------------------------------------------------------------------------- Basic net assets per share (pence) 428.3 239.2 Diluted net assets per share (pence) 416.0 230.5 Balance sheet adjusted net assets per share (pence) 415.8 297.0 Balance sheet adjusted net asset value (as above) (Â£'000) 491,170 Valuation methodology assumption (see below) (Â£'000) 25,890 ------------------------------------------------------------------- Adjusted net asset value (Â£'000) 517,060 Adjusted net assets per share (pence) 437.8 * Shares in issue 114,559,534 102,752,607 Own shares held (615,000) (615,000) Basic shares in issue used for calculation 113,944,534 102,137,607 Exercise of share options 4,167,888 6,368,227 Diluted shares used for calculation 118,112,422 108,505,834 * There was no valuation carried out on the basis of a sale in a corporate structure at 31 March 2006. Net assets per share are shareholders' funds divided by the number of shares at the period end. The shares currently held in the Group's employee benefits trust (own shares held) are excluded from both net assets and the number of shares. Adjusted net assets per share include: â€¢ the effect of those shares issuable under employee share option schemes; â€¢ the effect of revised valuation methodology assumptions (see note 14); â€¢ deferred tax on the revaluation uplift on freehold and leasehold properties; and â€¢ tax on the fair value adjustment on interest rate swaps. 13. NON-CURRENT ASSETS a) Investment property, Development property and interests in leasehold properties Investment Development Interests in property property leasehold Â£'000 Â£'000 properties Â£'000 At 1 April 2005 275,230 36,076 25,659 Additions 16,839 37,976 804 Adjustment to present value - - 816 Reclassifications 12,183 (12,183) - Revaluation 106,218 - - Disposals - (3,881) - Depreciation - - (632) -------------------------------------------------------------------------------- At 31 March 2006 410,470 57,988 26,647 -------------------------------------------------------------------------------- Additions 2,115 77,531 - Adjustment to present value - - 1,088 Reclassifications 39,126 (39,126) - Revaluation 138,349 - - Depreciation - - (697) -------------------------------------------------------------------------------- At 31 March 2007 590,060 96,393 27,038 The income from self storage accommodation earned by the Group from its investment property is disclosed in note 3. Direct operating expenses arising on the investment property in the year are disclosed in the Portfolio Summary. Within the brought forward cost balance for development property is a provision of Â£675,000 against the cost of one of our development sites. b) Plant equipment and owner occupied property Freehold Leasehold Plant and Motor Fixtures, Total Property improvements machinery vehicles fittings Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 & office equipment Â£'000 Cost At 1 April 2005 - 37 389 19 2,833 3,278 Additions 1,770 (12) 62 - 563 2,383 Disposals - (8) - (19) - (27) --------------------------------------------------------------------------------- At 31 March 2006 1,770 17 451 - 3,396 5,634 Additions 26 - 112 - 648 786 --------------------------------------------------------------------------------- At 31 March 2007 1,796 17 563 - 4,044 6,420 --------------------------------------------------------------------------------- Depreciation At 1 April 2005 - (14) (114) (16) (1,820) (1,964) Charge for the year (6) (7) (44) (2) (597) (656) Disposals - 4 - 18 - 22 --------------------------------------------------------------------------------- At 31 March 2006 (6) (17) (158) - (2,417) (2,598) Charge for the year (44) - (57) - (551) (652) --------------------------------------------------------------------------------- At 31 March 2007 (50) (17) (215) - (2,968) (3,250) --------------------------------------------------------------------------------- Net book value At 31 March 2007 1,746 - 348 - 1,076 3,170 ================================================================================= At 31 March 2006 1,764 - 293 - 979 3,036 ================================================================================= c) Goodwill Goodwill relates to the purchase of Big Yellow Self Storage Company Limited in 1999. The asset is tested bi-annually for impairment. The carrying value of Â£1.4 million remains unchanged from the prior year as there is considered to be no impairment in the value of the asset. d) Non-current assets classified as held for sale The Group has land at three sites with a total historic cost of Â£19.3 million, which is carried at Â£18.2 million, after a provision for impairment of Â£1.1 million against a site. Land at these three sites is surplus to requirements and the Group intends to sell them within the next 12 months. The balance at 31 March 2006 was Â£6.3 million cost and carrying value. 14. VALUATIONS Deemed Valuation Revaluation cost on deemed cost Â£'000 Â£'000 Â£'000 Freehold Stores * As at 1 April 2006 151,985 349,400 197,415 Movement in period 40,966 172,020 131,054 ------------------------------------------------------------------------------- As at 31 March 2007 192,951 521,420 328,469 ------------------------------------------------------------------------------- Leasehold Stores As at 1 April 2006 18,288 61,070 42,782 Movement in period 275 7,570 7,295 ------------------------------------------------------------------------------- As at 31 March 2007 18,563 68,640 50,077 ------------------------------------------------------------------------------- All Stores As at 1 April 2006 170,273 410,470 240,197 Movement in period 41,241 179,590 138,349 ------------------------------------------------------------------------------- As at 31 March 2007 211,514 590,060 378,546 ------------------------------------------------------------------------------- * Includes one long leasehold property The freehold and leasehold investment properties have been valued as at 31 March 2007 by external valuers, Cushman & Wakefield, ("C&W"). The valuation has been carried out in accordance with the RICS Appraisal and Valuation Standards published by The Royal Institution of Chartered Surveyors ("the Red Book"). The valuation of each of the trading properties has been prepared on the basis of Market Value as a fully equipped operational entity, having regard to trading potential. The valuation has been provided for accounts purposes and as such, is a Regulated Purpose Valuation as defined in the Red Book. In compliance with the disclosure requirements of the Red Book, C&W have confirmed that: â€¢ The members of the RICS who have been the signatories to the valuations provided to the Group for the same purposes as this valuation have done so since September 2004. â€¢ C&W have continuously been carrying out this valuation for the same purposes as this valuation on behalf of the Group since September 2004. â€¢ C&W do not provide other significant professional or agency services to the Group. â€¢ In relation to the preceding financial year of C&W, the proportion of the total fees payable by the Group to the total fee income of the firm is less than 5%. Valuation methodology C&W have adopted different approaches for the valuation of the leasehold and freehold assets as follows: Freehold The valuation is based on a discounted cash flow of the net operating income 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 projected revenue received less projected operating costs together with a central administration charge representing 6% of the estimated annual revenue. The initial net operating income is calculated by estimating the net operating income in the first 12 months following the valuation date. B. The net operating income in future years is calculated assuming straight line absorption from day one actual occupancy to an estimated stabilised/ mature occupancy level. In the valuation the assumed stabilised occupancy level for the 43 stores (both freeholds and leaseholds) averages 86.06% (2006: 85.98%). The projected revenues and costs have been adjusted for estimated cost inflation and revenue growth. C. The capitalisation rates applied to existing and future net cash flow have been estimated by reference to underlying yields for industrial and retail warehouse property, bank base rates, ten year money rates, inflation and the available evidence of transactions in the sector. On average, for all 43 stores, the yield (net of purchaser's costs) arising from the first year of the projected cash flow is 5.24% (2006: 6.01%). This rises to 6.80% (2006: 7.49%) based on the projected cash flow for the first year following estimated stabilisation in respect of each property. D. The future net cash flow 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 10.19% (2006: 10.59%). E. Purchaser's costs of 5.75% (2006: 5.75%) (see below) have been assumed initially and sale plus purchaser's costs totalling 7.75% (2006: 7.75%) are assumed on the notional sales in the tenth year in relation to the freehold stores. Leasehold The same methodology has been used 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 of the group's leaseholds is 18.8 years (March 2006: 19.8 years). Change in valuation assumption for purchaser's costs The Group's investment property assets have been valued for the purposes of the financial statements after deducting notional purchaser's cost of 5.75% of gross value, as if they were sold directly as property assets. The valuation is an asset valuation which is entirely linked to the operating performance of the business. They would have to be sold with the benefit of operational contracts, employment contracts and customer contracts, which would be very difficult to achieve except in a corporate structure. We believe therefore that the valuation assumptions should be adjusted to reflect the reality. This approach follows the logic of the valuation methodology in that the valuation is based on a capitalisation of the net operating income after allowing a deduction for operational cost and an allowance for central administration costs. Sale in a corporate structure would result in a reduction in the assumed Stamp Duty Land Tax but an increase in other transaction costs reflecting additional due diligence resulting in a reduced notional purchaser's cost of 2.75% of gross value. All the significant sized transactions that have been concluded in the UK in recent years were completed in a corporate structure. We therefore instructed C&W to carry out a Red Book valuation on the above basis, and this results in a higher property valuation at 31 March 2007 of Â£615,950,000 (Â£25,890,000 higher than the value recorded in the financial statements or 21.9 pence per share). We have included this revised valuation in the adjusted diluted net asset calculation (see note 12). 15. TRADE AND OTHER RECEIVABLES 31 March 31 March 2007 2006 Â£'000 Â£'000 Trade receivables 1,449 1,042 Other receivables 267 284 Prepayments and accrued income 5,266 4,683 ----------------------------------------------------------- 6,982 6,009 =========================================================== Trade receivables are net of a bad debt provision of Â£53,000 (2006: Â£4,000). The Group does not offer credit terms to its customers and hence the Group is not exposed to significant credit risk. The Directors consider that the carrying amount of trade and other receivables approximates their fair value. 16. TRADE AND OTHER PAYABLES 31 March 31 March 2007 2006 Â£'000 Â£'000 Current Trade payables 5,283 4,835 Other payables 2,584 1,855 Accruals and deferred income 15,162 11,760 VAT repayable under Capital Goods Scheme 2,557 1,672 ------------------------------------------------------------------- 25,586 20,122 =================================================================== Non current VAT repayable under Capital Goods Scheme 5,116 8,996 =================================================================== The Directors consider the carrying amount of trade and other payables and accruals and deferred income approximates fair value. See note 18 for details of VAT repayable under Capital Good Scheme. 17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Interest rate swaps Interest rate swap contracts have been entered into to hedge the cash flow interest rate risk inherent in liabilities with an aggregate notional value of Â£20 million. These swaps ensure an average effective fixed rate payable of 5.03% until October 2007. Thereafter an effective fixed rate of 5.11% is payable to January 2010 on a notional value of Â£10 million. In addition to these, an interest rate collar contract has been entered into in order to hedge cash flow interest rate risk inherent in a notional liability (Â£50 million) which is dependent on 3 month LIBOR, until April 2010. The effective rate payable during the year was the equivalent to the 3 month LIBOR rate. The floating rate at 31 March 2007 on the Group's variable debt was 0.9% above three month LIBOR. The Group's policy on risk management is set out in the Business Review. The fair value of interest rate derivatives at 31 March 2007 was an asset of Â£512,000 (2006: liability of Â£142,000). 18. BANK BORROWINGS 31 March 31 March 2007 2006 Â£'000 Â£'000 Bank borrowings 190,000 156,293 Unamortised loan arrangement costs (775) (685) ------------------------------------------------------------------------------- 189,225 155,608 =============================================================================== The bank borrowings are secured via a first charge on 31 of the Group's properties and are subject to certain covenants. Maturity profile of bank borrowings 2007 2006 Financial Financial liabilities liabilities Â£'000 Â£'000 Within one year or on demand - - Between one and two years 190,000 - Between two and five years - 156,293 ------------------------------------------------------------------------------------ Bank borrowings 190,000 156,293 ==================================================================================== The Group has Â£35,000,000 in undrawn committed borrowing facilities at 31 March 2007 which expire between one and two years. Interest rate profile of financial liabilities Total Floating Fixed Weighted Period Weighted Â£'000 rate rate average for which average Â£'000 Â£'000 interest the rate period rate is fixed until maturity At 31 March 2007 Gross financial liabilities 190,000 170,000 20,000 6.3% 4.1 years 2.0 years ------------------------------------------------------------------------------------------ At 31 March 2006 Gross financial liabilities 156,293 120,000 36,293 5.7% 4.3 years 3.0 years ------------------------------------------------------------------------------------------ The floating rate at 31 March 2007 was 0.9% above three month LIBOR. All monetary liabilities, including short term debtors and creditors are denominated in sterling. The Director's estimate the fair value of the Group's borrowings and VAT payable under capital goods scheme as follows: 2007 2006 Carrying Estimated Carrying Estimated amount fair amount fair Â£'000 value Â£'000 value Â£'000 Â£'000 Bank borrowings 190,000 189,488 156,293 156,435 ================================================================================ VAT payable under capital goods scheme 7,673 6,680 10,668 8,921 ================================================================================ The fair values have been calculated by discounting expected cash flows at interest rates prevailing at the year end. Narrative disclosures on the group's policy for financial instruments are included within the Business Review. 19. DEFERRED TAX The movement and major deferred tax items are set out below: Revaluation Accelerated Deduction Other Total of capital for share investment allowances options properties Â£'000 Â£'000 Â£'000 Â£'000 Â£'000 At 31 March 2005 and 1 April 2005 40,194 1,424 (2,100) (492) 39,026 Recognised in income 31,865 2,250 (22) (114) 33,979 Recognised in equity - - (2,425) - (2,425) ------------------------------------------------------------------------------------- At 31 March 2006 72,059 3,674 (4,547) (606) 70,580 ===================================================================================== Recognised in income 22,908 127 - 439 23,474 Release of deferred tax provision (94,967) (3,801) - 167 (98,601) Recognised in equity - - 3,897 - 3,897 ------------------------------------------------------------------------------------- At 31 March 2007 - - (650) - (650) ===================================================================================== 20. OBLIGATIONS UNDER FINANCE LEASES Minimum lease Present value payments minimum of lease payments 2007 2006 2007 2006 Â£'000 Â£'000 Â£'000 Â£'000 Amounts payable under finance leases: Within one year 2,357 2,320 2,306 2,268 Within two to five years inclusive 9,468 9,079 8,025 7,637 Greater than five years 35,796 37,414 16,707 16,742 ------------------------------------------------------------------------------- 47,621 48,813 27,038 26,647 ------------------------------------------------------------------------------- Less: Future finance charges (20,583) (22,166) - - ------------------------------------------------------------------------------- Present value of lease obligations 27,038 26,647 27,038 26,647 =============================================================================== All lease obligations are denominated in sterling. The fair value of the Group's lease obligations approximates their carrying amount. 21. SHARE CAPITAL Authorised Called up, allotted and fully paid 2007 2006 2007 2006 Â£'000 Â£'000 Â£'000 Â£'000 Ordinary shares at 10 pence each 20,000 20,000 11,456 10,275 No. Movement in issued share capital Number of shares at 1 April 2005 100,725,537 Exercise of share options - Share option scheme 2,027,070 ------------------------------------------------------------------------------- Number of shares at 31 March 2006/1 April 2006 102,752,607 Issue of shares 9,100,000 Exercise of share options - Share option scheme 2,706,927 ------------------------------------------------------------------------------- Number of shares at 31 March 2007 114,559,534 =============================================================================== 21. SHARE CAPITAL (CONTINUED) At 31 March 2007 options in issue to Directors and employees were as follows: Date option Option price Date first Date on which Number of granted per ordinary exercisable the exercise ordinary share period expires shares 5 March 1999 25p 5 March 2002 5 March 2009 89,060 5 May 2000 100p 5 May 2003 4 May 2010 348,400 30 November 2000 137.5p 30 November 2003 29 November 2010 2,500 1 June 2001 125.5p 1 June 2004 31 May 2011 166,000 4 June 2001 131.5p 4 June 2004 4 June 2011 621,000 8 November 2001 98p 8 November 2004 7 November 2011 144,674 15 May 2002 102p 15 May 2005 14 May 2012 693,200 16 December 2002 81.5p 16 December 2005 15 December 2012 653,210 2 July 2003 82.5p 2 July 2006 1 July 2013 134,047 11 November 2003 96p 11 November 2006 10 November 2013 28,775 3 September 2004 107p* 3 September 2007 2 March 2008 132,720 27 September 2004 nil p** 27 September 2007 26 September 2014 138,000 22 December 2004 140p* 22 December 2007 21 June 2008 32,073 6 June 2005 Nil p** 6 June 2008 5 June 2015 443,332 21 July 2005 156p* 21 July 2008 20 January 2009 16,326 21 December 2005 225p* 21 December 2008 20 June 2009 12,796 9 June 2006 Nil p** 9 June 2009 8 June 2016 470,832 18 August 2006 347p* 18 August 2009 17 February 2010 24,716 12 March 2007 554p* 12 March 2010 11 September 2011 16,227 -------------------------------------------------------------------------------- 4,167,888 ================================================================================ * SAYE (see note 23) ** LTIP (see note 23) OWN SHARES 2007 2006 Â£ Â£ Balance at 1 April and 31 March 812 812 ============================================================================== The own shares reserve represents the cost of shares in Big Yellow Group PLC purchased in the market and held by the Big Yellow Group PLC Employee Benefit Trust to satisfy options under the Group's share options schemes. 22. MOVEMENTS IN EQUITY Group Share Share Capital Retained Own Total capital premium redemption earnings shares Â£'000 Â£'000 account reserve Â£'000 Â£'000 Â£'000 Â£'000 At 1 April 2005 10,073 2,390 1,653 145,864 (812) 159,168 Profit for the financial year - - - 83,435 - 83,435 Taxation - - - 3,557 - 3,557 Dividends - - - (3,541) - (3,541) Issue of shares 202 1,278 - - - 1,480 Share options - - - 220 - 220 -------------------------------------------------------------------------------- At 31 March 2006 10,275 3,668 1,653 229,535 (812) 244,319 Profit for the financial year - - - 213,228 - 213,228 Taxation - - - (1,230) - (1,230) Dividends - - - (7,051) - (7,051) Issue of shares 1,181 37,196 - - - 38,377 Share options - - - 336 - 336 -------------------------------------------------------------------------------- At 31 March 2007 11,456 40,864 1,653 434,818 (812) 487,979 ================================================================================ The capital redemption reserve arose on the buy back of the Company's shares in the years ended 31 March 2003 and 31 March 2004. The own shares balance is amounts held by the Employee Benefit Trust (see note 20). The Group's distributable reserves at 31 March 2007 were Â£56,272,000. 23. SHARE BASED PAYMENTS The Company has three equity share-based payment arrangements, namely approved and unapproved share option schemes, an LTIP scheme, and an Employee Share Save Scheme ("SAYE"). The Group recognised a total expense in the year related to equity-settled share-based payment transactions since 7 November 2002 of Â£0.3 million (2006: Â£0.2 million). Equity-settled share option plans The Group granted options to employees under Approved and Unapproved Inland Revenue Share option schemes between 16 November 1999 and 11 November 2003. The Group's scheme's provided for a grant price equal to the average quoted market price of the Group shares on the date of grant. The vesting period is three to ten years. If the options remain unexercised after a period of 10 years from the date of grant, the options expire. Furthermore, options are forfeited if the employee leaves the Group before the options vest. Since 3 September 2004 the Group has operated an Employee Share Save Scheme ("SAYE") which allows any employee who has more than six months service to purchase shares at a 20% discount to the average quoted market price of the group shares at the date of grant. The associated savings contracts are 3 years at which point the employee can exercise their option to purchase the shares or take the amount saved, including interest, in cash. The scheme is administered by Yorkshire Building Society. On 27 September 2004, 6 June 2005 and 9 June 2006 the Group awarded nil-paid options to senior management under the Group's Long Term Incentive Plan ("LTIP"). The awards are conditional on the achievement of challenging performance targets. Share option scheme "ESO" 2007 2007 2006 2006 No. of Weighted No. of Weighted Options average Options average exercise exercise price price (in Â£) (in Â£) Outstanding at beginning of year 5,592,936 1.00 7,658,295 0.93 Granted during the year - - 3,110 0.96 Forfeited during the year (14,861) 0.87 (40,941) 0.90 Exercised during the year (2,697,208) 0.98 (2,027,528) 0.73 -------------------------------------------------------------------------------- Outstanding at the end of the year 2,880,867 1.02 5,592,936 1.00 ================================================================================ Exercisable at the end of the year 2,880,867 1.02 5,112,525 1.00 ================================================================================ Options outstanding at 31 March 2007 had a weighted average contractual life of 4.7 years. 23. SHARE BASED PAYMENTS (CONTINUED) LTIP scheme 2007 2006 No. of No. of Options Options Outstanding at beginning of year 591,054 146,000 Granted during the year 470,832 493,332 Forfeited during the year - (48,278) Exercised during the year (9,722) - ------------------------------------------------------------------------------- Outstanding at the end of the year 1,052,164 591,054 =============================================================================== Exercisable at the end of the year - - =============================================================================== Options outstanding at 31 March 2007 had a weighted average contractual life of 8.5 years. Employee Share Save Scheme ("SAYE"). 2007 2007 2006 2006 No. of Weighted No. of Weighted Options average Options average exercise exercise price price (in Â£) (in Â£) Outstanding at beginning of year 206,237 1.24 206,034 1.12 Granted during the year 40,943 4.29 45,455 1.78 Forfeited during the year (11,072) 1.31 (45,252) 1.22 Exercised during the year (1,250) 1.07 - - -------------------------------------------------------------------------------- Outstanding at the end of the year 234,858 1.65 206,237 1.24 ================================================================================ Exercisable at the end of the year - - - - ================================================================================ Options outstanding at 31 March 2007 had a weighted average contractual life of 8.0 years. The inputs into the Black-Scholes model are as follows: ESO LTIP SAYE Expected volatility 25% 26% 27% Expected life 3 years 3 years 3 years Risk-free rate 4.7% 4.7% 4.7% Expected dividends 3.2% 3.2% 3.2% =============================================================================== Expected volatility was determined by calculating the historical volatility of the group's share price over the year prior to grant. 24. CAPITAL COMMITMENTS Amounts contracted but not provided in respect of the Group's properties were Â£17.2 million (2006: Â£7.2 million). 25. EVENTS AFTER THE BALANCE SHEET DATE Subsequent to the year end, the Group secured an extension to its banking facilities of Â£50 million, taking the total facilities available to Â£275 million. 26. RELATED PARTY TRANSACTIONS Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. On 12 July 2006, the Group raised Â£36.4 million by the placing of 9.1 million shares. David Ross, a non-executive Director of the Group acquired 1.5 million ordinary shares at 400 pence per share in the placing. No other related party transactions took place during the years ended 31 March 2007 and 31 March 2006. Five Year Summary IFRS UK GAAP 2007 2006 2005 2004 2003 Â£ Â£ Â£ Â£ Â£ Results Revenue 51,248 41,890 33,375 23,830 15,579 ====================================================================================== Operating profit/(loss) before gains and losses on property assets 27,067 21,645 15,030 4,719 (449) ====================================================================================== Profit/(loss) before taxation 152,837 118,547 42,836 1,243 (2,294) ====================================================================================== Adjusted profit before taxation 14,233 12,601 7,791 - - ====================================================================================== Declared total dividend per share 9.0p 5.0p 2.0p 1.05p 1p Key statistics Number of stores open 43 37 32 29 26 Square footage occupied 1,835,000 1,672,000 1,470,000 1,268,000 875,000 Number of customers 30,100 27,800 24,600 20,400 13,800 Average number of employees during the year 191 178 160 140 116 The amounts disclosed for 2004 and earlier periods are stated on the basis of UK GAAP because it is not practicable to restate amounts for periods prior to the date of transition to IFRS. This information is provided by RNS The company news service from the London Stock Exchange

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