Interim Results

RNS Number : 8285C

Lok'n Store Group PLC

22 April 2013

 



22^nd April 2013

LOK'NSTORE GROUP PLC

("Lok'nStore" or "the Group" or "the Company")

Interim Results for the six months to 31 January 2013

Financial Highlights

Revenue £6.55 million up 2.2% (six months to 31.01.2012: £6.41 million)

EBITDA* £2.1 million up 9.2% (six months to 31.01.2012: £1.93 million)

Operating profit £1.34 million up 36.2% (six months to 31.01.2012: £0.99 million)

Profit before tax £0.77 million up 64.2% (six months to 31.01.2012: £0.47 million)

Interim dividend 1.67 pence per share up 67% (Interim 2012: 1 penny per share)

*EBITDA is earnings before interest, taxation, depreciation, amortisation, share based payments and one-off professional costs

Operational Highlights

Self-storage revenue £5.62 million up 3.6% (six months to 31.01.2012: £5.42 million) 

Self-storage unit occupancy up 8.4%

Self-storage unit occupancy 60.4% of current lettable area (31.1.2012: 55.9%)

Store EBITDA £2.69 million up 7.8% (six months to 31.01.2012: £2.48 million)

Store EBITDA profit margins up to 48.3% (six months to 31.01.2012: 46.2%)

Significant benefits being seen from recent harmonisation of VAT across the sector

Property Highlights

New managed store in Crawley commenced trading in November 2012

Sale and manage back of Ashford store for 99% of valuation at £2.9 million in March 2013

Construction started at state of the art Maidenhead store - scheduled to open in late 2013

Aldershot store due to be opened in 2014

Key Metrics

Loan to value ratio 32.7%¹(31.01.2012: 31.9%)

Funds from operations² £1.73 million = 13.9 pence per share up 3% (31.01.2012: 13.5 pence per share)

Adjusted net asset value £2.30 per share up 2 pence since July 2012³ (31.01.2012: £2.30 per share)

¹ Calculation based on net debt of £26.2 million (31.01.12: £25.4 million) and total property value of £80.0 million (31.01.12: £79.5 million) as set out on page 5

² Funds from Operations ('FFO') calculated as EBITDA minus Net Finance Cost on operating assets

³ 31.1.2013 Adjusted NAV £2.31 per share on a like for like basis (after adjusting for 'fair value' liability of Interest rate swaps taken out during the year)

Commenting on the Group's results, Andrew Jacobs CEO of Lok'nStore Group said,

"Lok'nStore has traded very well during the period and the harmonisation of VAT across the UK self-storage sector has supported this growth. Activity levels across the portfolio have been excellent, reflected by our strong self-storage unit occupancy growth of 8.4% year-on-year. We expect this momentum to continue into the second half.

Revenue and occupancy growth from our existing stores, combined with the opening of the new Crawley, Maidenhead and Aldershot stores take us to 25 stores, and will provide continued impetus for our sales growth.

Lok'nStore is a low-risk, stable, income producing asset with built-in growth and the Board's confidence in the outlook for the Group is reflected in the increase in the interim dividend by 67%."

-Ends-

For further information:

Lok'nStore	Tel: [phone]
Andrew Jacobs, CEO
Ray Davies, Finance Director
FTI Consulting	Tel: [phone]
Billy Clegg/ Oliver Winters/ Latika Shah
Panmure Gordon & Co	Tel: [phone]
Dominic Morley/Fred Walsh

Chairman's Review

Strong Performance

We are pleased to report another set of strong results for Lok'nStore Group for the six months ended 31 January 2013. Self-storage revenues are up 3.6%, self-storage unit occupancy is up 8.4% and Group EBITDA is up 9.2% on the same period last year. With tight control over capital expenditure and operating costs, the Group's margins, operating profits and cash flow have all increased to record levels.

The new store in Crawley opened in November 2012. The development of the new Maidenhead store is now moving forward with its opening scheduled later in 2013.  With the new managed Aldershot store also opening in 2014 we have secured good momentum for our sales and earnings from a low-geared and secure balance sheet.

Sales Earnings and Occupancy Up

Revenue for the period was £6.55 million, up 2.2% year on year (31.1.2012: £6.41 million). Self-storage revenue for the period was £5.62 million up 3.6% (31.1.2012: £5.42 million). During the year overall occupancy increased by 6.1% while pricing decreased 1.9%, as a result of our well positioned offer and the harmonisation of VAT across the UK self-storage market.

The occupancy of the self-storage units increased 8.4% to 60.4% (31.1.2012: 55.9%) of current lettable area. 

We again managed to lower our operating costs, and thus increased the overall EBITDA margin across all stores from 46.2% to 48.3%. The EBITDA margins of the freehold stores increased to 60.6% (31.1.2012: 58.1%) and the leasehold store margins increased to 33.2% (31.1.2012: 30.7%).

Total store EBITDA in the self-storage business, a key performance indicator of profitability and cash flow, increased 7.8% to £2.69 million (31.1.2012: £2.50 million). Group operating profit for the year is up 36.2% to £1.34 million (31.1.2012: £0.99 million).

Basic earnings per share were 1.96 pence, up 72% (31.1.2012: 1.14 pence per share). Diluted earnings per share were 1.95 pence (31.1.2012: 1.13 pence per share).

Ancillary Sales

Ancillary sales which consist of boxes and packaging materials, insurance and other sales, increased 2.7% over the period accounting for 10.3% of self-storage revenues (31.1.2012: 10.3%). These ancillary sales are increasingly focused on insurance which increases the overall profit margin of these sales.

We continue to strongly promote our insurance to new customers with the result that over 89% of new customers purchased our insurance over the period.  This compares with 72% (31.1.2012: 69%) of our total customer base who take our insurance, and this difference provides us with an opportunity for built-in growth as our customer base turns over.

Sale and manage-back of Ashford store

After the period end on 28 March 2013, Lok'nStore completed the sale of its store in Ashford, Kent for £2.9 million in cash.

Lok'nStore will continue to manage the store as a branded Lok'nStore operation on behalf of the investor, and will receive a management fee, as well as an additional performance fee should the store beat certain targets or is ultimately sold. The sale and manage-back contract of the Ashford store will increase the number of Lok'nStore managed stores to four on behalf of three different clients.

We achieved a sale price equivalent to 99.3% of our latest Cushman & Wakefield valuation and the structure of the deal allows us to raise capital and grow our operating footprint without stretching our balance sheet or diluting our equity.

Dividend

Increasing cash flow, positive news on operational developments and security of funding prompted a re-evaluation of the dividend policy during 2012. Over past years we have maintained a steady dividend pay-out of one penny per share which was increased to 3 pence per share in 2011 and then to 5 pence per share last year. The interim dividend this year is to be increased by 67% to 1.67 pence and we will adopt a progressive forward looking dividend policy following this step change. It is intended that the Company's future dividend payments will reflect the growth in the underlying cash generated by the business and will be declared at the interim and final stage, the interim dividend representing approximately one-third of the total for the year.

The total estimated interim dividend in respect of the current financial period is £417,394 (31.1.2012: £249,936) based on the number of shares currently in issue as adjusted for shares held in the Employee Benefit Trust and for shares held on treasury.

VAT

From 1 October 2012 all UK self-storage facilities had to charge VAT on their services.

Unlike many operators in the self-storage industry who had disapplied VAT, Lok'nStore had always operated within the VAT regime and 'opted to tax' VAT on its storage services. Therefore this change had no direct impact on the Group or its customers.

However, most of our larger competitors were de-registered and are responding to this change either by increasing prices to help them absorb the tax or by reducing margins.  This clearly has and will continue to have a positive effect on Lok'nStore's competitive position as evidenced by the 8.4% increase in occupancy compared to the same period last year.

Appointment of Director

On 19 December 2012, Lok'nStore announced the appointment of Douglas Hampson as a Non-Executive Director of the Company. Douglas (66) joins the Board following his recent investment in the Company. He has spent over 30 years in the self-storage industry, having set up the first self-storage facility in Europe in 1980. Over the last 30 years Douglas has founded and sold a number of self-storage businesses and his extensive knowledge of founding, running and selling self-storage businesses will be a valuable addition to our Board. I am pleased to welcome Douglas to our Board.

During the period Ian Wright of Laxey Partners stood down from the Board following the sale of all of Laxey Partners holding in the Company.

Marketing

During the period our marketing efforts continued to focus on the internet which accounts for an increasing proportion of our enquiries. For this period, internet enquiries were up 96% year on year and total enquiries up 59% year on year. 

Internet marketing is a very dynamic area and we are committed to developing our presence in this market. We believe it provides a strong competitive advantage for the major operators with many stores like us over those with smaller operations. This is particularly important for our third party store management service as we are able to generate more enquiries from the website at a manageable cost than an individual operator can.

Despite the inexorable rise of internet marketing, around 35% (31.1.2012: 41%) of our customers still come from passing traffic and signage, so work on the visibility of our stores is also very important in our marketing effort. With their prominent positions, distinctive design and bright orange elevations, our stores raise the profile of the whole Lok'nStore brand.

Document storage business

Following the purchase of Saracen, a serviced document storage company, in 2011, Lok'nStore has now completed the integration of the back office systems as well as the marketing and HR functions. There are further property cost savings to be achieved in 2013 as the Saracen business consolidates its warehouse capacity. After this consolidation we will still have the capacity to double the number of boxes stored.

In line with our overall Company and Group values we have adopted a more customer friendly strategy by simplifying our billing structure and pre-agreeing price increases to give our customers more certainty. This investment has resulted in excellent customer feedback and puts us in a good position to win new business, but has resulted in a 5.5% dip in sales in the period. We believe this focus on a customer facing strategy will create long term value for customers and shareholders as our customer base grows.

Property and leases

At the period end we operated 21 of our own stores with capacity of around 1.1 million sq. ft. of storage space when fully fitted. 12 stores were held freehold or long leasehold and 9 were leasehold. Two further sites at Woking and Crawley are run under management contracts. With the managed store in Aldershot and the owned store in Maidenhead opening in the coming financial year, the stores under Lok'nStore's management will increase to 25.

At the period end the average length of the seven leases which were been valued at July 2012 is 14 years (31.1.2012: 14 years and 8 months).  Eight out of the nine of our leasehold stores are inside the Landlord and Tenant Act providing us with a strong security of tenure. The leasehold sites produced 31% of the store EBITDA in the period (31.01.2012: 30%).

Management Contracts:

Aldershot: In June 2012 Lok'nStore signed an agreement to develop and manage a new self-storage centre in Aldershot, Hampshire. Lok'nStore will contribute approximately £2.5 million of development funds of the estimated £4.5 million total cost of development of this brand new purpose-built store, and will manage the building and operation of the store. The other investors, including the original land owner, have invested the remaining £2 million. The property already has the benefit of a planning permission for a self-storage facility and we are currently working to improve and enhance the existing planning permission prior to commencement of construction works.  Lok'nStore will generate a return by receiving a return on its capital and by charging a management fee for the construction, operation and branding of the store

The store will be located in a prominent location on the main Aldershot roundabout above the A331 with significant levels of passing traffic, and is expected to commence trading in the first half of 2014.

Crawley: In July 2012, the Group signed an agreement to manage a new self-storage centre in Crawley, Sussex on behalf of an investor. The store opened in November 2012 and is located in a prominent location facing on to a busy roundabout on Gatwick Road in the centre of the Manor Royal business area. Lok'nStore is generating a return by charging a management fee with performance incentives.

Development Sites

Lok'nStore owns four development sites all with relevant planning permissions, two of which are for replacement stores at Reading and Southampton, and two are new locations in Maidenhead and Portsmouth North Harbour. We are now building the Maidenhead store and closely examining plans for moving forward at Reading. The Group has no immediate plans to progress development works at Portsmouth North Harbour and Southampton.

Maidenhead: This is a long leasehold site (the lease term runs until April 2076) of 1.6 acres. Lok'nStore is now building a new state of the art self-storage centre which provides space on the ground floor for a Lidl food store which is anticipated to increase the traffic by an estimated 1,000 cars a day. The new self-storage centre will have around 60,000 sq. ft. of self-storage space and is due to open in late 2013.

It is a highly visible site close to Maidenhead town centre and railway station and is very prominent to the retail park on the main road joining the town centre with the M4 motorway. The innovative financing of the scheme will require only a modest capital outlay from Lok'nStore and again allows us to continue to expand the Group's operating footprint without stretching the balance sheet. We believe Maidenhead is an excellent trading location, an affluent town right in the middle of our geographic coverage with little local competition. The town is also set to benefit from its position as the western terminal of Crossrail.

Reading: Lok'nStore has a planning permission for high-density residential development on the freehold site of its existing Reading store. This permission for 112 flats on the 0.66 hectare site was renewed on 4 October 2011 providing a further 3 years to execute on the project. 

The Group also has planning permission for a new 53,500 sq. ft. self-storage centre on its site opposite the existing store, an increase in space of 29%. On 16 November 2011 this planning permission was also renewed providing a further 3 years to execute on this project.  The existing business will be transferred to the new store when it is complete. The prominence and modern look of the new store with its distinctive orange livery will position Lok'nStore in a highly visible and easily accessible location adjacent to the A33 at the gateway to Reading.

Portfolio

These projects are part of our strategy of actively managing our operating portfolio to ensure we are maximising its value for shareholders. This includes strengthening our distinctive brand, increasing or decreasing the size and number of our stores, buying or selling our own freeholds, and moving or selling stores or sites when it will increase shareholder value. Our property team will continue to pursue further value creating asset management opportunities to secure our trading operations, to improve cash flow and to contain our property costs.

Property Assets and Net Asset Value

Lok'nStore's freehold and operating leasehold properties were independently valued by Cushman & Wakefield (C&W) at £67.9 million as of 31 July 2012 and this valuation has been adopted at the period-end. At 31 January 2013, adding our development sites and stores under development our total property portfolio valuation is £80.0 million (31.1.2012: £79.5 million).  This translates into an adjusted net asset value of £2.30 per share (31.1.2012: £2.30 per share). This rises to £2.31 per share on a like for like basis (after adjusting for the 'fair value' liability of interest rate swaps).

In due course the site of the existing Reading store is likely to be sold with the benefit of its permission for residential development and the proceeds will be reinvested in our new store. It is not the intention of the Directors to make any other significant disposals of operational self-storage centres, although individual disposals such as the sale of our Ashford store after the period-end may be considered where it is clear that added value can be created by recycling the capital into other opportunities.

Under IFRS the valuations of our freehold property assets are included in the Statement of Financial Position at their fair value, but the IFRS rules do not permit the inclusion of any valuation in respect of our leasehold stores to the extent that they are classified as operating leases. The value of our operating leases totals £11.8 million (31.1.2012: £12.3 million). Instead we have reported by way of a note the underlying value of these leasehold stores and adjusted our Net Asset Value ('NAV') calculation accordingly to include their value. This will ensure comparable NAV calculations.

Analysis of Total Property Value

	No of stores/sites	31 Jan 2013 £'000	No of stores/sites	31 Jan 2012 £'000	No of Stores/sites	31 July 2012  £'000
Freehold stores at valuation	12*	56,050	11**	55,670	12*	56,050
Leasehold at valuation	7	11,830	7	12,310	7	11,830
Subtotal	19	67,880	18	67,980	19	67,880
Sites in development at cost	4	12,133	4	11,605	4	11,850
Total	23***	80,013	22***	79,585	23	79,730

*               Includes the Swindon store previously held as leasehold (not previously valued by C&W) and now owned as a freehold

**             Includes the current Reading store at its trading store valuation. The Reading site with planning permission for a new store is stated at cost and is included in sites in development at cost

***            2 Leasehold stores were not valued (2012: two) as their remaining unexpired terms were insufficient to yield a value under the Cushman & Wakefield valuation methodology 

The Board will continue to commission independent valuations on its trading stores annually to coincide with its year-end reporting.

Adjusted Net Asset Value per Share

The adjusted net assets per share are the net assets of the Group's business adjusted for the valuation of leasehold stores and deferred tax, divided by the number of shares at the year-end. The shares currently held in the Group's employee benefits trust (own shares held) and in treasury are excluded from the number of shares.

Analysis of net asset value (NAV)	31 January 2013 £'000	31 January 2012 £'000	31 July 2012 £'000
Total non-current assets Adjustment to include leasehold stores at valuation Add: C & W leasehold valuation* Deduct: leasehold properties and their fixtures and fittings at NBV	76,921 11,830 (3,795)	76,568 12,310 (4,147)	76,903 11,830 (3,910)
	84,956	84,731	84,823
Add: current assets Less: current liabilities Less: borrowings Less: derivative financial instruments	5,888 (3,849) (29,259) (302)	5,077 (4,090) (28,159) -	5,956 (4,106) (29,223) (496)
	(27,522)	(27,172)	(27,869)
Adjusted net assets before deferred tax provision Deferred tax Deferred tax arising on revaluation of leasehold properties**	57,434 (10,469) (1,848)	57,559 (10,759) (2,041)	56,954 (10,073) (1,822)
Adjusted net assets	45,117	44,759	45,059
Shares in issue	Number '000	Number '000	Number '000
Opening shares Shares issued for the exercise of options	26,759 -	26,759 -	26,759 -
Closing shares in issue Shares held in treasury Shares held in EBT	26,759 (1,142) (623)	26,759 (1,142) (623)	26,759 (1,142) (623)
Closing shares for NAV purposes	24,994	24,994	24,994
Adjusted net asset value per share after deferred tax provision	£1.81	£1.78	£1.80
Adjusted net asset value per share before deferred tax provision	£2.30	£2.30	£2.28

* The seven leaseholds valued by Cushman & Wakefield are all within the terms of the Landlord and Tenant Act (1954) giving a high degree of security of tenure. The average length of the leases on the leasehold stores valued was 14 years at the period-end (31.01.2012 valuation: 14 years and 8 months).

** A deferred tax adjustment in respect of the uplift in the value of the leasehold properties has been included in the NAV calculation. Although this is a memorandum adjustment as leasehold properties are included in the Group's financial statements at cost and not at valuation, this deferred tax adjustment is included in the adjusted net asset value calculation in order to maintain a consistency of tax treatment between freehold and leasehold properties. 

Cash Flow and Financing

At 31 January 2013 the Group had cash balances of £3.5 million (31.1.2012: £3.2 million).

There was £29.7 million of gross borrowings (31.1.2012: £28.5million) representing gearing of 67.2% (31.1.2012: 65.8%) on net debt of £26.2 million (31.1.2012: £25.4 million). After adjusting for the uplift in value of leaseholds which are stated at depreciated historic cost in the statement of financial position, gearing is 55.7% (31.1.2012: 54.3%). After adjusting for the deferred tax liability carried at period-end of £10.5 million (31.01.2012: £10.8 million) gearing drops to 45.5% (31.1.2012: 44.2%).

Cash inflow from operating activities before investing and financing activities was £1.5 million up 25% on the comparative period last year (31.1.2012: £1.1 million). As well as using cash generated from operations to fund some capital expenditure, the Group has a five year revolving credit facility. This provides sufficient liquidity for the Group's current needs.  Undrawn committed facilities at the period-end amounted to £10.3 million (31.1.2012: £11.5 million).

Capital expenditure during the period totalled only £0.12 million with some modest expenditure at existing stores and in maximising the potential of the existing planning permissions. The Group has no further capital commitments beyond its £2.5 million development commitment at Aldershot and some minor works to existing properties.

Management of Interest Rate Risk

At 31 January 2013 Lok'nStore had £29.7 million drawn against its £40 million revolving credit facility. Of this facility £20 million is now at a fixed interest rate, with £10 million fixed at a 1 month sterling LIBOR rate of 1.2% plus margin and £10 million fixed at a 1 month sterling LIBOR rate of 1.15% plus margin. With 1 month LIBOR around 0.5%, this leaves a balance of £9.7 million floating at a current all-in rate of around 2.85% and results in an overall weighted average rate of 3.3%. No arrangement fees were incurred when fixing the rates. The hedging arrangements are treated as an effective cash flow hedge and the fair value of the interest rate swaps is stated as a derivative financial instrument liability.

Operating Costs

For the fifth year in a row we have again reduced our group operating costs for the period, (excluding cost of sales of retail products) down to £4.32 million for the period from the £4.35 million in the six months to 31.01.12. For the self-storage business operating costs amounted to £3.60 million for the period, a small decrease from the £3.62 million in the same period last year. We also reduced operating costs at Saracen by 1.5% compared to the same period last year. This highly disciplined approach to costs ensures that turnover growth we have achieved drops down to the bottom line.

As part of the development of the accounting and reporting systems we now report separately on the distribution costs specific to the Saracen business.

Group	Increase / decrease in costs %		Six months 31 January 2013 £'000		Six months 31 January 2012 £'000		Year 31 July 2012 £'000
Property costs	(1.5)		1,924		1,954		3,895
Staff costs	2.7		1,759		1,706		3,432
Overheads	(2.6)		552		602		1,048
Distribution costs	0.2		88		85		165
Total	(0.6)		4,323		4,347		8,540

Outlook

Lok'nStore is a strong business with a record of consistent profit growth and increasing cash generation. Revenue continues to grow against tightly controlled costs, and this together with the strong occupancy growth during the period provides continued momentum to EBITDA. Our innovative approach to financing new stores will enable us to grow our operating footprint to 25 stores by next year with limited capital expenditure, and the sale of our Ashford store at close to its recent valuation underlines the strength of the asset base.

The Board's confidence in the outlook for the business is demonstrated by the increase in the interim dividend by 67%.

Simon G Thomas

Chairman

19 April 2013

Consolidated Statement of Comprehensive Income

For the six months ended 31 January 2013

	Notes	Six months ended 31 January 2013 Unaudited £'000	Six months ended 31 January 2012 Unaudited £'000	Year ended 31 July 2012 Audited £'000
Revenue	1	6,550	6,407	12,765
Cost of sales of retail products		(124)	(133)	(251)
Property and premises costs		(1,924)	(1,954)	(3,895)
Staff costs		(1,759)	(1,706)	(3,432)
General overheads		(552)	(602)	(1,048)
Distribution		(88)	(85)	(165)
Total costs		(4,447)	(4,480)	(8,791)
EBITDA*		2,103	1,927	3,974
Amortisation of intangible assets		(83)	(83)	(165)
Depreciation based on historic cost		(477)	(679)	(1,304)
Additional depreciation based on revalued assets		(142)	(130)	(273)
		(702)	(892)	(1,742)
Loss on sale of motor vehicles		(14)	(3)	(4)
Equity settled share based payments		(46)	(46)	(92)
		(762)	(941)	(1,838,382)
Operating profit*		1,341	986	2,136
Professional fees **		-	(149)	(196)
Profit before interest		1,341	837	1,940
Finance income		16	8	15
Finance cost	3	(586)	(375)	(1,029)
Profit before taxation		771	470	926
Income tax expense	4	(270)	(175)	(155)
Profit for the financial period/year		501	295	771
Profit attributable to:
Owners of the parent		491	285	753
Non-controlling interest		10	10	18
		501	295	771
Other Comprehensive Income
Increase in property valuation		354	183	48
Deferred tax relating to decrease in property valuation		(81)	(46)	523
Change in fair value of cash flow hedges		194	-	(496)
Deferred tax relating to cash flow hedges		(45)	-	114
Other comprehensive income		422	137	189
Total comprehensive income for the period/year Attributable to:		923	432	960
Owners of the parent		913	422	942
Non-controlling interest		10	10	18
		923	432	960
Earnings per share
Basic	6	1.96p	1.14p	3.01p
Diluted	6	1.95p	1.13p	2.99p

* EBITDA and operating profit are defined in the accounting policies section of the notes to the interim financial statements.

** Professional fees are in respect of management contract set-up and bank loan refinancing

.

Consolidated Statement of Changes in Equity

For the six months ended 31 January 2013

	Share capital £'000	Share premium £'000	Other reserves £'000	Revaluation reserve £'000	Retained earnings £'000	Attributable to owners of the parent £'000	Non controlling interest £'000	Total equity £'000
1 August 2011	268	698	12,858	20,161	4,587	38,572	254	38,826
Profit for the period	-	-	-	-	285	285	10	295
Other comprehensive income:
Increase in asset valuation	-	-	-	183	-	183	-	183
Deferred tax relating to increase in asset valuation	-	-	-	(46)	-	(46)	-	(46)
	-	-	-	137	-	137	-	137
Total comprehensive income	-	-	-	137	285	422	10	432
Transactions with owners:
Dividend paid	-	-	(667)	-	-	(667)	-	(667)
Transfer additional dep'n on revaluation net of deferred tax	-	-	-	(97)	97	-	-	-
Equity share based payments	-	-	46	-	-	46	-	46
31 January 2012	268	698	12,237	20,201	4,969	38,373	264	38,637
Profit for the period	-	-	-	-	469	469	8	477
Other comprehensive income:
Decrease in property valuation	-	-	-	(135)	-	(135)	-	(135)
Deferred tax relating to Decrease in asset valuation	-	-	-	568	-	568	-	568
Decrease in fair value of cash flow hedges	-	-	(496)	-	-	(496)	-	(496)
Deferred tax relating to cash flow hedges	-	-	114	-	-	114	-	114
	-	-	(382)	433	-	51	-	51
Total comprehensive income	-	-	(382)	433	469	520	8	528
Transactions with owners:
Dividend paid	-	-	(250)	-	-	(250)	-	(250)
Transfer additional dep'n on revaluation net of deferred tax	-	-	-	(107)	107	-	-	-
Equity share based payments	-	-	46	-	-	46	-	46
1 August 2012	268	698	11,651	20,527	5,545	38,689	272	38,961
Profit for the period	-	-	-	-	491	491	10	501
Other comprehensive income:
Increase in property valuation	-	-	-	354	-	354	-	354
Deferred tax relating to increase in asset valuation	-	-	-	(81)	-	(81)	-	(81)
Decrease in fair value of cash flow hedges	-	-	194	-	-	194	-	194
Deferred tax relating to cash flow hedges	-	-	(45)	-	-	(45)	-	(45)
	-	-	149	273	-	422	-	422
Total comprehensive income	-	-	149	273	491	913	10	923
Transactions with owners:
Dividend paid	-	-	(1,000)	-	-	(1,000)	-	(1,000)
Transfer additional dep'n on revaluation net of deferred tax	-	-	-	(109)	109	-	-	-
Equity share based payments	-	-	46	-	-	46	-	46
31 January 2013	268	698	10,846	20,691	6,145	38,648	282	38,930

Consolidated Statement of Financial Position

At 31 January 2013

Company Registration No. 4007169

	Notes	31 January 2013 Unaudited £'000	31 January 2012 Unaudited £'000	31 July 2012 Audited £'000
Assets
Non-current assets
Intangible assets		4,170	4,336	4,253
Property, plant and equipment	7	69,289	69,261	69,470
Property lease premiums	8	3,462	2,971	3,180
		76,921	76,568	76,903
Current assets
Inventories		158	126	140
Trade and other receivables	9	2,194	1,788	1,855
Cash and cash equivalents		3,536	3,163	3,961
		5,888	5,077	5,956
Total assets		82,809	81,645	82,859
Liabilities
Current liabilities
Trade and other payables	10	(3,840)	(3,978)	(4,084)
Current tax liabilities		-	(73)	-
Borrowings	12a	(9)	(39)	(22)
		(3,849)	(4,090)	(4,106)
Non-current liabilities
Borrowings Derivative financial instruments Deferred tax	12a 12b 13	(29,259) (302) (10,469)	(28,159) - (10,759)	(29,223) (496) (10,073)
		(40,030)	(38,918)	(39,792)
Total liabilities		(43,879)	(43,008)	(43,898)
Net assets		38,930	38,637	38,961
Equity
Equity attributable to owners of the parent
Called up share capital	14	268	268	268
Share premium		698	698	698
Other reserves		10,846	12,237	11,651
Retained earnings		6,145	4,969	5,545
Revaluation reserve		20,691	20,201	20,527
Total equity attributable to owners of the parent		38,648	38,373	38,689
Non-controlling interests		282	264	272
Total equity		38,930	38,637	38,961

Approved by the Board of Directors and authorised for issue on 19 April 2013 and signed on its behalf by:

Andrew Jacobs	Ray Davies
Chief Executive Officer	Finance Director

Consolidated Statement of Cash Flows

For the six months ended 31 January 2013

	Notes	Six months ended January 2013 Unaudited £'000	Six months Ended January 2012 Unaudited £'000	Year ended 31 July 2012 Audited  £'000
Operating activities
Cash generated from operations	15a	1,485	1,119	3,143
Net cash from operating activities		1,485	1,119	3,143
Investing activities
Purchase of property, plant and equipment and property lease premiums		(404)	(754)	(2,074)
Proceeds from disposal of property, plant and equipment		23	10	10
Interest received		16	8	15
Net cash used in investing activities		(365)	(736)	(2,049)
Financing activities Proceeds from new borrowings Repayment of borrowings Arrangement fees - refinancing of group revolving credit facility		- - -	28,527 (28,089) (407)	29,681 (28,195) (555)
Finance costs paid		(545)	(362)	(926)
Equity dividends paid		(1,000)	(667)	(917)
Net cash used in financing activities		(1,545)	(999)	(912)
Net (decrease)/increase in cash and cash equivalents in the period/year		(425)	(616)	182
Cash and cash equivalents at beginning of the period/year		3,961	3,779	3,779
Cash and cash equivalents at end of the period/year		3,536	3,163	3,961

Accounting Policies

General Information

Lok'nStore plc is an AIM listed company incorporated and domiciled in England and Wales. The address of the registered office is One London Wall, London EC2Y 5AB, UK. Copies of the Annual Report and Accounts may be obtained from the Company's head office at 112 Hawley Lane, Farnborough, Hants, GU14 8JE, or the investor section of the Company's website at http://www.loknstore.com.

Basis of preparation

The interim results for the six months ended 31 January 2013 have been prepared on the basis of the accounting policies expected to be used in the 2013 Lok'nStore Group plc Annual Report and Accounts and in accordance with the recognition and measurement principles of International Financial Reporting Standards as adopted by the European Union ('EU') ('IFRS').

The same accounting policies, presentation and methods of computation are followed in these interim condensed set of financial statements as have been applied in the Group's latest annual audited financial statements.

The interim results, which were approved by the Directors on 20 April 2013, are unaudited.  The interim results do not constitute statutory financial statements within the meaning of section 434 of the Companies Act 2006.

Comparative figures for the year ended 31 July 2012 have been extracted from the statutory accounts for the Group for that period, which carried an unqualified audit report, did not include a reference to any matters to which the auditor drew attention by way of emphasis of matter, did not contain a statement under section 498(2) or (3) of the Companies Act 2006 and have been delivered to the Registrar of Companies.

Going concern

The Directors can report that, based on the Group's budgets and financial projections, they have satisfied themselves that the business is a going concern. The Board has a reasonable expectation that the Company and the Group have adequate resources and facilities to continue in operational existence for the foreseeable future based on Group cash balances and cash equivalents of £3.5 million (31.1.2012: £3.2 million), and undrawn committed bank facilities at 31 January 2013 of £10.3 million (31.1.2012: £11.5 million), and cash generated from operations in the period to 31 January 2013 of £1.5 million (31.1.2012: £1.1 million). The Group has a five year £40 million revolving credit facility with Lloyds TSB plc.  The facility has been in place since 20 October 2011 and runs until 19 October 2016. The Group is not obliged to make any repayments prior to expiration. The financial statements are therefore prepared on a going concern basis.

EBITDA

Earnings before interest, tax, depreciation and amortisation ('EBITDA'), is defined as profits from operations before all depreciation and amortisation charges, losses or profits on disposal, share-based payments, significant non-recurring professional fees, finance income, finance costs and taxation.

Store EBITDA

Store EBITDA is defined as EBITDA (see above) but before central and head office costs.

Operating profit

Operating profit is defined as profit after all costs except significant non-recurring professional fees, finance income, finance costs and taxation.

Critical accounting estimates and judgements

The preparation of consolidated financial statements under IFRS requires management to make estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual outcomes may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

a) Estimate of fair value of trading properties

The Group values its self-storage stores using a discounted cash flow methodology which is based on current and projected net operating income. Principal assumptions underlying management's estimation of the fair value are those relating to stabilised occupancy levels; expected future growth in storage rents and operating costs, maintenance requirements, capitalisation rates and discount rates. The carrying value of freehold properties held at valuation at the reporting date was £56.1 million (31.1.2012: £55.7 million).

b) Assets in the course of construction and land held for pipeline store development ('Development property assets')

The Group's development property assets are held in the statement of financial position at historic cost and are not valued externally. In acquiring sites for redevelopment into self-storage facilities, the Group estimates and makes judgements on the potential net lettable storage space that it can achieve in its planning negotiations, together with the time it will take to achieve maturity occupancy level. In addition, assumptions are made on the storage rent that can be achieved at the store by comparison with other stores within the portfolio and within the local area. These judgements, taken together with estimates of operating costs and the projected construction cost, allow the Group to calculate the potential net operating income at maturity, projected returns on capital invested and hence to support the purchase price of the site at acquisition. Following the acquisition, regular reviews are carried out taking into account the status of the planning negotiations, and revised construction costs or capacity of the new facility, for example, to make an assessment of the recoverable amount of the development property. The Group reviews all development property assets for impairment at each reporting date in the light of the results of these reviews.  Once a store is opened, it is valued as a trading store.

The carrying value of development property assets at the reporting date was £12.1 million (31.1.2012: £11.6 million) of which £3.5 million (31.1.2012: £3.0 million) relating to the long lease at Maidenhead is classified as a property lease premium and is shown separately in the statement of financial position. 

c) Estimate of fair value of intangible assets acquired in business combination

The relative size of the Group's intangible assets makes the judgements surrounding the estimated useful lives important to the Group's financial position and performance. At 31 January 2013, the carrying value of intangible assets, including goodwill, is £4.1 million (31.1.2012: £4.3 million).

The useful life used to amortise contractual customer relationship assets relates to the expected future performance of the assets acquired and management's judgement of the period over which economic benefit will be derived from the asset.  The estimated useful life of customer relationships of 20 years principally reflects management's view of the average economic life of the customer base and is assessed by reference to customer churn rates. Typically, the customer base for a serviced archive business is relatively inert. Corporate customers do not tend to switch service providers and indeed they incur box withdrawal charges should they do so. An increase in churn rates may lead to a reduction in the estimated useful life and an increase in the amortisation charge.

Notes to the Financial Statements

For the six months ended 31 January 2013

1              Revenue

Analysis of the Group's revenue is shown below:

	Six months ended 31 January 2013 Unaudited	Six months ended 31 January 2013 Unaudited	Year ended 31 July 2012 Audited
Stores trading	£'000	£'000	£'000
Self-storage revenue	4,963	4,814	9,550
Other storage related revenue	572	553	1,116
Management fees	40	10	20
Sub-total	5,575	5,379	10,686
Stores under development
Non-storage income	43	45	88
Sub-total	5,618	5,424	10,774
Serviced archive and records management revenue	932	983	1,991
Total revenue per statement of comprehensive income	6,550	6,407	12,765

2          Segmental information

IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Board to allocate resources to the segments and to assess their performance.

The Group has two operating segments, being the provision of self-storage accommodation and related services and the provision of serviced archive and record management services.

All of the Group's activities occur in the United Kingdom.

Financial information is reported to the Board with revenue and profit analysed between self-storage activity and serviced archive and records management activity.

Segment revenue comprises of sales to external customers and excludes gains arising on the disposal of assets and finance income. Segment profit reported to the Board represents the profit earned by each segment before acquisition costs and other non-recurring set-up costs, finance income, finance costs and tax.  For the purposes of assessing segment performance and for determining the allocation of resources between segments, the Board uses a measure of adjusted EBITDA (as defined in the accounting policies) and reviews the non-current assets attributable to each segment as well as the financial resources available. All assets are allocated to reportable segments.  Assets that are used jointly by segments are allocated to the individual segments on a basis of revenues earned.  All liabilities are allocated to individual segments other than borrowings and associated derivative financial instruments. Information is reported to the Board of Directors on a product basis as management believe that the activity of self-storage and the activity of serviced archive and records management expose the Group to differing levels of risk and rewards due to the length, nature, seasonality and  customer base  of their respective operating cycles.

The segment information for the period ended 31 January 2013 is as follows:

2012/2013	Self-storage Six months ended 31 January 2013 £'000	Serviced archive and records management Six months ended 31 January 2013 £'000	Total Six months ended 31 January 2013 £'000	Self-storage Year ended 31 July 2012 £'000	Serviced archive & records management Year ended 31 July 2012 £'000	Total Year ended 31 July 2012 £'000
Revenue from external customers	5,618	932	6,550	10,774	1,991	12,765
EBITDA Management charges	1,935 50	168 (50)	2,103 -	3,500 185	474 (185)	3,974 -
Adjusted EBITDA	1,985	118	2,103	3,685	289	3,974
Depreciation Amortisation of intangible assets Loss on disposal - motor vehicles	(568) - (7)	(51) (83) (7)	(619) (83) (14)	(1,498) - (4)	(79) (165) -	(1,577) (165) (4)
Equity settled share based payments	(46)	-	(46)	(92)	-	(92)
Segment profit/(loss)	1,364	(23)	1,341	2,091	45	2,136
Central costs not allocated to segments:
Professional fees - management contract set-up			-			(196)
Finance income			16			15
Finance costs			(586)			(1,029)
Profit before taxation			771			926
Income tax expense			(270)			(155)
Consolidated profit for the financial period/year			501			771

2011/2012	Self-storage Six months ended 31 January 2012 £'000	Serviced archive & records management Six months ended 31 January 2012 £'000	Total  Six months ended 31 January 2012 £'000	Self-storage Year ended 31 July 2011 £'000	Serviced archive & records management Year ended 31 July 2011 £'000	Total Year ended 31 July 2011 £'000
Revenue from external customers	5,424	983	6,407	10,702	144	10,846
EBITDA	1,721	206	1,927	3,325	(44)	3,281
Depreciation Amortisation Loss on sale - motor vehicle	(741) - (3)	(68) (83) -	(809) (83) (3)	(1,609) -	(7) -	(1,616) -
Equity share based payments	(46)	-	(46)	(100)	-	(100)
Segment profit/(loss)	931	55	986	1,616	(51)	1,565
Central costs not allocated to segments:
Acquisition costs Professional costs - bank loan refinancing			- (149)			(129) -
Finance income			8			24
Finance costs			(375)			(522)
Profit before taxation			470			938
Income tax expense			(175)			(52)
Consolidated profit for the financial period /year			295			886

Corporate transactions and the treasury function are managed centrally and therefore are not allocated to segments. Sales between segments are carried out at arm's length.

2012/2013	Self-storage Six months ended 31 January  2013 £'000	Serviced archive & records management Six months ended 31 January 2013 £'000	Total Six months ended 31 January 2013 £'000	Self-storage Year ended 31 July 2012 £'000	Serviced archive & records management Year ended 31 July 2012 £'000	Total Year ended  31 July 2012 £'000
Total assets	77,160	5,649	82,809	77,065	5,794	82,859
Segment liabilities	(13,339)	(970)	(14,309)	(13,089)	(1,068)	(14,157)
Borrowings (not allocated to segment liabilities) Derivative financial instruments (not allocated to segment liabilities)			(29,268) (302)			(29,245) (496)
Total liabilities			(43,879)			(43,898)
Capital expenditure	91	30	121	1,465	374	1,839

2011/2012	Self-storage Six months ended 31 January  2012 £'000	Serviced archive & records management Six months ended 31 January 2012 £'000	Total Six months ended 31 January 2012 £'000	Self-storage Year ended 31 July 2011 £'000	Serviced archive & records management Year ended 31 July 2011 £'000	Total Year ended 31 July 2011 £'000
Total assets	76,013	5,632	81,645	77,153	5,094	82,247
Segment liabilities	(13,923)	(887)	(14,810)	(14,504)	(767)	(15,271)
Borrowings (not allocated to segment liabilities)			(28,198)			(28,150)
Total liabilities			(43,008)			(43,421)
Capital expenditure	404	323	727	674	29	703

The amounts presented to the Board with respect to total assets and total liabilities are measured in a manner consistent with the financial statements and are allocated based on the operations of the segment. Borrowings are managed centrally on a Group basis and are therefore not allocated to segments.

3              Finance cost

	Six months ended 31 January 2013 Unaudited £'000	Six months  ended 31 January 2012 Unaudited £'000	Year ended 31 July 2012 Audited £ '000
Interest on bank borrowings	496	367	814
Non-utilisation fees and amortisation of bank loan arrangement fees	86	-	201
Finance leases and other interest	4	8	14
	586	375	1,029

4              Taxation

	Six months ended 31 January 2013 Unaudited £'000	Six months ended 31 January 2012 Unaudited £'000	Year ended 31 July 2012 Audited £'000
Current tax:
UK corporation tax at 23% (2012: 25%)	-	16	-
Deferred tax:
Origination and reversal of temporary differences	268	147	376
Impact of change in tax rate on closing balance	-	-	(351)
Adjustments in respect of prior periods	2	12	130
Total deferred tax	270	159	155
Income tax expense for the period/year	270	175	155

The charge for the year can be reconciled to the profit for the year as follows:

	Six months ended 31 January 2013 Unaudited £'000	Six months ended 31 January 2012 Unaudited £'000	Year ended 31 July 2012 Audited £'000
Profit before tax	771	470	926
Tax on ordinary activities at the standard rate of corporation tax in the UK of 23% (2012: 25%)	177	122	232
Expenses not deductible for tax purposes	3	3	18
Depreciation of non-qualifying assets	66	36	103
Share based payment charges in excess of corresponding tax deduction	11	12	22
Impact of change in tax rate	-	(10)	(351)
Amounts not recognised in deferred tax	11	-	-
Utilisation of loss against pre-acquisition profits	-	-	-
Adjustments in respect of prior periods - deferred tax Other	2 -	12 -	130 1
Income tax expense for the period/year	270	175	155
Effective tax rate	35%	37%	17%

5              Dividends

	Six months ended 31 January 2013 Unaudited £'000	Six months ended 31 January 2012 Unaudited £'000	Year ended 31 July 2012 Audited £'000
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 July 2011 (2.67 pence per share)	-	667	667
Interim dividend for the six months to 31 January 2012 (1.00 pence per share)	-	-	249
Final dividend for the year ended 31 July 2012 (4.0 pence per share)	1,000	-	-
	1,000	667	917

In respect of the current year the Directors propose that a dividend of 1.67 pence per share will be paid to the shareholders. The total estimated dividend to be paid is £417,394 based on the number of shares currently in issue as adjusted for shares held in the Employee Benefits Trust and for shares held on treasury. This interim dividend is an on-account payment of a final annual dividend and is ultimately subject to approval by shareholders at the 2013 Annual General Meeting and has not been included as a liability in these financial statements. The ex-dividend date will be 1 May 2013; the record date 3 May 2013; with an intended payment date of 10 June 2013.

6              Earnings per share

The calculations of earnings per share are based on the following profits and numbers of shares.

	Six months ended 31 January 2013 Unaudited £'000	Six months ended 31 January 2012 Unaudited £'000	Year ended 31 July 2012 Audited £'000
Profit for the financial period attributable to owners of the parent	491	285	753
	No. of shares	No. of shares	No. of shares
Weighted average number of shares
For basic earnings per share	24,993,653	24,993,653	24,993,653
Dilutive effect of share options*	231,735	137,375	186,893
For diluted earnings per share	25,225,388	25,131,028	25,180,546

623,212 (31.01.2012: 623,212) shares held in the Employee Benefit Trust and 1,142,000 (31.01.2012: 1,142,000) treasury shares are excluded from the above.

*Further options that could potentially dilute EPS in the future are excluded from the above because they are not dilutive in the period presented.

	Six months ended 31 January 2013 Unaudited	Six months ended 31 January 2012 Unaudited	Year ended 31 July 2012 Audited
Earnings per share
Basic	1.96p	1.14p	3.01p
Diluted	1.95p	1.13p	2.99p

7              Property, plant and equipment

Group	Development Property assets at cost £'000	Land and buildings at valuation £'000	Short leasehold improvements at cost £'000		Fixtures, fittings and equipment at cost £'000		Motor vehicles at cost £'000	Total £'000
Net book value at 31 July 2011	8,587	51,030	1,130	8,271		156		69,174
Net book value at 31 Jan 2012	8,634	51,267	1,095	8,132		133		69,261
Net book value at 31 July 2012	8,671	51,868	1,094	7,719		118		69,470
Cost or valuation
1 August 2012	8,671	51,868	2,514	16,379		217		79,649
Additions	-	4	30	87		-		121
Reclassification	-	-	-	-		-		-
Disposals	-	-	-	-		(70)		(70)
Revaluations	-	92	-	-		-		92
31 January 2013	8,671	51,964	2,544	16,466		147		79,792
Depreciation
1 August 2012	-	-	1,420	8,659		100		10,179
Charge for the period	-	262	44	304		9		619
Disposals	-	-	-	-		(33)		(33)
Revaluations		(262)	-	-		-		(262)
31 January 2013	-	-	1,464	8,963		76		10,503
Net book value at 31 January 2013	8,671	51,964	1,080	7,503		71		69,289

If all property, plant and equipment were stated at historic cost the carrying value would be £45.2 million (31.1.2012: £45.3 million).

Property, plant and equipment (non-current assets) with a carrying value of £69.3 million (31.1.2012: £69.5 million) are pledged as security for bank loans. The Maidenhead property (see note 8) is also pledged as security for the bank loans.

Market Valuation of Freehold and Operating Leasehold Land and Buildings

Following the comprehensive external valuation at 31 July 2012 by Cushman and Wakefield (C&W), the freehold and leasehold properties have not been externally valued at 31 January 2013, although in accordance with the Group's established policy it is the intention to do so at the next year end at 31 July 2013.  Although the Board did not commission an external valuation at this interim it is mindful of the need to accord with the measurement principles of International Financial Reporting Standards as adopted by the European Union. Accordingly after consultation with our external valuers, the Directors considered that there had not been a material movement in market yields and therefore no market yield shift assumption has been applied at 31 January 2013 to our properties externally valued at 31 July 2012.

8              Property lease premiums

£3.5 million of costs relating to the long lease at Maidenhead is classified as a non-current asset in the statement of financial position (31.1.2012: £3.2 million). This represents a lease premium paid on entering the lease and other related costs. The lease runs until 31 March 2076. A peppercorn rent is payable until 2027 and a market ground rent thereafter.

Group	Six months ended 31 January 2013 Unaudited £'000	Six months ended 31 January 2012 Unaudited £'000	Year ended 31 July 2012 Audited £'000
Balance at start of the period/year	3,180	2,944	2,944
Additions during the period/year	282	27	236
Balance at end of the period/year	3,462	2,971	3,180

9              Trade and other receivables

	31 January 2013 £'000	31 January 2012 £'000	31 July 2012 £'000
Trade receivables	1,212	1,130	1,225
Other receivables	484	166	163
Prepayments and accrued income	498	492	467
	2,194	1,788	1,855

The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

10           Trade and other payables

	31 January 2013 £'000	31 January 2012 £'000	31 July 2012 £'000
Trade payables	413	483	767
Taxation and social security costs	502	511	294
Other payables	921	888	911
Accruals and deferred income	2,004	2,096	2,112
	3,840	3,978	4,084

The Directors consider that the carrying amount of trade and other payables and accruals and deferred income approximates fair value.

11           Capital management and gearing

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debts, which includes the borrowings disclosed in note 15a, cash and cash equivalents and equity attributable to the owners of the parent, comprising issued capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in Equity. The Group's banking facilities require that management give regular consideration to interest rate hedging strategy. The Group has complied with this during the period.

The Group's Board reviews the capital structure on an on-going basis. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital. The Group seeks to have a conservative gearing ratio (the proportion of net debt to equity). The Board considers at each review the appropriateness of the current ratio in light of the above. The Board is currently satisfied with the Group's gearing ratio.

The gearing ratio at the year-end is as follows:

	31 January 2013 £'000	31 January 2012 £'000	31 July 2012 £'000
Debt	(29,691)	(28,576)	(29,708)
Cash and cash equivalents	3,536	3,163	3,961
Net debt	(26,155)	(25,413)	(25,747)
Statement of financial position equity	38,930	38,637	38,961
Net debt to equity ratio	67.2%	65.8%	66.1%

The modest increase in the Group's gearing ratio compared to 31 January 2012, arises through the combined effect of an increase in net debt arising from the purchase of the Swindon East property, and the requirement to provide for the liability arising on the fair value of the two interest rate swaps executed during May 2012.  Cash generated from operations partially offset the effect.

12a         Borrowings

	31 January 2013 £'000	31 January 2012 £'000	31 July 2012 £'000
Non-current
Bank loans repayable in more than two years
but not more than five years
Gross	29,682	28,527	29,682
Deferred financing costs	(423)	(378)	(463)
Net bank borrowings	29,259	28,149	29,219
Finance lease liabilities	-	10	4
Non-current borrowings	29,259	28,159	29,223
Current
Bank loans repayable in less than one year	-	-	-
Finance lease liabilities	9	39	22
Current borrowings	9	39	22
Total borrowings	29,268	28,198	29,245

The £40 million revolving credit facility with Lloyds TSB plc is secured by legal charges and debentures over the freehold and leasehold properties and other assets of the business with a net book value of £82.8 million (31.1.2012 £81.6 million) together with cross-company guarantees from Group companies. The revolving credit facility is for a five-year term and expires on 19 October 2016. The Group is not obliged to make any repayments prior to expiration. The loans bear interest at the London Inter-Bank Offer Rate (LIBOR) plus 2.35%-2.65% Lloyds TSB plc margin based on a loan to value covenant test while the interest cover and loan to value covenants are broadly in line with the previous facility.

12b         Derivative financial instruments

The Group entered into a £10 million interest rate swap as a cash flow hedge with Lloyds TSB Bank plc effective from 31 May 2012 at a fixed 1 month sterling LIBOR rate of 1.2%. The Group entered into a second £10 million interest rate swap with Lloyds TSB Bank plc also effective from 31 May 2012 at a fixed one-month sterling LIBOR rate of 1.15%. Both swaps run up to the expiration of the current banking facility in October 2016. The balance of the drawn facility of £9.7 million remains at a floating rate.

				Fair Value
	Currency	Principal £'000	Maturity date	31 Jan 2013 £'000	31 Jan 2012 £'000	31 July 2012 £'000
3032816LS   Interest rate swap	GBP	10,000	20/10/2016	(160)	-	(258)
3047549LS   Interest rate swap	GBP	10,000	20/10/2016	(142)	-	(238)
		20,000		(302)	-	(496)

The movement in fair value of the interest rate swaps of £193,916 has been recognised in other comprehensive income in the period.

13           Deferred tax

Deferred tax liability	31 January 2013 £'000	31 January 2012 £'000	31 July 2012 £'000
Liability at start of period/year	10,073	10,555	10,555
Charge to income for the year	270	158	154
Tax credited directly to other comprehensive income	126	46	(636)
Liability at end of year	10,469	10,759	10,073

The following are the major deferred tax liabilities and assets recognised by the Group and the movements during the year:

	Accelerated Capital Allowances £'000	Tax losses £'000	Intangible assets £'000	Other temporary differences £'000	Revaluation of properties £'000	Rolled over gain on disposal £'000	Total £'000
At 1 August 2011	1,307	(599)	827	24	6,721	2,275	10,555
Charge/ (credit) to income for the period	14	198	(21)	-	(33)	-	158
Charge / (credit) to other comprehensive income	-	-	-	-	46	-	46
At 31 January 2012	1,321	(401)	806	24	6,734	2,275	10,759
Charge/ (credit) to income for the period	113	169	(83)	(2)	(19)	(182)	(4)
Charge / (credit) to other comprehensive income	-	-	-	(114)	(568)	-	(682)
At 31 July 2012	1,434	(232)	723	(92)	6,147	2,093	10,073
Charge/ (credit) to income for the period	167	97	(19)	-	25	-	270
Charge / (credit) to other comprehensive income	-	-	-	45	81	-	126
At 31 January 2013	1,601	(135)	704	(47)	6,253	2,093	10,469

At the reporting date, the Group has unused revenue tax losses of approximately £0.9 million (31.1.2012: £1.8 million) available to carry forward against future profits of the same trade. A deferred tax asset of £0.1 million (31.1.2012: £0.4 million) has been recognised in respect of such losses. This asset offsets against the deferred tax liability position in respect of accelerated capital allowances and other temporary differences. The losses can be carried forward indefinitely.

A potential deferred tax asset of £58,792 (31.1.2012: £39,195) arises in respect of the share options in existence at 31 January 2013 but has not been recognised in the accounts. No deferred tax asset arises in relation to the remainder of the share options as at 31 January 2013 as the share price at the year-end is below the exercise price of the options.

The UK's main rate of corporation tax is expected to reduce to 23% from 1 April 2014 with a further reduction to 22% from 1 April 2014. Due to the difficulty of predicting the amount of capital expenditure over this period, it is not possible to accurately quantify the effect of the rate change on the deferred tax position over this period.

14           Share capital

			Called up,
			allotted and
			fully paid
		Number	£'000
Ordinary shares of 1p each at 31 January 2012, 31 July 2012 and 31 January 2013		26,758,865	268

The Company has one class of ordinary shares which carry no right to fixed income.

15           Cash flows

(a) Reconciliation of profit before tax to cash generated from operations

			Unaudited Six months ended 31 January 2013 £'000	Unaudited Six months ended 31 January 2012 £'000	Audited Year ended 31 July 2012 £'000
Profit before tax			771	470	926
Depreciation			619	809	1,577
Amortisation of intangible assets			83	83	165
Professional costs - refinancing of bank loan facility			-	149	-
Equity settled share based payments			46	46	92
Loss on sale of motor vehicles			14	3	4
Interest receivable			(16)	(8)	(15)
Interest payable			586	375	1,029
Increase in inventories			(18)	(16)	(30)
Increase/(decrease) in receivables			(339)	33	(34)
Decrease in payables			(261)	(825)	(571)
Cash generated from operations			1,485	1,119	3,143

(b) Reconciliation of net cash flow to movement in net debt

Net debt is defined as non-current and current borrowings less cash and cash equivalents.

			Unaudited Six months ended 31 January 2013 £'000	Unaudited Six months ended 31 January 2012 £'000	Audited Year ended 31 July 2012 £'000
(Decrease)/ increase in cash in the period/year			(425)	(615)	182
Change in net debt resulting from cash flows			17	(409)	(1,540)
Movement in net debt in period			(408)	(1,024)	(1,358)
Net debt brought forward			(25,747)	(24,389)	(24,389)
Net debt carried forward			(26,155)	(25,413)	(25,747)

16           Commitments under operating leases

At 31 January 2013 the total future minimum lease payments under non-cancellable operating leases were as follows:

The Group as a lessee:

The minimum lease payments under non-cancellable operating lease rentals are in aggregate as follows:

					Unaudited Six months ended	Unaudited Six months ended	Audited Six months ended
					31 January 2012	31 January 2012	31 July 2012
					£'000	£'000	£'000
Land and buildings
Amounts due:
Within one year					1,544	1,590	1,618
Between two and five years					5,735	5,920	6,090
After five years					10,266	7,642	6,087
					17,545	15,152	13,795

Operating lease payments represent rentals payable by the Group for certain of its properties.  Leases are negotiated for a typical term of 20 years and rentals are fixed for an average of five years.

17           Events after the reporting date

Sale and manage-back of Ashford store

On 28 March 2013, the Group completed the sale of its store in Ashford, Kent, to a fund run by Alpha Real Capital for £2.9 million in cash. The store was independently valued at £2.92 million at 31 July 2012 and made an EBITDA contribution of £221,724 in the last financial year.

Lok'nStore will continue to manage the store as a branded Lok'nStore operation on behalf of the investor, and will receive a monthly management fee, as well as an additional fee should the store outperform its targets or if the store is ultimately sold.

The proceeds of the sale will initially be used to reduce the Group's net debt but will be redrawn in due course as the capital is recycled into earnings enhancing projects, such as the new store in Aldershot due to open in Spring 2014.

18           Contingent Liability - Value added tax

As an ancillary activity, Lok'nStore acts as an intermediary in relation to supplies of exempt insurance to customers for which it receives a commission. In November 2007 Lok'nStore approached HMRC to request the implementation of a Partial Exemption Special Method (PESM).  Lok'nStore has maintained that the standard partial exemption method, i.e. one based on the values of the various different income streams, resulted in a wholly distortive restriction of input tax. Lok'nStore remains of the view that revenue is a poor proxy for the 'use' of the majority of the input tax incurred by Lok'nStore and, as a consequence, the standard method does not provide a fair result.

Current Dealings with HMRC

On 25 February 2008, HMRC determined that it was appropriate to raise an assessment in the amount of £140,903 in respect of Lok'nStore's partial exemption calculations, under the Standard Partial Exemption Method ("standard method") for the VAT periods April 2005 through April 2007. Lok'nStore rejected the basis of this assessment and has advanced a number of other proposals and arguments in a bid to resolve this dispute.  Following the formal rejection of the various proposals which were submitted for a PESM, a local review of the decision was requested which upheld the rejection of a PESM. This decision was appealed by Lok'nStore to the Tax Tribunal in September 2009. Counsel also confirmed that Lok'nStore should carry out a Standard Method Override Calculation ("SMO") and that this should be calculated on the same basis as the proposed mixed floor space and values based method.

Position at Period End  

The Tribunal Hearing took place in July 2012 to consider the matter and judgement was received in September in favour of Lok'nStore. The Judge found that while there was some link between overhead costs and the cost of insurance there was not a significant link and concluded that the standard method was not a fair proxy for use and went on to find that our proposed method gave a more accurate proxy for use and should be accepted.

HMRC will be allowed leave to appeal to the Upper Tribunal in respect of the First Tier Tribunal Judgement (FTT). It is appropriate, as in previous years, to update on the range of outcomes, on a worst case scenario, the overall liability in relation to input tax claimed up to the end of January 2013 which may become repayable to HMRC totals £435,749 (31.1.2012: £397,758) based on the standard method restriction. Of this £225,893 (31.1.2012: £208,579) relates to capital expenditure inputs and £209,856 (31.1.2012: £189,179) relates to income statement items. Interest would be added to both totals.  Alternatively, if our  floor-based special method is unchallenged by HMRC, this will give a restriction of less that 0.1%, in which case the total amount of VAT (plus interest) to be assessed by HMRC would on the figures above give a de minimus result.

It remains the Group's position to continue to report the position as a contingent liability until such time as HMRC's appeal is determined. However while that outcome at present remains uncertain it is not considered that any material provision is necessary.

Our Stores

Head office

Lok'nStore plc

112 Hawley Lane

Farnborough

Hampshire GU14 8JE

Tel   [phone]

www.loknstore.co.uk

www.loknstore.com              

Central Enquiries

0800 587 3322

[e-mail]

www.loknstore.co.uk

Ashford, Kent

Wotton Road

Ashford

Kent TN23 6LL

Tel   [phone]

Fax [phone]

[e-mail]

Basingstoke, Hampshire

Crockford Lane

Chineham

Basingstoke

Hampshire RG24 8NA

Tel   [phone]

Fax  [phone]

[e-mail] 

Crayford, Kent

Block B

Optima Park

Thames Road

Crayford

Kent DA1 4QX

Tel   [phone]

Fax [phone]

[e-mail]     

Eastbourne, East Sussex

Unit 4, Hawthorn Road

Eastbourne

East Sussex BN23 6QA

Tel   [phone]

Fax  [phone]

[e-mail] 

Fareham, Hampshire

26 + 27 Standard Way

Fareham Industrial Park

Fareham

Hampshire PO16 8XJ

Tel   [phone]

Fax  [phone]

[e-mail]      

Farnborough, Hampshire

112 Hawley Lane

Farnborough

Hampshire GU14 8JE

Tel   [phone]

Fax [phone]

[e-mail]               

Harlow, Essex

Unit 1 Dukes Park

Edinburgh Way

Harlow

Essex CM20 2GF

Tel   [phone]

Fax [phone]

[e-mail]

Horsham, West Sussex

Blatchford Road

Redkiln Estate

Horsham

West Sussex RH13 5QR

Tel   [phone]

Fax  [phone]

[e-mail]

Luton, Bedfordshire

27 Brunswick Street

Luton

Bedfordshire LU2 0HG

Tel   [phone]

Fax  [phone]

[e-mail]

Milton Keynes, Buckinghamshire

Etheridge Avenue

Brinklow

Milton Keynes

Buckinghamshire MK10 0BB

Tel   [phone]

Fax  [phone]

[e-mail]

Northampton Central

16 Quorn Way

Grafton Street Industrial Estate

Northampton NN1 2PN

Tel   [phone]

Fax [phone]

[e-mail]

Northampton Riverside

Units 1-4

Carousel Way

Northampton

Northamptonshire NN3 9HG

Tel   [phone]

Fax  [phone]

[e-mail]               

Poole, Dorset

50 Willis Way

Fleetsbridge

Poole

Dorset BH15 3SY

Tel   [phone]

Fax  [phone]

[e-mail]          

Portsmouth, Hampshire

Rudmore Square

Portsmouth PO2 8RT

Tel   [phone]

Fax  [phone]

[e-mail] 

Reading, Berkshire

5-9 Berkeley Avenue

Reading

Berkshire RG1 6EL

Tel   [phone]

Fax  [phone]

[e-mail]       

Southampton, Hampshire

Manor House Avenue

Millbrook

Southampton

Hampshire SO15 0LF

Tel   [phone]

Fax  [phone]

[e-mail]

Staines, Middlesex

The Causeway

Staines

Middlesex TW18 3AY

Tel   [phone]

Fax  [phone]

[e-mail]

Sunbury on Thames, Middlesex

Unit C, The Sunbury Centre

Hanworth Road

Sunbury

Middlesex TW16 5DA

Tel   [phone]

Fax  [phone]

[e-mail]

Swindon Kembrey Park, Wiltshire

Kembrey Street

Elgin Industrial Estate

Swindon

Wiltshire SN2 8UY

Tel   [phone]

Fax  [phone]

[e-mail]              

Swindon (West), Wiltshire

16-18 Caen View

Rushy Platt Industrial Estate

Swindon

Wiltshire SN5 8WQ

Tel   [phone]

Fax  [phone]

[e-mail]             

Tonbridge, Kent

Unit 6 Deacon Trading Estate

Vale Road

Tonbridge

Kent TN9 1SW

Tel   [phone]

Fax  [phone]

[e-mail]    

Development locations

Southampton, Hampshire

Third Avenue

Millbrook

Southampton

SO15 0JX

North Harbour, Port Solent, Hampshire

Southampton Road

Portsmouth

PO6 4RH

Maidenhead, Berkshire

Stafferton Way

Maidenhead

Berkshire

SL6 1AY

Reading, Berkshire

A33 Reading Relief Road

Reading

Berkshire

RG1 6EL

Managed stores

Aldershot, Hampshire

(Opening 2014)

251, Ash Road

Aldershot

GU12 4DD

Tel  [phone]

[e-mail]

Ashford, Kent (from 28 March 2013)

Wotton Road

Ashford

Kent TN23 6LL

Tel   [phone]

Fax [phone]

[e-mail]

Crawley, West Sussex

Sussex Manor Business Park

Gatwick Road

Crawley

RH10 9NH

Tel  [phone]

[e-mail]      

Woking

Marlborough Road

Woking

GU21 5JG

Tel   [phone]

Fax  [phone]

[e-mail]

 

END

 

 

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