Preliminary Results

RNS Number : 7155P

Lok'n Store Group PLC

29 October 2012

29^th October 2012

LOK'NSTORE GROUP PLC

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

Preliminary results

for the year ended 31 July 2012

Lok'nStore Group Plc, a leading company in the UK self-storage market announces results for the year ended 31 July 2012.

Financial Highlights

· Revenue £12.77 million up 18% (2011: £10.85 million)

· Group EBITDA £3.97million up 21% (2011: £3.28 million)

· Operating profit up 36% to £2.14 million (2011: £1.57 million)

· Profit before interest up 35% to £1.94 million (2011: £1.44 million)

· Annual dividend 5 pence per share up 67% (2011: 3 pence per share)

· Successful refinancing of £40 million bank facility with interest on £20 million of debt fixed at 3.525%

Operational Highlights

Self-storage:

· Store EBITDA £4.97million up 3% (2011: £4.85 million)

· Store EBITDA profit margins up 1 percentage point to 46.5% (2011: 45.5%)

· Ancillary sales up 6% year-to-year

Document storage: (business acquired on 30 June 2011)

· EBITDA profit £474,062 (2011: £43,493 loss)

Property Highlights

· Planning permission obtained for new Maidenhead store incorporating Lidl discount food retailer - to open 2013

· New management contract for a new store in Aldershot (construction and opening in 2013)

· Planning permissions renewed at Southampton, Portsmouth and both of our Reading sites

· Acquisition of Swindon freehold reducing rental cost

Post Balance Sheet

· Management contract on new Crawley store due to commence trading in Q4 2012

Key Metrics

· Loan to value ratio of 32.3%¹ (2011: 30.7%)

· Funds from operations ('FFO')² £3.24 million = 13.0 pence per share (2011: 12.0 pence per share)

· Adjusted NAV £2.28 per share ³ (2011: £2.29 per share)

¹ Calculation based on net debt of £25.7 million (2011: £24.4 million) and total property value of £79.7 million

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

³ 2012 Adjusted NAV £2.29 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,"This has been another year of very solid underlying trading for the Group, during which we have secured an attractive new bank facility and fixed the interest rate on the majorityof our current debt securing our funding costs at a historically low level.

At an operating level we have continued to demonstrate an innovative approach to asset management, enabling the Group to increase its operational footprint while maintaining a strong balance sheet. With further valuable planning permissions obtained and renewed and the opening of the Aldershot and Maidenhead stores scheduled for 2013, we are poised to move ahead strongly over the next couple of years. Our new document storage business has made a good contribution in its first full year.

The Board has decided to significantly increase the dividend to 5p for the full year, and it is intended that the Company's future dividend payments will reflect the growth in the underlying cash generated by the business.

We have a secure financial base, an excellent development pipeline and robust trading which gives the Board the confidence to propose this step change in the dividend".

Press Enquiries Andrew Jacobs, CEO	Lok'nStore	Tel: 01252 521010
Ray Davies, Finance Director	Lok'nStore
Billy Clegg/ Oliver Winters/ Latika Shah	FTI Consulting	Tel: 020 7831 3113
Dominic Morley/Fred Walsh	Panmure Gordon	Tel: 020 7886 2500

Chairman's Review

Strong Performance

We are pleased to report good results for Lok'nStore Group for the year ended 31 July 2012. The Group has again increased revenue and reduced operating costs in our self-storage business. Margins, operating profits and cash flow have all increased to record levels.

With another period of solid underlying trading and a significant contribution from our document storage business in its first year the Board is confident of the Group's trading outlook over the coming years.

The development of the new Maidenhead store is now moving forward, the Swindon East freehold has been acquired on favourable terms and a number of lease extensions and rent reductions have been agreed. Recently two more management contracts were signed for new stores in Aldershot and Crawley.

Your Board continues to focus on optimising the performance of the existing stores and sites within our existing portfolio, capital expenditure remains tightly controlled and interest costs have now been secured at a low level so cash flow continues to grow.

Our operational progress has been enhanced by the launch of our new state of the art website which is already performing very well.

Dividend

Increasing cash flow, positive news on operational developments and security of funding has prompted a re-evaluation of the dividend policy. Over the past few years we have maintained a steady, if modest dividend pay-out of one penny per share which was increased to 3 pence per share last year. The dividend this year is to be increased by 67% to 5 pence (a final dividend of 4 pence per share) 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.

New £40 million five year facility with Lloyds TSB plc

Underlining the strength of the cash flow and the asset base,the Group has signed a new five year £40 million revolving credit facility with Lloyds TSB plc during the year. Effective from 20 October 2011, the facility runs until 19 October 2016. The facility is flexible and does not require any amortisation prior to maturity. The loan currently bears interest at the London Inter-Bank Offer Rate (LIBOR) plus 2.35%. The interest cover and loan to value covenants are broadly in line with the previous facility.

The net interest charge in the coming year will rise to reflect the increase in the margin on this facility. Nevertheless the Group's margin of 2.35% already looks very attractive against the current market, and our all-in cost of funds of around 3.34% puts us in a very strong competitive position.

Additionally, over recent months Lok'nStore has fixed the interest rate on 70% of its debt at 3.525% creating even greater certainty on future funding costs. Since the middle of 2008 management has been aggressively managing down the interest payable and now feel it is appropriate to lock in to these historically low levels of interest.

During the year the Group complied with all banking covenants. At 31 July 2012, we had £10.3 million of the facility undrawn and £4.0 million of cash (2011: £3.8 million). This new banking facility allows us to plan with certainty for the next five year period. The details are explained in the Financial Review section of this Report.

VAT

In the Government's Annual Budget on 21 March 2012 the Chancellor announced proposals to correct certain anomalies in the VAT regime including in its application to self-storage. Previously some self-storage companies operated within the VAT regime while others were outside it. With effect from 1 October 2012 VAT was extended to include all self-storage operations.

Unlike many operators in the self-storage industry who have dis-applied VAT, Lok'nStore has always remained within the regime and 'opted to tax' VAT on its storage services. Therefore this change will have no direct impact on the Group or its customers. However most of our larger competitors who were de-registered 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.

New document storage business

Following the purchase of Saracen Datastore Limited, a serviced document storage company, on 30 June 2011, Lok'nStore has now consolidated the accounting and other back office systems at its Farnborough Head Office. Marketing and HR functions have also been integrated into Lok'nStore's head office structures. More details of progress achieved are explained in the Chief Executive's Operating Review.

Properties and Net Asset Value

The year-end property valuation equates to a total value of properties held of £79.7 million (2011: £79.5 million).

Your Board continues to examine Lok'nStore's property portfolio for asset management opportunities as demonstrated by its recent agreement to extend the term on another of the Group's leasehold stores, the fourth such transaction over the last two years. Our property team remains alert to the opportunities that can appear in the current unsettled property market and an update of the current property opportunities is set out in the Property Review and in Note 26, Events after the Reporting Date.

The new venture at Aldershot and the new store in Maidenhead are expected to commence trading in 2013. The managed store in Crawley will open this year. These will increase the number of stores we manage to 25 and will capitalise on our efficient operating systems and growing internet marketing presence. These agreements also demonstrate Lok'nStore's ability to attract investment partners and create innovative ownership to drive the growth of the operating business.

The UK self-storage market

In the UK self-storage market there are an estimated 815 self-storage facilities. This equates to approximately 29.6 million square feet of storage space. With a population of 62 million people in the UK, this equates to 0.5 square feet per person, compared to 7.4 square feet per person in the USA (2012 US Self-Storage Almanac) and 1.1 square feet per person in Australia (2011 Australasian Self-Storage Association).

The sector remains in good health, however new development has slowed down. The Drivers Jonas Deloitte 2012 report for the Self-Storage Association says "the total annual turnover for the UK self-storage industry in 2011 was £355 million from approximately 400 different operators, and they employed in excess of 2,000 staff (full time equivalent) in their self-storage facilities. Only 15% of operators intend to open a new facility in 2012 - down from 24% in 2011". Operators have paused their expansion plans whilst they concentrate on growing income from their existing outlets. This reduction in the rate of increased supply is beneficial to incumbent operators such as Lok'nStore, which is the fourth largest operator in the UK.

Environmental Performance

Since 2005 Lok'nStore has measured its environmental performance. We are proud of our success in this important area and some of the highlights of this year's environmental report are:

· Indirect greenhouse gas (GHG) emissions intensity now down 81% since 2005

· Total waste sent to landfill reduced for eighth successive year, now just a quarter of 2005 levels

· Total water use again reduced, now halved from 2005 levels with intensity down by 70%

For details please see our full environmental report in the Directors' Report.

Outlook

Lok'nStore is a strong business with a record of consistent profit growth and cash generation and has built a strong platform for the coming years. We will seek to continue to grow revenue against tightly controlled costs, and this will provide continued momentum to EBITDA. With Group EBITDA of £4.0 million up 21% on the previous year, the strength of the Group's business model has been proven. Increasing the annual dividend by 67% and initiating a progressive dividend policy shows the Board's confidence.

Our target is to continue to increase EBITDA per share over the coming years. We have carefully evaluated the opportunities and believe there is significant further growth focused on five key areas:

1. Developing new stores on a self-funded basis as at Reading and Maidenhead

2. Developing the other new sites we already own when appropriate

3. Opportunistic site acquisitions (as some banks look to reduce their exposure to property in the future)

4. Increasing the number of stores we manage for third parties

5. Building our document storage offering

These are growth opportunities where we have the operating experience to execute effectively and that we can fund from our existing cash flow and our new £40 million bank facility.

Lok'nStore's efficient operating business, strong cash flow, and secure asset base ensures it is well placed to grow and prosper over the coming years. We have a dedicated and dynamic executive management team which remains committed to working for the interest of all shareholders, and providing steady growth in the value of Lok'nStore.

Simon G Thomas

Chairman

26 October 2012

Chief Executive's Operating Review

Sales and Earnings Up, Costs Down

Revenue for the year was £12.77 million, up 18% year on year (2011: £10.85 million), which resulted from an improved performance from the self-storage business combined with the first substantial contribution from the acquisition of the document storage business.

With costs firmly under control this turnover growth translates into strong operating profit growth. Total store EBITDA in the self-storage business, a key performance indicator of profitability and cash flow, increased 3% to £4.97 million (2011: £4.85 million). Group operating profit for the year is up 36% to £2.14 million (2011: £1.57 million).

Performance of Self-Storage Centres

During the year occupancy increased by 2.9% while pricing decreased 1.5%. We again managed to lower costs increasing the overall EBITDA margin across all stores by 1 percentage point from 45.5% to 46.5%. The EBITDA margins of the freehold stores were 59.1% (2011: 58.8%) and the leasehold stores achieved margins of 30.8% (2011: 29.0%). The occupancy of the stores was up 2.9 percentage points to 58.3% (2011: 56.4%) of current lettable area.

At the end of July 2012 38.1% of Lok'nStore's revenue was from business customers (2011: 36.2%) and 61.9% was from household customers, (2011: 63.8%). By number of customers this breakdown was 22.4% business customers (2011: 22.5%) and 77.6% household customers (2011: 77.5%).

Operational Performance of owned Stores

Store analysis
Weeks old at 31 July 2012	Over 250	100-250	Under 100	Pipeline	Total
Year ended 31 July 2012
Revenue* (£'000)	9,976	782	-	-	10,758
Store EBITDA (£'000)	4,735	262	-	-	4,997
EBITDA margin (%)	47.5	33.5	-	-	46.5
As at 31 July 2012
Maximum Area ('000 sq. ft.)	979	111	-	121	1,211
Freehold and long leasehold ('000 sq. ft.)	602	69	-	121	792
Short leasehold ('000 sq. ft.)	377	42	-	-	419
Number of stores
Freehold and long leasehold	11	1	-	2	14
Short leasehold	8	1	-	-	9
Total stores	19	2	-	2	23

* In respect of the Farnborough store revenue includes a contribution receivable from Group Head Office in respect of the space and facilities the store provides for the Head Office function. This income to the store and the corresponding charge to Head Office is netted down in the Group revenue figures. Revenue from sites under development is excluded.

Ancillary Sales

Ancillary sales which consists of boxes and packaging materials, insurance and other sales, increased by 6.0% over the year (2011: 1.2%) accounting for 10.1% of self-storage revenues (2011: 9.9%). These ancillary sales are increasingly focused on insurance which increases the overall margin of these sales.

We continue to promote our insurance to new customers with the result that over 87% (2011: 86%) of new customers took our insurance over the year. This compares with 71% (2011: 68%) of our total customer base who buy our insurance, and this provides us with built-in growth in our insurance sales as our customer base turns over.

Marketing

During the year our marketing efforts were increasingly focused on the internet with approximately 2.7% of revenue spent on advertising and marketing (including postage, printing and stationery) (2011: 3.1%). The internet produces an increasing proportion of our enquiries (54% in the year) and printed directories a decreasing proportion. For this year, internet enquiries were up 71.5% year on year and total enquiries up 20.7%. We will continue to manage our marketing budget with a strong focus on cost control and value for money.

Despite the inexorable rise of internet marketing, around 43% (2011: 46%) of our business still comes 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 help raise the profile of the whole Lok'nStore brand.

Our store personnel are closely involved with sales and marketing initiatives and work with our head office team to ensure our marketing expenditure remains targeted and effective.

New Website

The internet is rapidly taking over as one of the main media channels for advertising and Lok'nStore is determined to respond to this change. Our new website at www.loknstore.co.uk was launched in the last week of February 2012 and for the year 54% of enquiries were from this source.

The new site has a much clearer navigation, making it easier for customers to find their way around the site and customers visiting the site are encouraged to book online to take advantage of our new online reservation system launched last year. We have also added a new "state of the art" space estimator to the site which is a key tool for customers booking online, enabling them to make an informed choice about the size of unit required.

This is a very dynamic area and we are committed to continued development. We believe the internet particularly provides a strong competitive advantage for the major operators with many stores and large marketing budgets compared with those of the smaller operators. This also creates a selling point for our third party store management services by driving much more traffic to the website than can an individual operator at a manageable cost.

Integration of our Document Storage Business

Lok'nStore has for some years earned around 10% of its revenue from self-serviced document storage, and we are keen to grow this stable and profitable area of the business. Following the purchase of Saracen Datastore Limited, a serviced document storage company, on 30 June 2011, we have broadened the offering to our customers delivering an excellent entry point to a wider market segment complementing Lok'nStore's existing self-storage activities. In its first full year the Saracen business added £2 million to Group revenue and £474,062 of EBITDA before inter-company management charges.

The integration of our new document storage business into our existing accounting and reporting systems is complete with the Lok'nStore Head office team having taken on most of the corporate and head office functions of Saracen including finance, marketing, HR & payroll. Our stores and head office are connected via a web-enabled system to deliver more automated and integrated processes and this has delivered cost efficiencies particularly in areas such as petty cash and expenses handling, as well as invoice processing and stock reporting and these are now also available to our document storage business.

There are further property cost savings to be targeted in 2013 as the Saracen business consolidates its warehouse capacity. As part of this strategy additions of £0.33 million were made in the current period to fixtures, fittings and equipment.

Security

The safety and security of our customers and their goods remains our highest priority. We invest in CCTV, intruder and fire alarm systems and the remote monitoring of our stores out of hours. Importantly all of our stores are manned during opening hours.

Corporate and Social Responsibilities

Lok'nStore conducts its business in a manner that reflects honesty, integrity and ethical conduct. We believe that the long-term success of the business is best served by respecting the interests of all our stakeholders. Management of social, environmental and ethical issues is of high importance to Lok'nStore. These issues are dealt with on a day-to-day basis by the Group's managers with principal accountability lying with the Board of Directors. We look for opportunities to address our responsibility to the environment, and we pay close attention to our energy use, carbon dioxide emissions, water use and waste production. Each year Lok'nStore commissions a full assessment of the Group's environmental impact and this is included elsewhere in the Director's Report.

Customers

We believe in clarity and transparency. Brochures and literature are written in plain English, explaining clearly our terms of business without hiding anything in the 'small print'. We are open and honest about our products and services and do not employ pressure selling techniques or attempt to take advantage of any vulnerable groups. If we make a mistake we acknowledge it, deal with the problem quickly, and learn from our error. We listen to our customers as we know that they can help us improve our service to them. In return, 33% (2011: 34%) of our business comes from previous customers, existing customers taking more space, and customer referrals.

Suppliers

We are committed to conducting our business with suppliers in a fair and honest manner, with openness and integrity, operating in accordance with the terms and conditions agreed upon. We expect our suppliers to operate to these same principles.

Employees

At 31 July 2012 we had 133 employees (2011: 128).

We treat our employees with dignity and respect and are committed to providing a positive attitude in the business and an enjoyable working environment. We have a professional, open culture where staff can exchange ideas and offer suggestions for work and business improvement. This encourages our staff to build on their skills, through appropriate training and regular performance review. Regular training courses at our Farnborough Head Office support these objectives where we have a large conference room which can accommodate all our training requirements for the foreseeable future. This reduces outgoings and increases and improves contact between Head Office and the stores by bringing staff into Head Office for their training. This in turn contributes to attracting and retaining the right people which is key to the success of Lok'nStore.

All employees are eligible to participate in share ownership plans. Lok'nStore operates a Share Incentive Plan with 71% of employees participating in the Scheme (2011: 73%). This high level of participation is testament to the loyalty and commitment of our staff. Our personnel are committed and motivated and help maintain the exemplary levels of friendly service that Lok'nStore provides to its customers. I would like to thank all of our staff for their commitment to our business and for their hard work and efforts over the year to which the Group owes its continuing success.

Andrew Jacobs

Chief Executive Officer

26 October 2012

Strong Cash Flows and Asset Base Underpin Opportunities

Lok'nStore's strong cash flow and tactical approach to its property portfolio provides the Group with opportunities to improve the terms of its property usage in all stages of the economic cycle. Lok'nStore has both freehold and leasehold properties, and manages stores for third parties.

On 31 July 2012, Lok'nStore acquired the freehold interest of its existing Swindon East store for a consideration of £925,000. This was financed by drawing on the Company's existing credit facility. The store has been trading since 2001 in leasehold premises which carried an annual rent payable of £108,050. There will be a corresponding £108,050 positive impact to the Company's EBITDA for the coming year. The implied yield at purchase of 11.7% is very attractive and with a current average cost of debt of just over 3% it will be immediately cash flow enhancing, increasing the financial strength of the Company while decreasing the operational gearing.

After this transaction 65% of Lok'nStore's own self-storage sq. ft. space is freehold and 35% is leasehold. Following the opening of 3 new stores over the coming year, Lok'nStore's self-storage business will be operating from 13 freehold sites, 9 leasehold sites and 3 managed stores.

Lower lease costs

Given the current property market weakness and Lok'nStore's strong covenant, some landlords are keen to extend lease terms providing them with greater security on their future income stream in return for rent-free periods, reduced rents and capped rent increases.

During the year we extended the lease on one of our existing stores while also reducing the rent and service charges. The agreement will extend the lease by up to ten years and will produce an annual saving of around £60,000 in rent and service charge over the coming five years, increasing the operating income of the store by approximately 25%.

The average length of the 7 leases which have been valued at the year-end is 14 years and 6 months, (2011: 15 years and 2 months). 8 out of the 9 of our leasehold stores are inside the Landlord and Tenant Act providing us with a strong security of tenure. The leasehold sites produced 30% of the store EBITDA in the year to July 2012 (2011: 28%).

Our property team will continue to pursue further value creating asset management opportunities to secure our trading operations, to improve cash flow and to reduce or cap our property costs.

Management Contracts

Aldershot: In June 2012, Lok'nStore signed an agreement to develop and manage a new self-storage centre in Aldershot, Hampshire. It is the second store management contract for the Company and will be the first store managed for outside investors under the Lok'nStore brand. Lok'nStore will contribute approximately £2.5 million of development funds of the estimated £4.5 million total cost of development, 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 will be held in a separate limited liability partnership. 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 2013.

Lok'nStore will generate a return by charging a management fee for the construction, operation and branding of the store. This project is consistent with Lok'nStore's strategy of expanding the operating footprint of the business while maintaining its strong balance sheet. The investors were attracted by Lok'nStore's strong track record and the tax benefits of investing in self-storage.

Crawley: In July 2012, the Group signed an agreement to manage a new self-storage centre in Crawley, Sussex on behalf of an investor. Completion of the transaction took place after the year-end on 10 August 2012. This new larger site follows the same investor's already successful store in Woking, Surrey which has been managed by Lok'nStore since 2007. It is the third store management contract for Lok'nStore.

Lok'nStore will manage the fit-out and the operation of the store under the Lok'nStore brand which will commence trading later in 2012. The store is located in a prominent location and faces on to a busy roundabout on Gatwick Road in the centre of the Manor Royal business area.

Lok'nStore will generate a return by charging the company a management fee with performance incentives.

Bottom of Form

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. All of these permissions have been renewed during the year. 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 for which we originally secured planning permission for a store of up to 83,000 sq. ft. of self-storage. Following discussions to improve the value of the property further we signed an agreement to share the site with Lidl subject to planning permission. Lok'nStore's application to build a new self-storage facility incorporating a Lidl store received planning consent on 29 December 2011.

Lok'nStore will now build a new state of the art self-storage centre which provides space on the ground floor for Lidl's food store. The new self-storage centre will have around 60,000 sq. ft. of self-storage space. Lidl will share the ground floor space with Lok'nStore's operation, increasing the traffic by an estimated 1,000 cars a day. Lok'nStore will occupy its share of the ground floor and the entirety of the three floors above. The store will open in 2013.

The site is 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 store will be of similar style and appearance to other recently opened Lok'nStore sites, with Lok'nStore's strong branding adding to the visual attractiveness of the site. This collaboration will increase the visual prominence, brand recognition, passing traffic and footfall of the storage centre which are key criteria for success.On completion of the new development Lok'nStore will manage 1,143,000 sq. ft. of lettable self-storage space over 23 stores.

The innovative financing of the scheme agreed with Lidl, will require only a modest capital input from Lok'nStore and so allows us to continue to expand the Group's operating footprint without stretching the balance sheet. This transaction is typical of the type of opportunity your Board is pursuing, and we believe validates our strategy of a prudent but active approach. We believe Maidenhead is an excellent location for us, 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: On 8 January 2008, Lok'nStore obtained planning permission for high-density residential development on the freehold site of its existing Reading store. The permission is for 112 flats on the 0.66 hectare site. On 4 October 2011 this planning permission was renewed providing a further 3 years to execute on this 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. When market circumstances are appropriate the site of the existing store will be sold with the benefit of its permission for residential development and the proceeds will largely fund the development of the new store. 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 and moving or selling stores or sites when it will increase shareholder value.

We currently own and operate 21 stores with capacity of around 1.1 million sq. ft. of storage space when fully fitted. Twelve stores are held freehold or long leasehold and nine are leasehold. One further store is run under a management contract. With Crawley, Aldershot and Maidenhead opening this coming financial year this will total 25 stores under Lok'nStore's management. With the un-developed freehold sites at Portsmouth North Harbour, and Southampton and Maidenhead total capacity of owned stores rises to around 1.2 million sq. ft. Of this 65% will be held freehold and 35% leasehold. By valuation 85% of the total property portfolio is freehold and 15% Leasehold. We prefer to acquire freeholds if possible, and where opportunities arise we will seek to acquire the freehold of our leasehold stores as we have done this year at Swindon. However we are happy to take leases on appropriate terms and benefit from the advantages of a lower entry cost, with further options to create value later in the store's development.

Property Assets and Net Asset Value

Lok'nStore's freehold and operating leasehold properties have been independently valued by C&W at £67.9 million as of 31 July 2012 (2011: £68.0 million) a decrease of 0.15%, compared to a historic cost value of £32.8 million (2011: £32.5 million). The increase in the freehold valuation not quite offsetting the amortised effect of the leasehold valuation (average lease length one year shorter compared to 2011). Property valuation is referred to further in the Financial Review and is detailed in note 11b of the notes to the financial statements. Adding our stores under development at cost, our total property valuation of £79.7 million (historic cost value £44.65 million) (2011: £79.5 million; historic cost value £44.08 million). This translates into an adjusted net asset value of £2.28 per share (2011: £2.29 per share).

The value of the freehold and operating leasehold properties of £67.9 million includes a valuation of £970,000 for the recently purchased freehold interest in our Swindon East store. Excluding the Swindon East store the total 2012 valuation of the portfolio decreased by 1.57% on a like for like basis compared to 2011.

Lok'nStore is committed to actively managing its portfolio and extracting further value from our prominently located development sites. The partnership with Lidl in Maidenhead and the Aldershot transactionboth of which are expected to commence trading in 2013 demonstrate our pioneering and committed approach to funding and developing new stores. Management contracts such as Aldershot and Crawley allow the Group to continue to expand the operating footprint of Lok'nStore while minimising capital outlay.

Andrew Jacobs

Chief Executive Officer

26 October 2012

Financial Review

Trading

Total revenue for the year grew to £12.77 million (2011: £10.85 million), an increase of 18%. Operating profit for the year increased to £2.14 million, up 36% (2011: £1.57 million) and pre-tax profit for the year was £926,133 (2011: £938,280). The pre-tax profit figure was held back after taking a higher finance cost charge resulting from the refinancing.

Self-storage revenue increased by 0.7% to £10.8 million (2011 £10.6 million). Self-storage EBITDA, before inter-company management charges, increased by 5.3% to £3.5 million (2011 £3.3 million).

A full years contribution of document storage revenue grew to £2.0 million (2011: £0.14 million - one month only). Document storage EBITDA, before inter-company management charges, grew to £0.47 million (2011: loss £43,493 - one month only).

There is no current corporation tax liability to pay due to the availability of tax losses. Tax losses available to carry forward for offset against future profits amount to £1.15 million.

Basic earnings per share were 2.94 pence (2011: 3.57 pence per share). Diluted earnings per share were 2.92 pence (2011: 3.54 pence per share).

New £40 million Five Year Bank Facility

The Group has signed a new five year £40 million revolving credit facility with Lloyds TSB plc underlining the strength of the cash flow and the assets of the business. 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 loan bears interest at the London Inter-Bank Offer Rate (LIBOR) plus 2.35% - 2.65% margin based on the loan to value (LTV) ratio. At Lok'nStore's current LTV level this is 2.35%. The interest cover and LTV to value covenants are broadly in line with the previous facility.

Over recent years LIBOR rates have remained at very low levels. Lok'nStore has managed its debt aggressively and the average interest rate paid since July 2011 was 2.33% compared to 1.84% for the year to 31 July 2011. However since this straddles the period of the new refinancing in October the prevailing interest rate on active loans as at 31 July 2012 is 2.91%. Therefore finance costs (including amortised arrangement fees and non-utilisation fees) for the year increased to £1,029,121 from £522,513 in 2011. Although the net interest charge in the coming year will rise to reflect a full-year charge based on the increase in the margin on this facility, nevertheless the Group's margin of 2.35% already looks very attractive against the current market, and our all-in cost of funds of around 3.34% puts us in a very strong competitive position.

Management of Interest Rate Risk

During the year LIBOR rates have been volatile and have been particularly sensitive to news flow (or lack of news flow) emanating from the EU. Following agreement of the new banking facility in October 2011, the Board's strategy has been to regularly review the Group's interest rate hedging position and to monitor prevailing LIBOR and swap rates with a view to fixing a significant proportion of its floating debt when the time was considered opportune. On 25 May 2012 the Group entered into a £10 million interest rate swap with Lloyds TSB Bank plc effective from 31 May 2012 at fixed 1 month sterling LIBOR rate of 1.2%. The swap fixes the interest rate on £10 million at an effective rate of 3.55% based on current 235 basis points (bps) margin up to the expiration of the current banking facility in October 2016. Also on 30 May 2012 the Group entered into a £10 million interest rate swap with Lloyds TSB Bank plc also effective from 31 May 2012 at fixed 1 month sterling LIBOR rate of 1.15%. Similarly this fixes a second tranche of £10 million at an effective rate of 3.5% based on current 235bps margin up to the expiration of the current banking facility in October 2016. Given the very low interest rate and the relatively small premium over our variable rate available on these swaps, the Board considered that it was a good time to lock in to these historically low interest rates. An effective interest rate of 3.525% on this portion of our debt protects our cash flow and demonstrates the Group's ability to secure market leading rates as a result of our financial strength and robust cash flow.

Lok'nStore has £29.7 million currently drawn against its £40 million revolving credit facility of which £20 million is now at a fixed interest rate. This leaves a balance of £9.7 million floating at a current all-in rate of around 2.95% and results in an overall weighted average rate of 3.34%. No arrangement fees were incurred when fixing the rates. The £20 million fixed rate is treated as an effective cash flow hedge and its fair value stated as a liability. (See Note 17b).

Operating Costs

Group operating costs (excluding cost of sales of retail products) amounted to £8.5 million for the year including a full year of post-acquisition expenses of Saracen Datastore Limited acquired on 30 June 2011. Excluding Saracen, operating costs (excluding cost of sales of retail products) amounted to £7.11 million for the year (2011: £7.17 million) a decrease of 0.8%.

Group	Increase in costs %	2012 £'000	2011 £'000
Property costs	13.4	3,895	3,434
Staff costs	19.5	3,432	2,871
Overheads	3.1	1,048	1,017
Distribution costs	993.0	165	15
Total	16.4	8,540	7,337
Lok'nStore Limited**	Increase /(Decrease) in costs %	2012 £'000	2011 £'000
Property costs	0.5	3,409	3,392
Staff costs	1.2	2,801	2,767
Overheads Distribution costs	(10.5) -	902 -	1,007 -
Total	(0.8)	7,112	7,166
Saracen Datastore Limited	Increase in costs %*	Full year to 31 July 2012 £'000	One month ended 31 July 2011 £'000
Property costs		486	42
Staff costs		631	104
Overheads Distribution costs		147 165	10 15
Total		1,429	171

* Saracen Datastore Limited comparison figures for 2011 are for a one month period only therefore no percentage increase is presented this year.

** Includes a total adjustment of (£1,503) for expenses relating to Southern Engineering and Machinery Company a wholly owned subsidiary which owns the Southampton development site.

Cash Flow, Interest and Financing

At 31 July 2012 the Group had cash balances of £4.0 million (2011: £3.8 million). Net debt increased from £24.4 million to £25.7million.

There was £29.7 million of gross borrowings (2011: £28.1 million) representing gearing of66.1% on net debt of £25.7 million (2011: 62.8%). After adjusting for the uplift in value of leaseholds which are stated at depreciated historic cost in the statement of financial position, gearing is 54.9% (2011: 52.1%). After adjusting for the deferred tax liability carried at year-end of £10.1 million gearing drops to 45.2% (2011: 42.5%).

Cash inflow from operating activities before investing and financing activities was £3.1 million(2011: £3.6 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 year-end amounted to £10.3 million (2011:£11.9 million).

From 1 August 2009 under IAS 23 ('Borrowing Costs') we are required to capitalise interest against our development pipeline in accordance with changes to International Financial Reporting Standards. The Group's date of adoption was 1 August 2009, (the first annual year commencing after the IAS 23 effective date of 1 January 2009). All of the Group's current qualifying assets predate the date of adoption and accordingly under the transitional adoption arrangements no borrowing costs have been capitalised against them in the year. A component of the interest cost incurred by the Group arises from the £11.9 million of development sites that the Group is currently carrying. The interest against this cost has not been capitalised but if it was the Group's adjusted profit would have been approximately £275,859 higher for the year (2011: £212,330) on the assumption that the £11.9 million is fully funded by borrowings.

By excluding the interest costs of carrying the development sites from the total net interest charge of £1,013,912 this means that the interest on the operating portfolio is £738,054 for the year. Funds from operations ('FFO') represented by EBITDA minus interest on the operating portfolio is therefore £3.24 million equating to 13 pence per share, up 8% on last year (2011: 12 pence per share).

The Group has grown its business through a combination of new site acquisition, existing store improvements and relocations, and has concentrated on extracting value from its existing assets and developing through collaborative projects and management contracts. Consequently, capital expenditure ("capex") during the year totalled only £1.8 million. This included some limited capex at existing stores, the purchase of the freehold interest in our Swindon East store, roof renovation with solar power at the Poole store and planning and other professional costs incurred in maximising the potential of the existing planning permissions. We also invested £0.3 million in further racking fit-out at the Saracen Olney warehouse. The Company has no further capital commitments beyond its £2.5 million development commitment at Aldershot and some minor works to existing properties.

Statement of Financial Position

Net assets at the year-end were £39.0 million (2011: £38.8 million). Freehold property values at 31 July 2012 were £56.1 million compared to £55.7 million at 31 July 2011. The total estimated final dividend to be paid in the current financial year is £999,746 (2011: £667,331) 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. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

Market Valuation of Freehold and Operating Leasehold Land and Buildings

Our twelve freehold properties are held in the statement of financial position at fair value, and have been valued externally by Cushman and Wakefield ("C&W"). Refer to note 11(b) - property, plant and equipment and also to the accounting policies for details of the fair value of trading properties. The leasehold stores are held as 'operating leases' and the valuations of these are not taken onto the statement of financial position. However seven of these have also been externally valued and these external valuations have been used to calculate the adjusted net asset value position of the Group.

On 31 July 2012 professional valuations were prepared by valuers C&W in respect of twelve freehold and seven operating leasehold properties. The valuation was prepared in accordance with RICS Appraisal and Valuation Standards Global and the UK 7^th Edition. The valuation has been provided for accounts purposes and, as such, is a Regulated Purpose Valuation as defined in the Red Book. The external valuation methodology provides for a purchaser acquiring a centre incurring purchase costs of 5.8% initially and sale plus purchaser's costs totalling 7.8% are assumed on the notional sales in the tenth year in relation to the freehold stores. In practice we believe that it is unlikely that the bulk of Lok'nStore's properties would be acquired other than in a corporate structure, in which case transaction costs would likely be lower (see note 11(b) in the notes to the financial statements for a more detailed description of the valuation methodology).

The valuation report indicates a total for properties valued of £67.9 million (NBV £32.8 million) (2011: £68.0 million: NBV £32.5 million). In relation to the existing store at Reading there is a prospect of redevelopment for residential use although it has been valued as a trading store. The valuations do not account for any further investment in existing stores since 31 July 2012. The development sites at Reading, Maidenhead, Portsmouth North Harbour and Southampton have not been valued and their asset value is stated at cost of £11.9 million which combined with the C&W valuation provides an aggregate property value of £79.7 million (2011: £79.5 million).

A deferred tax liability arises on the revaluation of the properties and on the rolled over gain arising from the disposal of the Kingston and Woking sites. It is not envisaged that any tax will become payable in the foreseeable future on these disposals due to the availability of rollover relief. 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 pipeline. It is not the intention of the Directors to make any other significant disposals of operational self-storage centres, although individual disposals may be considered where it is clear that added value can be created by recycling the capital into other opportunities.

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

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 in the valuation totals £11.8 million (2011: £12.3 million). Instead we have reported by way of a note the underlying value of these leasehold stores in future revaluations 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 July 2012 Valuation £'000	No of stores/sites	31 July 2011 Valuation £'000
Freehold valued by C & W	12**	56,050	11***	55,670
Leasehold valued by C & W	7	11,830	7	12,310
Subtotal	19	67,880	18	67,980
Sites in development at cost	4	11,850	4	11,532
Total	23	79,730	22*	79,512

* Two Leasehold stores were not valued (2011: three) as their remaining unexpired terms were insufficient to yield a value under the Cushman & Wakefield valuation methodology.

** 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.

Adjusted Net Asset Value per Share

Adjusted net assets per share is the net assets of the Group 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 July

2012

£'000

31 July

2011

£'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

76,903

11,830

(3,910)

76,537

12,310

(4,339)

84,823

84,508

Add: current assets

Less: current liabilities

Less: non-current liabilities (excluding deferred tax provision)

Less: derivative financial instruments

5,956

(4,106)

(29,223)

(496)

5,710

(32,839)

(26)

(27,869)

(27,155)

Adjusted net assets before deferred tax provision

Deferred tax

Deferred tax arising on revaluation of leasehold properties**

56,954

(10,073)

(1,822)

57,353

(10,555)

(1,993)

Adjusted net assets

45,059

44,805

Shares in issue

Number

Opening shares

Shares issued for the exercise of options

26,759

Closing shares in issue

Shares held in treasury

Shares held in EBT

26,759

(1,142)

(623)

26,759

(1,142)

(623)

Closing shares for NAV purposes

24,994

Adjusted net asset value per share after deferred tax provision

£1.80

£1.79

Adjusted net asset value per share before deferred tax provision

£2.28

£2.29

* The seven leaseholds valued by Cushman & Wakefield are all within the terms of the Landlord and Tenant Act (1954) giving a degree of security of tenure. The average length of the leases on the leasehold stores valued was 14 years and 6 months at the date of the 2012 valuation (2011 valuation: 15 years and 2 months).

** A deferred tax adjustment in respect of the uplift in the value of the leasehold properties has been included. 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.

Summary

Lok'nStore is a well controlled business which generates increasing cash flow from its strong asset base. Looking at interest rate risk, given the low prevailing rates and the small premium over our variable rate available on our executed swap, we felt that it is a good time to lock in to these historically low interest rates. An effective interest rate of 3.525% on this portion of our debt protects our cash flow and demonstrates our excellent relationship with our lenders and the Group's ability to secure market leading rates as a result of our financial strength and cash flow.

Ray Davies

Finance Director

26 October 2012

Consolidated Statement of Comprehensive Income

For the year ended 31 July 2012

	Notes	Year ended 31 July 2012 £'000	Year ended 31 July 2011 £'000
Revenue	1a	12,765	10,846


Cost of sales of retail products	2a	(251)	(228)
Property and premises costs	2b	(3,895)	(3,435)
Staff costs	2b	(3,432)	(2,885)
General overheads	2b	(1,048)	(1,017)
Distribution	2b	(165)	-
Total costs		(8,791)	(7,565)
EBITDA*		3,974	3,281
Amortisation of intangible assets		(165)	-
Depreciation based on historic cost		(1,304)	(1,354)
Additional depreciation based on revalued assets		(273)	(262)
		(1,742)	(1,616)
Loss on sale of motor vehicles		(4)	-
Equity settled share based payments	20	(92)	(100)
		(1,838)	(1,716)

Operating profit*		2,136	1,566
Professional and related costs - management contract set-up	2c	(196)	-
Professional costs - acquisition of Saracen Datastore Limited	2c	-	(129)
Profit before interest		1,940	1,437

Finance income	3	15	24
Finance cost	4	(1,029)	(523)

Profit before taxation	5	926	938
Income tax expense	7	(155)	(52)

Profit for the financial year		771	886

Profit attributable to:
Owners of the parent	22	753	892
Non-controlling interest		18	(6)

		771	886

Other Comprehensive Income

Increase / (decrease) in property valuation		48	(2,494)
Deferred tax relating to decrease in property valuation		523	1,216
Decrease in fair value of cash flow hedges		(496)	-
Deferred tax relating to cash flow hedges		114	-
Other comprehensive income		189	(1,278)
Total comprehensive income for the year Attributable to:		960	392
Owners of the parent		942	(386)
Non-controlling interest		18	(6)
		960	(392)

Earnings per share
Basic	9	3.01p	3.57p
Diluted	9	2.99p	3.54p

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

Consolidated Statement of Changes in Equity

For the year ended 31 July 2012

	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 2010	268	698	13,009	21,635	3,498	39,108	-	39,108

Profit/(loss) for the year	-	-	-	-	893	893	(6)	887

Other comprehensive income:
Decrease in property valuation	-	-	-	(2,494)	-	(2,494)	-	(2,494)

Deferred tax relating to decrease
in property valuation	-	-	-	1,216	-	1,216	-	1,216
Other comprehensive income	-	-	-	(1,278)	-	(1,278)	-	(1,278)
Total comprehensive income	-	-	-	(1,278)	893	(385)	(6)	(391)

Transactions with owners:
Non-controlling interest arising on
acquisition of subsidiary	-	-	-	-	-	-	260	260
Dividend paid	-	-	(250)	-	-	(250)	-	(250)
	-	-	(250)	-	-	(250)	260	10

Transfer additional dep'n on revaluation
net of deferred tax	-	-	-	(196)	196	-	-	-
Equity settled share based payments	-	-	99	-	-	99	-	99

31 July 2011	268	698	12,858	20,161	4,587	38,572	254	38,826

Profit for the year	-	-	-	-	753	753	18	771

Other comprehensive income:
Increase in property valuation	-	-	-	48	-	48	-	48

Deferred tax relating to increase
in property valuation	-	-	-	523	-	523	-	523
Decrease in fair value of cash flow hedges	-	-	(496)	-	-	(496)	-	(496)

Deferred tax relating to cash flow hedges	-	-	114	-	-	114	-	114
Other comprehensive income	-	-	(382)	571	-	189	-	189
Total comprehensive income	-	-	(382)	571	753	942	18	960

Transactions with owners:
Dividend paid	-	-	(917)	-	-	(917)	-	(917)
	-	-	(917)	-	-	(917)	-	(917)

Transfer additional dep'n on revaluation
net of deferred tax	-	-	-	(205)	205	-	-	-
Equity settled share based payments	-	-	92	-	-	92	-	92

31 July 2012	268	698	11,651	20,527	5,545	38,689	272	38,961

Company Statement of Changes in Equity

For the year ended 31 July 2012

	Share capital £'000	Share premium £'000	Retained deficit £'000	Other reserves £'000	Total £'000
1 August 2010	268	698	(169)	6,714	7,511

Loss for the year	-	-	(169)	-	(169)

Dividend paid	-	-	-	(250)	(250)
Total transactions with owners	-	-	-	(250)	(250)

Equity settled share based payments	-	-	-	99	99
31 July 2011	268	698	(338)	6,563	7,191

Loss for the year	-	-	(194)	-	(194)

Dividend paid	-	-	-	(917)	(917)

Equity settled share based payments	-	-	-	92	92
31 July 2012	268	698	(532)	5,738	6,172

Statements of Financial Position

31 July 2012

Company Registration No. 4007169

	Notes	Group 31 July 2012 £'000	Group 31 July 2011 £'000	Company 31 July 2012 £'000	Company 31 July 2011 £'000
Assets
Non-current assets
Intangible assets	11a	4,253	4,419	-	-
Property, plant and equipment	11b	69,470	69,174	-	-
Property lease premiums	11c	3,180	2,944	-	-
Investments	12	-	-	1,682	1,590
Amounts due from subsidiary undertakings	27	-	-	4,490	5,601
		76,903	76,537	6,172	7,191
Current assets
Inventories	13	140	110	-	-
Trade and other receivables	14	1,855	1,821	-	-
Cash and cash equivalents		3,961	3,779	-	-

		5,956	5,710	-	-
Total assets		82,859	82,247	6,172	7,191

Liabilities
Current liabilities
Trade and other payables	15	(4,084)	(4,656)	-	-
Current tax liabilities	7	-	(60)	-	-
Borrowings	17	(22)	(28,124)	-	-

		(4,106)	(32,840)	-	-

Non-current liabilities
Borrowings Derivative financial instruments Deferred tax	17a 17b 18	(29,223) (496) (10,073)	(26) - (10,555)	- - -	- - -

		(39,792)	(10,581)	-	-

Total liabilities		(43,898)	(43,421)	-	-
Net assets		38,961	38,826	6,172	7,191


Equity
Equity attributable to owners of the parent
Called up share capital	19	268	268	268	268
Share premium		698	698	698	698
Other reserves	21	11,651	12,858	5,738	6,563
Retained earnings / (deficit)	22	5,545	4,587	(532)	(338)
Revaluation reserve		20,527	20,161	-	-
Total equity attributable to owners of the parent		38,689	38,572	6,172	7,191
Non-controlling interests		272	254	-	-

Total equity		38,961	38,826	6,172	7,191

Approved by the Board of Directors and authorised for issue on 26 October 2012 and signed on its behalf by:

Andrew Jacobs Ray Davies

Chief Executive Officer Finance Director

Consolidated Statement of Cash Flows

For the year ended 31 July 2012

	Notes	Year ended 31 July 2012 £'000	Year ended 31 July 2011 £'000
Operating activities
Cash generated from operations	24a	3,143	3,600

Net cash from operating activities		3,143	3,600
Investing activities
Purchase of property, plant and equipment and property lease premiums		(2,074)	(787)
Acquisition of subsidiary (net of cash acquired)	10	-	(3,563)
Proceeds from disposal of property, plant and equipment		10	-
Interest received		15	24
Net cash used in investing activities		(2,049)	(4,326)
Financing activities Proceeds from new borrowings Repayment of borrowings Arrangement fees - refinancing of group revolving credit facility		29,681 (28,195) (555)	- - -
Repayment of borrowings - subsidiary bank loan		-	(39)
Finance costs paid		(926)	(570)
Equity dividends paid		(917)	(250)
Net cash used in financing activities		(912)	(859)

Net increase / (decrease) in cash and cash equivalents in the year		182	(1,585)
Cash and cash equivalents at beginning of the year		3,779	5,364
Cash and cash equivalents at end of the year		3,961	3,779

No statement of cash flows is presented for the Company as it had no cash flows in either year.

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 this 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. This financial information does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The above figures for the year ended 31 July 2012 are an abridged version of the Company's accounts which will be reported on by the Company's auditors before dispatch to the shareholders and filing with the Registrar of Companies.

Basis of accounting

The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) Interpretations as adopted by the European Union and comply with those parts of the Companies Act 2006 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 Interpretation Committee relevant to its operations and effective for accounting periods beginning on or after 1 August 2011.

The financial statements have been prepared on the historic cost basis except that certain trading properties and derivative financial instruments are stated at fair value.

Adoption of new and revised standards

Standards in issue but not yet effective

At the date of approval of these financial statements, the following standards and interpretations which were in issue but not yet effective:

IAS 1

Presentation of financial statements - Amendment; Presentation of items of other comprehensive income. Effective for accounting periods commencing on or after 1 July 2012.

IAS 19

IAS 12*

IAS 27*

IAS 28*

IFRS 1*

IFRS 7*

Employee benefits - Amendments; Effective for accounting periods commencing on or after 1 January 2013.

Income Taxes - Amendment; Deferred Tax; Recovery of Underlying Assets; Effective for accounting periods commencing on or after 1 January 2012.

Separate Financial Statements (amended 2011). Effective for accounting periods commencing on or after 1 January 2013.

Investments in associates and Joint ventures (amended 2011). Effective for accounting periods commencing on or after 1 January 2013.

First-time adoption of IFRS - Amendments; Effective for accounting periods commencing on or after 1 January 2013.

Financial Instruments: Disclosures - Amendment; Offsetting Financial Assets and Financial Liabilities; Effective for accounting periods commencing on or after 1 July 2011. Effective for accounting periods commencing on or after 1 January 2013.

IFRS 9*

IFRS 10*

Financial Instruments. Effective for accounting periods commencing on or after 1 January 2015.

Consolidated Financial Statements. Effective accounting periods commencing on or after 1 January 2013.

IFRS 11*

Joint Arrangements. Effective accounting periods commencing on or after 1 January 2013.

IFRS 12*

Disclosure of Interests in Other Entities. Effective accounting periods commencing on or after 1 January 2013.

IFRS 13*

Fair Value Measurement. Effective accounting periods commencing on or after 1 January 2013.

IAS 32

Financial Instruments - Presentation - Amendment; Offsetting Financial assets and Financial Liabilities. Effective for accounting periods commencing on or after 1 January 2014.

*Not yet endorsed by the EU.

The Directors do not anticipate that the adoption of these Standards will have a significant impact on the financial statements of the Group.

There were no other Standards or Interpretations, which were in issue but not yet effective at the date of authorisation of these financial statements, that the Directors anticipate will have a material impact on the financial statements of the Group.

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. A more detailed explanation of the background and methodology adopted in the valuation of the Group's trading properties is set out in Note 11(b). The carrying value of freehold properties held at valuation at the reporting date was £56.1 million (2011: £55.7 million).

Cushman & Wakefield's ('C&W's') valuation report comments on valuation uncertainty resulting from the global banking crisis coupled with the economic downturn which has resulted in there being a low number of transactions in the market for self-storage property.

C&W note that although there were a number of transactions in 2007, the only two significant transactions since 2007 are the sale of a 51% share in Shurgard Europe which was announced in January 2008 and completed on 31 March 2008 and the sale of the former Keepsafe portfolio by Macquarie to Alligator Self-Storage which was completed in January 2010. However, C&W have reflected negative sentiment in their capitalisation rates and they have reflected current trading conditions in their cash flow projections for each property. C&W state that there is therefore greater uncertainty attached to their opinion of value than would be anticipated during more active market conditions.

The Board concur with this view.

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 Group holds planning permissions on its entire pipeline of sites as a result of the work undertaken to complete the pre-planning and planning phases required on each site. During this year it has been engaged with the four sites to examine whether the potential of the existing permissions could be further maximised. The movement in costs is as a result of this work.

The carrying value of development property assets at the reporting date was £11.9 million (2011: £11.5 million) of which £3.18 million (2011: £2.94 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, excluding goodwill, makes the judgements surrounding the estimated useful lives important to the Group's financial position and performance. At 31 July 2012 intangible assets, excluding goodwill, amounted to £3.1 million (2011: £3.3m).

The valuation method used and key assumptions are described in Note 11(a).

The useful life used to amortise intangible 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.

d) Dilapidations

The Group has a number of stores operating under leasehold tenure. From time to time, in accordance with the Group's stated objective to maximise shareholder value, it may choose not to renew a lease, particularly where alternative premises have been sourced and customers can be moved into the new premises. In these circumstances the Group may incur repairing and decoration liabilities ('dilapidations') based on the tenant's obligation to the landlord to keep the leasehold premises in good repair and decorative condition. Landlords in these circumstances will normally serve a schedule of dilapidations on the tenant setting out a list of items to be remedied. This may also refer to obligations on the tenant to reinstate any alterations works previously undertaken by the tenant under a Licence for Alterations. Such claims will always be negotiated robustly by Lok'nStore and may require legal, valuation and surveyors' expertise, particularly if it can be shown that the landlord's interest in the premises has not been diminished by the dilapidations. As such, evaluations of actual liabilities are always a critical judgement and any sums provided to be set aside can only be an estimate until a settlement is concluded.

The carrying value of the provision for dilapidations at the reporting date was £nil (2011: £nil).

Notes to the Financial Statements

For the year ended 31 July 2012

1a Revenue

Analysis of the Group's revenue is shown below:

	2012	2011
Stores trading	£'000	£'000
Self-storage revenue	9,550	9,523
Other storage related revenue	1,111	1,060
Ancillary store rental revenue	5	5
Management fees	20	21
Sub-total	10,686	10,609
Stores under development
Non-storage income	88	93
Sub-total	10,774	10,702
Serviced archive and records management revenue	1,991	144
Total revenue per statement of comprehensive income	12,765	10,846

1b 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. Historically, there has been one business segment as the Group's net assets, revenue and profit before tax were attributable to one principal activity, the provision of self-storage accommodation and related services.

Following the purchase of Saracen Datastore Limited on 30 June 2011, the Group also provides offsite records storage and document and tape archiving services. The acquisition broadens the offering to clients and is seen as an excellent entry point to a wide market segment complimenting Lok'nStore'sexisting self-storage activities.

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 tax. 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 year ended 31 July 2012 is as follows:

2012	Self-storage 2012 £'000	Serviced archive and records management 2012 £'000	Total 2012 £'000
Revenue from external customers	10,774	1,991	12,765

EBITDA Management charges	3,500 185	474 (185)	3,974 -
Adjusted EBITDA	3,685	289	3,974
Depreciation Amortisation of intangible assets Loss on disposal - motor vehicles	(1,498) - (4)	(79) (165) -	(1,577) (165) (4)
Equity settled share based payments	(92)	-	(92)
Segment profit	2,091	45	2,136
Central costs not allocated to segments:
Professional fees - management contract set-up			(196)
Finance income			15
Finance costs			(1,029)
Profit before taxation			926
Income tax expense			(155)

Consolidated profit for the financial year			771

2011	Self-storage 2011 £'000	Serviced archive and records management 2011 £'000	Total 2011 £'000
Revenue from external customers	10,702	144	10,846

Adjusted EBITDA Depreciation	3,325 (1,609)	(44) (7)	3,281 (1,616)
Equity settled share based payments	(100)	-	(100)
Segment profit	1,616	(51)	1,565
Central costs not allocated to segments:
Professional fees - acquisition of Saracen Datastore Limited			(129)
Finance income			24
Finance costs			(522)
Profit before taxation			938
Income tax expense			(52)

Consolidated profit for the financial year			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. The serviced archive segment with over 330 customers has a greater customer concentration with its ten largest corporate customers accounting for 39% (2011: 40%) of revenue its top 50 accounting for 68.8% (2011: 71.1%) and its top 100 accounting for 84.0% (2011: 75.7%) of revenue. The self-storage segment with over 6,700 customers has no individual self-storage customer accounting for more than 1% of total revenue and no group of entities under common control (e.g. Government) accounts for more than 10% of total revenues.

2012	Self-storage 2012 £'000	Serviced archive & records management 2012 £'000	Total 2012 £'000

Segment and total assets	77,065	5,794	82,859

Segment liabilities	(13,089)	(1,068)	(14,157)
Borrowings (not allocated to segments) Derivative financial instruments (not allocated to segments)			(29,245) (496)
Total liabilities			(43,898)
Capital expenditure	1,465	374	1,839

2011	Self-storage 2011 £'000	Serviced archive & records management 2011 £'000	Total 2011 £'000

Segment and total assets	77,153	5,094	82,247

Segment liabilities	(14,504)	(767)	(15,271)
Borrowings (not allocated to segments)			(28,150)
Total liabilities			(43,421)
Capital expenditure	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.

2a Cost of sales of retail products

Cost of sales represents the direct costs associated with the sale of retail products (boxes, packaging etc.), the ancillary sales of insurance cover for customer goods and the provision of van hire services, all of which fall within the Group's ordinary activities.

	2012 £'000	2011 £ '000
Retail	103	133
Insurance	21	22
Van hire	35	56
Other	3	17
	162	211
Serviced archive consumables and direct costs	89	17
	251	228

2b Other costs
	2012 £'000	2011 £'000
Property and premises costs	3,895	3,435
Staff costs	3,432	2,885
General overheads	1,048	1,017
Distribution costs	165	-
	8,540	7,337

2c Professional fees and associated costs

	2012 £'000	2011 £'000
Legal fees and associated costs - management contract setup costs	196	-
Legal and professional fees - acquisition of Saracen Datastore Limited	-	129
	196	129

3 Finance income

2012

£'000

2011

£'000

Bank interest

All interest receivable arises on cash and cash equivalents (see note 16).

4 Finance costs

	2012 £'000	2011 £'000
Bank interest	814	520
Non-utilisation fees and amortisation of bank loan arrangement fees	201	-
Other interest	14	2
	1,029	522

Most interest payable arises on bank loans classified as financial liabilities measured at amortised cost (see note 17).

5 Profit before taxation

	2012 £'000	2011 £'000
Profit before taxation is stated after charging:
Depreciation and amounts written off property, plant and equipment:
- owned assets - assets held under finance leases and hire purchase Amortisation of intangible assets Operating lease rentals - land and buildings	1,556 20,593 165 1,729	1,613 3 - 1,397

Amounts payable to Baker Tilly UK Audit LLP and their associates for audit and non-audit services:

Audit services
- UK statutory audit of the Company and consolidated accounts	41	41
Other services
-the auditing of accounts of associates of the Company pursuant to legislation	16	16
Other services supplied pursuant to such legislation
- interim review	7	7
Tax services
- compliance services	27	16
- advisory services	56	33
Other services	11	1
Corporate finance services	-	41

	158	155
Comprising:
Audit services	57	57
Non-audit services:	101	98

	158	155

6 Employees

	2012 No.	2011 No.
The average monthly number of persons (including Directors) employed by the Group during the year was:
Store management	102	87
Administration	31	21
	133	108

	2012 £'000	2011 £'000
Costs for the above persons:
Wages and salaries	2,717	2,260
Social security costs	256	208
Pension costs	34	37
	3,007	2,505
Share based remuneration (options)	92	100
	3,099	2,605

Share based remuneration is separately disclosed in the statement of comprehensive income. Wages and salaries of £106,213 (2011: £105,066) have been capitalised as additions to property, plant and equipment as they are directly attributable to the acquisition of these assets. All other employee costs are included in staff costs in the statement of comprehensive income.

In relation to pension contributions, there was £2,948 (2011: £4,167) outstanding at the year-end.

Directors' remuneration

2012	Emoluments £	Bonuses £	Benefits £	Sub total £	Gains on share options £	Total £
Executive:
A Jacobs	200,000	10,000	3,150	213,150	-	213,150
SG Thomas	50,000	2,500	3,267	55,767	-	55,767
RA Davies	99,653	8,000	1,916	109,569	-	109,569
CM Jacobs	55,590	2,500	2,586	60,676	-	60,676
Non-Executive:
RJ Holmes	20,000	-	-	20,000	-	20,000
ETD Luker	25,000	-	-	25,000	-	25,000
CP Peal	20,000	-	-	20,000	-	20,000
I Wright	-	-	-	-	-	-
	470,243	23,000	10,919	504,162	-	504,162

					Gains on
	Emoluments	Bonuses	Benefits	Sub total	share options	Total
2011	£	£	£	£	£	£
Executive:
A Jacobs	200,000	14,000	2,562	216,562	-	216,562
SG Thomas	50,000	3,500	2,674	56,174	-	56,174
RA Davies	96,750	10,000	1,732	108,482	-	108,482
CM Jacobs	54,500	4,500	2,182	61,182	-	61,182
Non-Executive:
RJ Holmes	20,000	-	-	20,000	-	20,000
ETD Luker	25,000	-	-	25,000	-	25,000
CP Peal I Wright	20,000 -	- -	- -	20,000 -	- -	20,000 -
	466,250	32,000	9,150	507,400	-	507,400

During the year services, including re-imbursement of expenses, totalling £309,578 (2011: £302,896) were provided by Value Added Services LLP (VAS), a limited liability partnership in which Andrew Jacobs and Simon Thomas have a beneficial interest. The amount paid to Value Added Services Limited which is directly attributable to Andrew Jacobs and Simon Thomas is shown in the Directors' emoluments table above but not included in the total employee costs above. There were performance bonuses earned and payable to VAS for the year of £12,500 (2011: £17,500). See note 27on 'Related party transactions' for further information.

Pension contributions of £15,062 (2011: £14,663) were paid by the Group on behalf of RA Davies and are not included in the Directors' emoluments table above. The highest paid Director did not accrue any pension rights during the year. The benefits in kind all relate to medical insurance premiums paid on behalf of the Directors.

The number of Directors to whom retirement benefits are accruing under money purchase pension schemes in respect of qualifying service is one (2011: one).

7 Taxation

	2012 £'000	2011 £'000
Current tax:
UK corporation tax at 25% (2011: 27%)	-	(13,054)
Deferred tax:
Origination and reversal of temporary differences	376	451,412
Impact of change in tax rate on closing balance	(351)	(230,580)
Adjustments in respect of prior periods	130	(155,802)
Total deferred tax	155	65,031
Income tax expense for the year	155	51,977

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

	2012 £'000	2011 £'000
Profit before tax	926	938,280
Tax on ordinary activities at the standard rate of corporation tax in the UK of 25% (2011: 27%)	232	253,336
Expenses not deductible for tax purposes	18	3,263
Depreciation of non-qualifying assets	103	87,736
Share based payment charges in excess of corresponding tax deduction	22	26,903
Impact of change in tax rate	(351)	(230,580)
Amounts not recognised in deferred tax	-	44,104
Utilisation of loss against pre-acquisition profits	-	27,653
Adjustments in respect of prior periods - deferred tax Other	130 -	(155,802) (4,638)
Income tax expense for the year	155	51,977
Effective tax rate	17%	6%

The UK's main rate of corporation tax is expected to reduce to 23% from 1 April 2013. The applicable rate for this period is 25%.

In addition to the amount charged to profit or loss for the year, deferred tax relating to the revaluation of the Group's properties of £522,585 (2011: £1,216,374) and the fair value of cash flow hedges of £114,057 (2011: £nil) has been recognised as a credit directly in other comprehensive income (see note 18 on deferred tax).

8 Dividends

	2012 £'000	2011 £'000
Amounts recognised as distributions to equity holders in the year:

Final dividend for the year ended 31 July 2010 (0.67 pence per share)	-	167
Interim dividend for the six months to 31 January 2011 (0.33 pence per share)	-	83
Final dividend for the year ended 31 July 2011 (2.67 pence per share)	667	-
Interim dividend for the six months to 31 January 2012 (1.00 pence per share)	250	-

	917	250

In respect of the current year the Directors propose that a final dividend of 4.00 pence per share will be paid to the shareholders. The total estimated dividend to be paid is £999,746 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 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The ex-dividend date will be 14 November 2012; the record date 16 November 2012; with an intended payment date of 17 December 2012.

9 Earnings per share

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

	2012 £'000	2011 £'000
Profit for the financial year attributable to owners of the parent	753	892

	2012 No. of shares	2011 No. of shares
Weighted average number of shares
For basic earnings per share	24,993,653	24,993,653
Dilutive effect of share options*	186,893	201,741
For diluted earnings per share	25,180,546	25,195,394

623,212 (2011: 623,212) shares held in the Employee Benefit Trust and 1,142,000 (2011: 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. Full details of share options are included in note 20.

	2012	2011
Earnings/ (loss) per share
Basic	3.01p	3.57p
Diluted	2.99p	3.54p

10 Acquisition of subsidiary

On 30 June 2011 Lok'nStore Limited acquired 90.6% of the issued share capital of Saracen Datastore Limited ('Saracen'), a company incorporated in England & Wales. Saracen provides serviced archive and records management. The cash consideration was £3.7 million. Andrew Jacobs and Ray Davies joined the Saracen Board to provide the majority of the directors of the board of Saracen Datastore Limited which, together with Lok'nStore's majority shareholding, gives it control.

Saracen, which is headquartered in Leatherhead, was established in 1991 and has three sites across the South East of England providing over 100,000 sq. ft. of offsite records storage and document and tape archiving space. For the year ended July 2012, Saracen achieved turnover of £2.0 million and adjusted EBITDA of £0.5 million before inter-company management charges of £185,000.

The transaction was accounted for using the acquisition method of accounting. The goodwill is attributable to the synergies that are expected to arise in the post-acquisition period and the skilled labour force of the acquired business. The contractual customer relationships have been separately valued and included an assessment of the value of the skilled labour force.

None of the goodwill is expected to be deductible for income tax purposes. The following table summarises the consideration paid for Saracen and the amounts of assets and liabilities assumed recognised at the acquisition date, as well as the fair value at the acquisition date of the non-controlling interest in Saracen.

Net assets acquired

	Book Value £'000	Fair Value Adjustments £'000	Fair value £'000
Assets
Property, plant and equipment	401	-	401
Intangible assets - customer relationships	-	3,309	3,309
Inventories	9	-	9
Trade and other receivables	596	-	596
Cash and cash equivalents	87	-	87
Total assets	1,093	3,309	4,402

Liabilities
Trade and other payables	(529)	-	(529)
Other payables	(21)	-	(21)
Current tax liabilities	(69)	-	(69)
Deferred tax liabilities (Note 18)	(33)	-	(33)
Deferred tax liabilities arising on initial recognition of intangible assets (Note 18)	-	(827)	(827)
Bank loan	(39)	-	(39)
Finance leases	(83)	-	(82)
Total liabilities	(774)	(827)	(1,601)

Fair value of identifiable assets and liabilities	319	2,481	2,800
Non-controlling interest	(30)	(230)	(260)
Goodwill	-	1,110	1,110
Total consideration	289	3,361	3,650

11 a) Intangible assets

Group	Goodwill £'000	Contractual customer relationships £'000	Total £'000
Cost and net book value at 1 August 2010	-	-	-
Acquisition of subsidiary - Saracen Datastore Limited (See note 10)	1,110	3,309	4,419
Amortisation charge *	-	-	-
Cost and net book value at 31 July 2011	1,110	3,309	4,419
Amortisation charge	-	(166)	(166)
Net book value at 31 July 2012	1,110	3,143	4,253

All goodwill is allocated to the serviced archive cash-generating unit (CGU) identified as a separate business segment.

* Due to the proximity of the acquisition to the reporting date, no amortisation was provided for in the financial statements in 2011. The remaining amortisation period of the contractual customer relationships at 31 July 2012 is 18 years and 11 months (2011: 19 years 11 months).

The fair value of the contractual customer relationships was estimated by using an income based approach and applying principles set down by the International Valuation Standards Council in Guidance Note 4 (Valuation of Intangible Assets).

The fair value estimates and values in use for impairment purposes are based on estimated future cash flows and the following key assumptions:

- a discount rate of 11%

- estimated useful lives of customer relationships of 20 years based on a substantially inert and contractually committed customer base.

- long term sustainable growth rates of 2.75%

- an application of contributory asset charges (CAC) recognising the contributions to cash flow from tangible assets, working capital and the workforce.

- a forward corporation tax rate of 23%

11 b) 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
Cost or valuation
1 August 2010	7,934	54,131	2,540	15,607	157	80,369
Additions	261	278	57	77	30	703
Assets acquired on acquisition of subsidiary	-	-	-	344	58	402
Reclassification	392	(392)	-	-	-	-
Revaluations	-	(2,987)	-	-	-	(2,987)
31 July 2011	8,587	51,030	2,597	16,028	245	78,487

Depreciation
1 August 2010	-	-	1,350	6,773	66	8,189
Depreciation	-	492	117	984	23	1,616
Revaluations	-	(492)	-	-	-	(492)
31 July 2011	-	-	1,467	7,757	89	9,313
Net book value at 31 July 2011	8,587	51,030	1,130	8,271	156	69,174
Cost or valuation
1 August 2011	8,587	51,030	2,597	16,028	245	78,487
Additions	83	1,294	31	420	10	1,838
Reclassification	-	184	(114)	(69)	-	-
Disposals	-	-	-	-	(38)	(38)
Revaluations	-	(640)	-	-	-	(640)
31 July 2012	8,670	51,868	2,514	16,379	217	79,648

Depreciation
1 August 2011	-	-	1,467	7,757	89	9,313
Depreciation	-	505	126	912	34	1,577
Transfers	-	182	(182)	-	-	-
Reclassification	-	-	9	(9)	-	-
Disposals	-	-	-	-	(24)	(24)
Revaluations	-	(687)	-	-	-	(687)
31 July 2012	-	-	1,420	8,659	99	10,179
Net book value at 31 July 2012	8,670	51,868	1,094	7,719	118	69,470

If all property, plant and equipment were stated at historic cost the carrying value would be £44.65 million (2011: £44.08 million).

Capital expenditure ("capex") during the year totalled £1.8 million (2011: £0.7 million). This included small limited expenditures at existing stores, the purchase of the freehold interest in our Swindon East store, roof renovation with solar power at the Poole store and further racking at the Saracen Olney store. It also included planning and other professional costs incurred in maximising the potential of our existing planning permissions.

Property, plant and equipment (non-current assets) with a carrying value of £69.5 million (2011: £69.2 million) are pledged as security for bank loans (see note 17). The Maidenhead property (see note 11c) is also pledged as security for the bank loans.

The net book value of assets held under finance leases at 31 July 2012 was £116,080 (2011: £136,674) and the depreciation charge includes £20,593 in relation to these assets.

Market Valuation of Freehold and Operating Leasehold Land and Buildings

On 31 July 2012, a professional valuation was prepared by valuers Cushman & Wakefield LLP (C&W) in respect of twelve freehold and seven leasehold properties. The valuation was prepared in accordance with the RICS Valuation Standards, Global and UK 7th Edition, published by The Royal Institution of Chartered Surveyors ('the Red Book'). The valuations were prepared on the basis of Market Value or Market Value as a fully equipped operational entity having regard to trading potential, as appropriate. The valuation was 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:

· The members of the RICS who have been the signatories to the valuation provided to the Company for the same purposes as this valuation have been the signatories since January 2004.

· C&W have prepared eight previous valuations for the same purpose as this valuation on behalf of the Company.

· C&W do not provide other significant professional or agency services to the Company.

· In relation to the preceding financial year of C&W the proportion of the total fees payable by the Company to the total fee income of the firm is less than 5%.

The valuation report indicates a total valuation for all properties valued of £67.9 million (2011: £68.0 million) of which £56.1 million (2011: £55.7 million) relates to freehold properties, and £11.8 million (2011: £12.3 million) relates to properties held under operating leases.

Freehold land and buildings are carried at valuation in the statement of financial position. Short leasehold improvements at properties held under operating leases are carried at cost rather than valuation in accordance with IFRS.

For the trading properties the valuation methodology explained in more detail below is based on market value as fully equipped operational entities, having regard to trading potential. The total valuation of trading properties has therefore been allocated by the Directors between freehold properties and the fixtures, fittings and equipment in the valued properties which are held at cost. Of the £56.1 million valuation of the freehold properties £4.3 million (2011: £4.7 million) relates to the net book value of fixtures, fittings and equipment, and the remaining £51.9 million (2011: £51.0 million) relates to freehold properties.

The 2012 valuation includes and reflects movements in value which have resulted from the operational performance of the stores and movements in the investment environment. In relation to the existing store at Reading, although it currently has residential development potential following the grant of planning permission for 112 apartments it remains an operating self-storage facility and has been valued as such. Additionally the freehold development land site in Reading situated opposite the existing store, which has the benefit of an appropriate planning consent for a self-storage facility, has been stated at cost and any additional uplift based on the assumption that a substantial number of the existing store's customers will transfer to the new store when built has been ignored in the financial statements. The valuations do not account for any further investment in existing stores since July 2012.

Valuation Methodology

C&W have adopted different approaches for the valuation of the leasehold and freehold assets as follows:

Freehold property

The valuation is based on a discounted cash flow of the net operating income projected over a 10-year period and a notional sale of the asset at the end of the 10th 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 subject to a cap and a collar. 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 18 trading stores (both freeholds and leaseholds) averages 68.26% (2011: 70.16%). 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 flows have been estimated by reference to underlying yields for industrial and retail warehouse property, yields for other trading property types such as hotels and student housing, bank base rates, 10-year money rates, inflation and the available evidence of transactions in the sector. On average for the 18 stores the yield (net of purchaser's costs) arising from the first year of the projected cash flow is 6.31% (2011: 5.49%). This rises to 11.38% (2011: 11.72%) 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 12.05% (2011: 12.18%).

e. Purchaser's costs of 5.8% have been assumed initially and sale plus purchaser's costs totalling 7.8% are assumed on the notional sales in the 10th year in relation to the freehold stores.

Leasehold property

The same methodology has been used as for freehold property, except that no sale of the assets in the 10th year is assumed, but the discounted cash flow is extended to the expiry of the lease. The average unexpired term of the Group's operating leaseholds is approximately 14 years and 6 months as at 31 July 2012 (15 years and 2 months as at 31 July 2011). Valuations for stores held under operating leases are not reflected in the statement of financial position and the assets in relation to these stores are carried at cost less accumulated depreciation.

In 2011, one of the Group store's leases was renegotiated and includes a ten year option to renew the lease from March 2026 to March 2036. The option to extend is only operable in the event that all four of the leases applicable to this store are extended and this option is personal to Lok'nStore or another "major self-storage operator", to be approved by the landlord (approval not to be unreasonably withheld). The C&W valuation on this store is based on this special assumption that the option to extend the lease for 10 years is exercised. This is consistent with the approach taken in 2011.

Market Uncertainty

C&W's valuation report comments on valuation uncertainty resulting from the global banking crisis coupled with the economic downturn which have caused a low number of transactions in the wider property market and in particular in the market for self-storage property.

Although there were a number of self-storage transactions in 2007, C&W have noted that the only significant transactions since 2007 are:

1. The sale of a 51% share in Shurgard Europe which was announced in January 2008 and completed on 31 March 2008;

2. The sale of the former Keepsafe portfolio by Macquarie to Alligator Self-Storage which was completed in January 2010; and

3. The purchase by Shurgard Europe of 80% interests held by its joint venture partner (Arcapita) in its two European joint venture vehicles, First Shurgard and Second Shurgard. The price paid was 172 million Euros and the transaction was announced in March 2011. The two joint ventures owned 72 self-storage properties.

Four smaller transactions took place in 2011 at West Molesey, Cambridge, Dartford and St Albans.

C&W state that due to the lack of comparable market information in the self-storage sector, there is a greater uncertainty attached to their opinion of value than would be anticipated during more active market conditions.

It has been held that valuers may properly conclude within a range of values. This range is likely to be greater in an illiquid market where inherent uncertainty exists and a greater degree of judgement must therefore be applied.

Immature stores

C&W have assessed the value of each property individually. The degree of uncertainty relating to immature stores is greater than in relation to the balance of the properties due to there being even less market evidence that might be available for more mature properties and portfolios.

C&W state that in practice, if an actual sale of the properties were to be contemplated then any immature low cash flow stores would normally be presented to the market for sale grouped with other more mature assets owned by the same entity, in order to alleviate the issue of negative or low short term cash flow. This approach would enhance the marketability of the group of assets and assist in achieving the best price available in the market by diluting the cash flow risk.

C&W have not adjusted their opinion of Market Value to reflect such a grouping of the immature assets with other properties in the portfolio and all stores have been valued individually. However, they highlight the matter to alert the Group to the manner in which the properties might be grouped in order to maximise their attractiveness to the market place.

C&W have not assumed that the entire portfolio of properties owned by the entity would be sold as a single lot and the value for the whole portfolio in the context of a sale as a single lot may differ significantly (either higher or lower) from the aggregate of the individual values for each property in the portfolio.

11 c) Property lease premiums

£3.2 million of costs relating to the long lease at Maidenhead is classified as a non-current asset in the statement of financial position (2011: £2.9 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	31 July 2012 £'000	31 July 2011 £'000
Balance 1 August	2,944	2,861
Additions during the year	236	83
Balance 31 July	3,180	2,944

12 Investments

Investments in subsidiary undertakings	£'000
31 July 2010	1,490
Capital contributions arising from share-based payments	100
31 July 2011	1,590
Capital contributions arising from share-based payments	92
31 July 2012	1,682

The Company holds more than 20% of the share capital of the following companies, all of which are incorporated in England and Wales:

	% of shares and voting rights held
	Class of shareholding	Directly	Indirectly	Nature of entity
Lok'nStore Limited	Ordinary	100	-	Self-storage
Lok'nStore Trustee Limited*	Ordinary	-	100	Trustee
Southern Engineering and Machinery Company Limited	Ordinary	100	-	Land
Semco Machine Tools Limited**	Ordinary	-	100	Dormant
Semco Engineering Limited**	Ordinary	-	100	Dormant
Saracen Datastore Limited*	Ordinary	-	90.6	Records Management & Serviced Archive Services

*These companies are subsidiaries of Lok'nStore Limited

**These companies are subsidiaries of Southern Engineering and Machinery Company Limited and did not trade during the year.

The fair value of these investments has not been disclosed because it cannot be measured reliably as there is no active market for these equity instruments. The Company currently has no plans to dispose of these investments.

13 Inventories

Group

2012

£'000

Group

2011

£,000

Company

2012

£,000

Company

2011

£,000

Consumables and goods for resale

140

110

The amount of inventories recognised as an expense during the year was £135,673 (2011: £149,843).

14 Trade and other receivables

	Group 2012 £'000	Group 2011 £'000	Company 2012 £'000	Company 2011 £'000
Trade receivables	1,225	1,164	-	-
Other receivables	163	167	-	-
Prepayments and accrued income	467	490	-	-
	1,855	1,821	-	-

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

Trade receivables

In respect of its self-storage business the Group does not typically offer credit terms to its customers and hence the Group is not exposed to significant credit risk. All customers are required to pay in advance of the storage period. Late charges are applied to a customer's account if they are more than 10 days overdue in their payment. The Group provides for receivables based upon sales levels and estimated recoverability. There is a right of lien over the customers' goods, so if they have not paid within a certain time frame, the Company has the right to sell the items they store to cover the debt owed by the customer. Trade receivables that are overdue are provided for based on estimated irrecoverable amounts, determined by reference to past default experience.

For individual self-storage customers the Group does not perform credit checks, however this is mitigated by the fact that all customers are required to pay in advance, and also to pay a deposit of four weeks' storage income. Before accepting a new business customer who wishes to use a number of the Group's stores, the Group uses an external credit rating to assess the potential customer's credit quality and defines credit limits by customer. There are no customers who represent more than 5% of the total balance of trade receivables.

In respect of its serviced archive and records management business, customers are invoiced typically monthly in advance for the archive storage of their boxes, tapes and files. The provision of additional services, such as document box or tape collection and retrieval from archive, typically are invoiced monthly in arrears. The serviced archive segment with over 330 customers has a greater customer concentration than the self-storage segment, with its ten largest corporate customers accounting for 40% of revenue.

Included in the Group's trade receivables balance are receivables with a carrying amount of £382,270 (2011: £249,239) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group holds a right of lien over its self-storage customers' goods if these debts are not paid. The average age of these receivables is 52 days past due (2011: 52 days past due).

Ageing of past due but not impaired receivables

	Group 2012 £'000	Group 2011 £'000
0-30 days	137	114
30-60 days	204	93
60+ days	41	42
Total	382	249

Movement in the allowance for doubtful debts
	Group	Group
	2012	2011
	£'000	£'000
Balance at the beginning of the year	101	81
Impairment losses recognised	58	43
Amounts written off as uncollectible	(22)	(23)
Balance at the end of the year	137	101

The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the Directors believe that there is no further provision required in excess of the allowance for doubtful debts.

Ageing of impaired trade receivables

	Group 2012 £'000	Group 2011 £'000
0-30 days	-	-
30-60 days	-	-
60+ days	137	101
Total	137	101

15 Trade and other payables

	Group 2012 £'000	Group 2011 £'000	Company 2012 £'000	Company 2011 £'000
Trade payables	767	1,084	-	-
Taxation and social security costs	294	449	-	-
Other payables	911	913	-	-
Accruals and deferred income	2,112	2,210	-	-
	4,084	4,656	-	-

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

16 Financial instruments

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 17, 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 year.

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:

	Group 2012 £'000	Group 2011 £'000
Debt	(29,708)	(28,168)
Cash and cash equivalents	3,961	3,778
Net debt	(25,747)	(24,390)
Statement of financial position equity	38,961	38,826
Net debt to equity ratio	66.1%	62.8%

The modest increase in the Group's gearing ratio arises through the combined effect of an increase in net debt arising from the purchase of the Swindon East property, and a decrease in the C&W valuation of its freehold properties and the requirement to provide for the first time the liability arising on the market to market 'fair value' of the two interest rate swaps executed during the year. Cash generated from operations partially offset the effect.

Exposure to credit and interest rate risk arises in the normal course of the Group's business.

A Derivative financial instruments and hedge accounting

The Group's activities expose it primarily to the financial risks of interest rates. During the year the Group executed two separate interest rate swaps with Lloyds TSB plc and these are reported fully in the Financial Review.

B Debt management

Debt is defined as non-current and current borrowings, as detailed in note 17. Equity includes all capital and reserves of the Group. The Group is not subject to externally imposed capital requirements.

The Group borrows through a senior five year term revolving credit facility, arranged through Lloyds TSB Group plc secured on its existing store portfolio and other Group assets with a net book value of £83.1 million (2011: £82.2 million). Borrowings are arranged to ensure the Group fulfils its strategy of growth and development of its store portfolio and to maintain short-term liquidity. As at the reporting date the Group has a committed revolving credit facility of £40 million (2011: £40 million). This facility expires on 19 October 2016. Undrawn committed facilities at the year-end amounted to £10.3 million (2011: £11.9 million).

C Interest rate risk management

The Group's policy on interest rate management is agreed at Board level and is reviewed on an on-going basis. All borrowings are denominated in Sterling and are detailed in note 17. The Group has a number of revolving loans within its overall revolving credit facility and as such is exposed to interest rate risks at the time of renewal arising from any upward movement in the LIBOR rate. During the year the Group entered into two cash flow hedging interest rate swaps in order to reduce the risk of such upward movements in LIBOR rate. These instruments are detailed in note 17b.

The following interest rates applied during the financial year:

1 London Inter-Bank Offer Rate (LIBOR) plus 2.35%-2.65% Lloyds TSB plc margin based on a loan to value covenant test for the revolving advances amounting to £29.7 million.

2 40% of the applicable margin in 1 above for non-utilisation (i.e. that part of the facility which remains undrawn from time to time). As at 31 July 2012 the prevailing non-utilisation charge is calculated at a rate of 0.94%.

3 Rates prevailing on the Group's Interest rate swaps. See Note 17b.

Cash balances held in current accounts attract no interest but surplus cash is transferred daily to a treasury deposit account which earns interest at the prevailing money market rates*. All amounts are denominated in Sterling. The balances at 31 July 2012 are as follows:

	Group 2012 £'000	Group 2011 £'000
Variable rate treasury deposits*	3,612	3,538
Bank deposits	-	65
SIP trustee deposits	39	31
Cash in operating current accounts	256	106
Other cash and cash equivalents	54	39
Total cash and cash equivalents	3,961	3,779

* Money market rates for the Group's variable rate treasury deposit track Lloyds TSB plc base rate. The rate attributable to the variable rate deposits at 31 July 2012 was 0.5%.

The Group reviews the current and forecast projections of cash flow, borrowing and interest cover as part of its monthly management accounts review. In addition, an analysis of the impact of significant transactions is carried out regularly, as well as a sensitivity analysis of the impact of movements in interest rates on gearing and interest cover.

D Interest rate sensitivity analysis

In managing interest rate risk the Group aims to reduce the impact of short-term fluctuations on the Group's earnings, without jeopardising its flexibility. Over the longer term, permanent changes in interest rates may have an impact on consolidated earnings.

At 31 July 2012, it is estimated that an increase of one percentage point in interest rates would have reduced the Group's annual profit before tax by £96,815 (2011: £282,729) and conversely a decrease of one percentage point in interest rates would have increased the Group's annual profit before tax by £96,815 (2011: £282,729). There would have been no effect on amounts recognised directly in other comprehensive income. The sensitivity has been calculated by increasing by 1% the average variable interest rate applying to the variable rate borrowings in the year of 9.7 million, namely 2.33% (2011: 1.84%).

E Cash management and liquidity

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note B above is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.

Short-term money market deposits are used to manage liquidity whilst maximising the rate of return on cash resources, giving due consideration to risk.

F Foreign currency management

The Group operates solely in the United Kingdom and as such all of the Group's financial assets and liabilities are denominated in Sterling and there is no exposure to exchange risk.

G Credit risk

The credit risk management policies of the Group with respect to trade receivables are discussed in note 14. The Group's self-storage business has no significant concentration of credit risk, with exposure spread across 6,700 customers in our stores and no individual customer accounts for more than 1% of revenue. The serviced archive business with over 330 customers has a greater concentration of credit risk with its ten largest corporate customers accounting for 39% of revenue and its top 50 delivering 68.8% of revenue and its top 100 delivering 84.0% of revenue.

The credit risk on liquid funds is limited because the counterparty is a bank with high credit ratings assigned by international credit-rating agencies, in line with the Group's policy which is to borrow from major institutional banks when arranging finance.

The Group's maximum exposure to credit risk at 31 July 2012 was £1,265,638 (2011: £1,208,122) on receivables and £3,960,772 (2011: £3,778,524) on cash and cash equivalents.

H Maturity analysis of financial liabilities

The undiscounted contractual cash flow maturities are as follows:

2012 - Group

	Trade and other payables £'000	Borrowings £'000	Interest on borrowings £'000
From two to five years	-	29,681	1,535
From one to two years	-	5	692
Due after more than one year	-	29,686	2,227
Due within one year	2,327	22	696
Total contractual undiscounted cash flows	2,327	29,708	2,923

2011 - Group

	Trade and other payables £'000	Borrowings £'000	Interest on borrowings £'000
From two to five years	-	-	-
From one to two years	-	26	6
Due after more than one year	-	26	6
Due within one year	2,818	28,142	282
Total contractual undiscounted cash flows	2,818	28,168	288

I Fair values of financial instruments

	2012 £'000	2011 £'000
Categories of financial assets and financial liabilities
Financial assets
Trade and other receivables	1,266	1,208
Cash and cash equivalents	3,961	3,779
Financial liabilities
Trade and other payables	(2,327)	(2,818)
Bank loans	(29,219)	(28,072)
Finance lease payables	(26)	(78)

The fair values of the Group's cash and short-term deposits and those of other financial assets equate to their carrying amounts. The Group's receivables and cash and cash equivalents are all classified as loans and receivables and carried at amortised cost. The amounts are presented net of provisions for doubtful receivables and allowances for impairment are made where appropriate. Trade and other payables and bank borrowings are all classified as financial liabilities measured at amortised cost.

J Company's financial instruments

The Company's only financial assets are amounts owed by subsidiary undertakings amounting to £4.5 million (2011: £5.6 million) which are classified as loans and receivables. These amounts are denominated in Sterling, are non-interest bearing, are unsecured and fall due for repayment within one year. No amounts are past due or impaired. The Company has no financial liabilities.

17a Borrowings

	Group 2012 £'000	Group 2011 £'000	Company 2012 £'000	Company 2011 £'000
Non-current
Bank loans repayable in more than two years
but not more than five years
Gross	29,682	-	-	-
Deferred financing costs	(463)	-	-	-
Net bank borrowings	29,219	-	-	-
Finance lease liabilities	5	26	-	-
Non-current borrowings	29,224	26	-	-

Current
Bank loans repayable in less than one year
Gross	-	28,090	-	-
Deferred financing costs	-	(18)	-	-
Net bank borrowings	-	28,072	-	-
Finance lease liabilities	21	52	-	-
Current borrowings	21	28,124	-	-
Total borrowings	29,245	28,150	-	-

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 £83.1 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.

Finance lease liabilities

Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default and are as follows:

	Group 2012 £'000	Group 2011 £'000	Company 2012 £'000	Company 2011 £'000
Gross finance liabilities - minimum lease payments
Within one year	27	66	-	-
Later than one year and no later than five years	6	32	-	-
Later than five years	-	-	-	-
	33	98	-	-
Future finance charges on finance leases	(7)	(20)	-	-

	26	78	-	-

The present value of finance lease liabilities is as follows:

	Group 2012 £'000	Group 2011 £'000	Company 2012 £'000	Company 2011 £
Gross finance liabilities - minimum lease payments
Within one year	21	52	-	-
Later than one year and no later than five years	5	26	-	-
	26	78	-	-

17b Derivative financial instruments

On 25 May 2012, 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%. On 30 May 2012, the Group entered into a £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.

	Currency	Principal £'000	Maturity date	Fair value £'000
3032816LS Interest rate swap	GBP	10,000	20/10/2016	(258)
3047549LS Interest rate swap	GBP	10,000	20/10/2016	(238)
		20,000		(496)

The fair value of the interest rate swaps of £495,900 has been recognised in other comprehensive income in the year.

18 Deferred tax

Group Group

Deferred tax liability	2012 £'000	2011 £'000
Liability at start of year	10,555	10,846
Charge to income for the year	154	65,031
Tax credited directly to other comprehensive income	(636)	(1,216)
Saracen - initial recognition of intangible assets on acquisition	-	827
Saracen - other deferred tax recognised on acquisition	-	33
Liability at end of year	10,073	10,555

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 2010	1,480	(1,093)	-	-	8,002	2,457	10,846
Charge/ (credit) to income for the year	(206)	494	-	24	(65)	(182)	65
Charge / (credit) to other comprehensive income	-	-	-	-	(1,216)	-	(1,216)
Saracen
- Initial recognition of intangible assets	-	-	827	-	-	-	827
- Recognised on acquisition	33	-	-	-	-	-	33
At 31 July 2011	1,307	(599)	827	24	6,721	2,275	10,555
Charge/ (credit) to income for the year	127	367	(104)	(2)	(51)	(182)	155
Charge / (credit) to other comprehensive income	-	-	-	(114)	(523)	-	(637)

At 31 July 2012	1,434	(232)	723	(92)	6,147	2,093	10,073

At the reporting date, the Group has unused revenue tax losses of approximately £1.15 million (2011: £2.63 million) available to carry forward against future profits of the same trade. A deferred tax asset of £0.23 million (2011: £0.60 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 £55,371 (2011: £39,195) arises in respect of the share options in existence at 31 July 2012 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 July 2012 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 2013 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.

19 Share capital

	2012	2011
	£'000	£'000
Authorised:
35,000,000 ordinary shares of 1 pence each (2011: 35,000,000)	350,000	350,000

	£	£
Allotted, issued and fully paid ordinary shares	267,589	267,589
		Called up,
		allotted and
		fully paid
	Number	£
Number of shares at 31 July 2011 and 31 July 2012	26,758,865	267,589

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

20 Equity settled share-based payment plans

The Group operates two equity-settled share-based payment plans, an approved and an unapproved share option scheme, the rules of which are similar in all material respects. The Enterprise Management Initiative Scheme ('EMI') is closed to new grants of options as the Company no longer meets the HMRC small company criteria.

The Company has the following share options:

	As at				As at
2012	31 July			Lapsed/	31 July
Summary	2011	Granted	Exercised	surrendered	2012
Enterprise Management Initiative Scheme	349,166	-	-	-	349,166
Unapproved Share Options	2,164,386	277,789	-	-	2,442,175
Approved CSOP Share Options	232,002	52,211	-	(500)	283,713
Total	2,745,554	330,000	-	(500)	3,075,054
Options held by Directors	1,830,000	175,000	-	-	2,005,000
Options not held by Directors	915,554	155,000	-	(500)	1,070,054
Total	2,745,554	330,000	-	(500)	3,075,054

	As at				As at
2011	31 July			Lapsed/	31 July
Summary	2010	Granted	Exercised	surrendered	2011
Enterprise Management Initiative Scheme	491,901	-	-	(142,735)	349,166
Unapproved Share Options	2,192,213	240,517	-	(268,344)	2,164,386
Approved CSOP Share Options	179,019	62,983	-	(10,000)	232,002
Total	2,863,133	303,500	-	(421,079)	2,745,554
Options held by Directors	1,655,000	175,000	-	-	1,830,000
Options not held by Directors	1,208,133	128,500	-	(421,079)	915,554
Total	2,863,133	303,500	-	(421,079)	2,745,554

The following table shows options held by Directors under all schemes.

			Approved CSOP
	EMI Scheme	Unapproved Scheme	share options	Total
2012
Executive Directors
A Jacobs	-	500,000	-	500,000
SG Thomas	-	500,000	-	500,000
RA Davies	98,039	528,431	23,530	650,000
CM Jacobs	79,173	216,082	24,745	320,000
Non-Executive Directors
RJ Holmes	-	10,000	-	10,000
ETD Luker	-	15,000	-	15,000
C P Peal	-	10,000	-	10,000
	177,212	1,779,513	48,275	2,005,000

					Approved CSOP
		EMI Scheme		Unapproved Scheme			share options		Total
2011
Executive Directors
A Jacobs		-		450,000			-		450,000
SG Thomas		-		450,000			-		450,000
RA Davies		98,039		478,431			23,530		600,000
CM Jacobs		79,173		191,082			24,745		295,000
Non-Executive Directors
RJ Holmes	-		10,000			-		10,000
ETD Luker	-		15,000			-		15,000
C P Peal	-		10,000			-		10,000
		177,212		1,604,513			48,275		1,830,000

The grant of options to Executive Directors and senior management is recommended by the Remuneration Committee on the basis of their contribution to the Group's success. The options vest after three years. No options have been granted under the EMI approved scheme in the year (2011: Nil).

The exercise price of the options is equal to the closing mid-market price of the shares on the trading day previous to the date of the grant. The exercise of options awarded has been subject to a key non-market performance condition being the achievement of an annual revenue target of £10 million. This condition has now been achieved. Exercise of an option is subject to continued employment. The life of each option granted is seven years. There are no cash settlement alternatives.

The expected volatility is based on a historical review of share price movements over a period of time, prior to the date of grant, commensurate with the expected term of each award. The expected term is assumed to be six years which is part way between vesting (three years after grant) and lapse (10 years after grant). The risk free rate of return is the UK gilt rate at date of grant commensurate with the expected term (i.e. six years).

The total charge for the year relating to employer share-based payment schemes was £91,821 (2011: £99,639), all of which relates to equity-settled share-based payment transactions.

The Group has taken advantage of the exemption available under IFRS2 to exclude options granted before 7 November 2002 from the share-based payment charge and so 15,000 of the Group's options are excluded from the share-based payment calculations detailed below.

The total fair value of the options granted in the year was £96,284 (2011: £121,154).

21 Other reserves

	Cash flow		Other	Capital	Share-based
	hedge	Merger	distributable	redemption	payment
	reserve	reserve	reserve	reserve	reserve	Total
Group	£'000	£'000	£'000	£'000	£'000	£'000
1 August 2010	-	6,295	5,403	34	1,276	13,008
Share based remuneration (options)	-	-	-	-	100	100
Dividend paid	-	-	(250)	-	-	(250)
1 August 2011	-	6,295	5,153	34	1,376	12,858
Share based remuneration (options)	-	-	-	-	92	92
Cash flow hedge reserve net of tax	(382)	-	-	-	-	(382)
Dividend paid	-	-	(917)	-	-	(917)
31 July 2012	(382)	6,295	4,236	34	1,468	11,651

The merger reserve represents the excess of the nominal value of the shares issued by Lok'nStore Group plc over the nominal value of the share capital and share premium of Lok'nStore Limited as at 31 July 2001.

The other distributable reserve and the capital redemption reserve arose in the year ended 31 July 2004 from the purchase of the Company's own shares and a cancellation of share premium.

22 Retained earnings

	Retained
	earnings before		Retained
	deduction of	Own shares	earnings
	own shares	(note 23)	Total
Group	£'000	£'000	£'000
1 August 2010	6,091	(2,593)	3,498
Profit attributable to owners of Parent for the financial year	893	-	893
Transfer from revaluation reserve	196	-	196
1 August 2011	7,180	(2,593)	4,587
Profit attributable to owners of Parent for the financial year	753	-	753
Transfer from revaluation reserve	205	-	205
31 July 2012	8,138	(2,593)	5,545

The transfer from revaluation reserve represents the additional depreciation charged on revalued assets net of deferred tax.

The Own Shares Reserve represents the cost of shares in Lok'nStore Group plc purchased in the market and held in the Employee Benefit Trust to satisfy awards made under the Group's share incentive plan and shares purchased separately by Lok'nStore Limited for Treasury Account. These treasury shares have not been cancelled and were purchased at an average price considerably lower than the Group's adjusted net asset value. These shares may in due course be released back into the market to assist liquidity of the Company's stock and to provide availability of a reasonable line of stock to satisfy investor demand as and when required.

The Company has taken advantage of the exemption available under the Companies Act 2006 not to present the Company income statement of Lok'nStore Group plc. The Company loss for the year was £193,995 (2011: £168,886).

23 Own shares

	ESOP	ESOP	Treasury	Treasury	Own shares
	shares	shares	shares	shares	total
	Number	£	Number	£	£
1 August 2010	623,212	499,910	1,142,000	2,092,902	2,592,812
31 July 2011	623,212	499,910	1,142,000	2,092,902	2,592,812
31 July 2012	623,212	499,910	1,142,000	2,092,902	2,592,812

Lok'nStore Limited holds a total of 1,142,000 of Lok'nStore Group plc ordinary shares of 1p each for treasury with an aggregate nominal value of £11,420 purchased for an aggregate cost of £2,092,902 at an average price of £1.818 per share. These shares represent 4.27% of the Parent Company's called-up share capital. The maximum number of shares held by Lok'nStore Limited in the year was 1,142,000. No shares were disposed of or cancelled in the year.

The Group operates an Employee Benefit Trust ('EBT') under a settlement dated 8 July 1999 between Lok'nStore Limited and Lok'nStore Trustee Limited, constituting an employees' share scheme.

Funds are placed in the trust by way of deduction from employees' salaries on a monthly basis as they so instruct for purchase of shares in the Company. Shares are allocated to employees at the prevailing market price when the salary deductions are made.

As at 31 July 2012, the Trust held 623,212 (2011: 623,212) ordinary shares of 1 pence each with a market value of £676,185 (2011: £666,837). No shares were transferred out of the scheme during the year (2011: nil).

No dividends were waived during the year. No options have been granted under the EBT.

24 Cash flows

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

	2012	2011
	£'000	£'000
Profit before tax	926	938
Depreciation	1,577	1,616
Amortisation of intangible assets Professional costs - acquisition of Saracen	165 -	- 129
Equity settled share based payments	92	100
Loss on sale of motor vehicles	4	-
Interest receivable	(15)	(24)
Interest payable	1,029	522
Increase in inventories	(30)	(40)
Increase in receivables	(34)	(630)
(Decrease) / increase in payables	(572)	989
Cash generated from operations	3,143	3,600

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

Net debt is defined as non-current and current borrowings, as detailed in note 17 less cash and cash equivalents.

	31 July	31 July
	2012	2011
	£'000	£'000
Increase / (decrease) in cash in the year	182	(1,586)
Change in net debt resulting from cash flows	(1,540)	(78)
Movement in net debt in year	(1,358)	(1,664)
Net debt brought forward	(24,389)	(22,725)
Net debt carried forward	(25,747)	(24,389)

25 Commitments under operating leases

At 31 July 2012 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:

	Group	Group	Company	Company
	2012	2011	2012	2011
	£'000	£'000	£'000	£'000
Land and buildings
Amounts due:
Within one year	1,618	1,578	-	-
Between two and five years	6,090	5,920	-	-
After five years	6,087	8,405	-	-
	13,795	15,903	-	-

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.

The Group as lessor:

Property rental income earned during the year was £88,213 (2011: £92,450). This income is considered as ancillary and relatively short-term to the Group's trading activities as these properties are sites held for their development potential as self-storage centres and the rental income ceases when the buildings are demolished. These tenancies are therefore of a short term nature since tenants are served notice to vacate pending redevelopment of the site or if very short the leases run off to the end of their term. At the reporting date the Group had contracted with tenants, under non-cancellable leases, for the following future minimum lease payments:

	Group	Group	Company	Company
	2012	2011	2012	2011
	£'000	£'000	£'000	£'000
Within one year	89	77	-	-

26 Events after the reporting date

Crawley Store - Management Contract secured: The Group signed an agreement to manage a new self-storage centre in Crawley, Sussex on behalf of a third party investor. Completion of the transaction took place after the year-end on 10 August 2012. This new larger site follows the same investor's already successful store in Woking, Surrey which has been managed by Lok'nStore since 2007. It is the third store management contract for Lok'nStore. The Group has provided a medium term interest-bearing loan of £250,000 to facilitate the investor's purchase of the site, and will manage the fit-out and the operation of the store under the Lok'nStore brand.

VAT Tribunal decision: Following a longstanding dispute with HMRC on a VAT partial exemption issue, the matter was referred to a Tax Tribunal. The Tribunal Hearing took place in July 2012 to consider the matter and judgement was received in September 2012 in favour of Lok'nStore. Full details on this matter are provided under note 29c below.

Retirement of non-executive director

On 19 October 2012, Ian Wright retired as a non-executive director with immediate effect. The Board would like to thank Ian for his contribution since his appointment in May 2011.

27 Related party transactions

The following balances existed between the Company and its subsidiaries at 31 July:

	2012	2011
	£'000	£'000
Net amount due from Lok'nStore Limited	4,490	5,601

The amount due from Lok'nStore Limited is interest free. The balance is repayable on demand, however the Company has no present intention to demand repayment within one year and so the amount has been presented as a non-current asset as at 31 July 2011.

The Company provides share options for the employees of Lok'nStore Limited. The capital contributions arising from these share-based payments are separately disclosed under investments in note 12.

The aggregate remuneration of the Directors, who are the key management personnel of the Group, is set out below. Further information on the remuneration of individual Directors is found in note 6.

	2012	2011
	£'000	£'000
Short term employee benefits	504	507
Post-employment benefits	15	15
Share-based payments	59	66
Total	578	588

The Group has a service agreement for strategic services with Value Added Services LLP, a limited liability partnership in which Andrew Jacobs and Simon Thomas have a beneficial interest. The total fees payable to Value Added Services LLP are as shown in note 6. Fees are settled monthly and there were no outstanding amounts due to Value Added Services LLP at the year-end (2011: £nil). The maximum balance outstanding at any time during the year was £24,252 (ex VAT) (2011: £24,252).

The Group uses Trucost plc, an environmental research company, to provide information and undertake performance assessment of the environmental effect of its business activities. Trucost plc is a company in which Andrew Jacobs and Simon Thomas have a beneficial interest. The total fees payable to Trucost plc in respect of its environmental assessment and reporting for the year was £6,000 (2011: £6,000). The balance outstanding to Trucost plc at year-end was £nil (2011: £nil).

The Group has an agreement with Keith Jacobs, a brother of Andrew Jacobs and Colin Jacobs, for the provision of marketing services and support on a consultancy basis. The fees payable to Keith Jacobs during the year under this arrangement were £21,310 (2011: £20,741). There were no amounts outstanding due to Keith Jacobs at the year-end (2011: £3,427). The maximum balance outstanding at any time during the year is £1,956 (ex VAT) (2011: £3,427).

28a) Capital commitments and guarantees

The Group has capital expenditure contracted but not provided for in the financial statements of £2,555,116 (2011: £343,327) relating to the £2.5 million development commitment at Aldershot and various other minor works.

28b) Bank borrowings

The Company has guaranteed the bank borrowings of Lok'nStore Limited. As at the year-end, that company had gross bank borrowings of £29.7 million (2011: £28.1 million).

28c) 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 Year End

There were two appeals lodged at the Tax Tribunal; one in respect of the proposed PESM going forward and the other in respect of the SMO calculations for the past VAT periods. It has been agreed with the Tribunal and HMRC that the second appeal (i.e. the SMO appeal) would be stood over pending the outcome of the first appeal in respect of the proposed PESM. 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 to find that our proposed method gave a more accurate proxy for use and should be accepted. HMRC have 56 days from the date of judgement to appeal and at the date of these accounts their position is not yet known.

Accordingly, in light of the potential for HMRC to appeal the judgement 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 July 2012 which may become repayable to HMRC totals £409,940 (2011: £369,193) based on the standard method restriction. Of this £222,609 (2011: £203,386) relates to capital expenditure inputs and £187,331 (2011: £165,807) 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 time for appeal is passed. However while that outcome at present remains uncertain it is not considered that any material provision is necessary.

This information is provided by RNS

The company news service from the London Stock Exchange

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