Preliminary Results

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RNS Number : 3788Q

Lok'n Store Group PLC

14 October 2013

LOK'NSTORE GROUP PLC

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

Preliminary results

for the year ended 31 July 2013

Lok'nStore Group Plc, a leading company in the UK self-storage market announces results for the year ended 31 July 2013.

Financial Highlights

Net Asset Value per share up 8.8% to £2.48 (2012: £2.28)

Revenue £12.97 million up 1.6% (2012: £12.77 million)

Group adjusted EBITDA¹ £4.14million up 4.1% (2012: £3.97 million)

Operating profit and profit before interest £2.57 million up 32.4% (2012: £1.94 million)

Net debt reduced 12.4% to £22.5 million (2012: £25.7 million)

1.32 million shares acquired for Treasury at £1.23 per share (average price)

Annual dividend 6 pence per share up 20% (2012: 5 pence per share)

Operational Highlights

Self-storage:

Revenue £11.14 million up 3.4% (2012: £10.77 million)

Year-end unit occupancy up 10.4%

Pricing broadly flat at -0.5%

Occupancy of self-storage units increased to 64.5% of current lettable area (2012: 58.3%)

Store adjusted EBITDA £5.38million up 7.6% (2012: £5.0 million)

Store adjusted EBITDA profit margins up 2.2 percentage points to 48.7% (2012: 46.5%)

Document storage (Saracen):

Adjusted EBITDA profit £0.31 million (2012: £0.47 million)

Operating costs reduced 1%

Property Highlights

New managed store in Crawley commenced trading in November 2012

Sale and manage back of Ashford store

Construction well advanced at new Maidenhead store scheduled to open end of 2013

Lease extension and rent reduction on another leased store

Properties valued up 4.2%*

Key Metrics

Loan to value ratio of 28.5% ² (2012: 32.3%)

Funds from operations (FFO) ³ £3.4 million equivalent to 14.1 pence per share up 8.5% (2012: £3.2 million: 13.0 pence per share)

¹ Adjusted EBITDA is defined as profits before all depreciation and amortisation charges, losses or profits on disposal, share-based payments, acquisition costs and non-recurring professional costs, finance income, finance costs and taxation

2 Calculation based on net debt of £22.5 million (2012: £25.7 million) and total property value of £79.2 million (2012: £79.7 million) as set out below

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

Commenting on the Group's results, Andrew Jacobs CEO of Lok'nStore Group said, "Lok'nStore is trading well with increased occupancy driving cash flow per share and growth in net asset value. The Group has delivered record margins, operating profits and cash flow and we expect this momentum to continue.

Revenue and occupancy growth from our existing stores, combined with the opening of the new Crawley, Maidenhead and Aldershot stores will take us to 25 trading stores and backed by a strong balance sheet will underpin the continued growth of the business.

The Board's confidence is demonstrated by the 20% increase in the dividend to 6 pence per share."

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 another set of strong results for Lok'nStore Group for the year ended 31 July 2013. Net asset value per share before deferred tax provision is up 8.8% to £2.48 and Funds From Operations (FFO) per share are up 8.5%. We have reduced net debt by 12.4% and this has helped us reduce our loan-to-value ratio (LTV) to 28.5%. With 89% of our net debt at a fixed rate of 3.525% we have a firm foundation to build our business.

Like for like self-storage unit occupancy is up 10.4%. Group EBITDA is up 4.1% on last year which increases to 6.1%, on a like for like basis. With tight control over capital expenditure and operating costs, the Group's margins, operating profits and cash flow have all increased to record levels.

During the year we sold our Ashford store on a sale-and-manage-back basis to recycle our capital. The new managed store in Crawley opened in November 2012 and the development of the new Maidenhead store is almost complete with its opening scheduled for later in 2013. With the new managed Aldershot store opening in 2014 we have secured good momentum for our sales and earnings from a low-geared and secure balance sheet.

Dividend

It is intended that the Company's future dividend payments will reflect the growth in the underlying cash generated by the business. The interim dividend will represent approximately one-third of the total for the year and final dividend two-thirds. This year to reflect the strength of the business we are recommending a full year dividend of 6 pence per share up from 5 pence for the full year last year, an increase of 20%.

Appointment of Director

On 19 December 2012 Lok'nStore announced the appointment of Douglas Hampson as a Non-Executive Director of the Company. Douglas joined the Board following his investment in the Company. He has spent over 30 years in the self-storage industry, having set up the first self-storage facility in Europe in 1980. Douglas has founded and sold a number of self-storage businesses and his extensive knowledge of the self-storage sector businesses has been a valuable addition to our Board.

During the year Ian Wright stood down from the Board following the sale of Laxey Partners' entire holding in the Group.

Properties and Net Asset Value

The year-end property valuation equates to a total value of properties held of £79.2 million (2012: £79.7 million) a 4.2% increase in value after taking account of the disposal of our Ashford store. (Note that these values are not fully reflected in the statement of financial position which value the leasehold stores using a different method).

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.

The new store in Crawley opened this year and the new store in Maidenhead will commence trading late in 2013. The new venture in Aldershot will open in 2014. 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 projects also demonstrate Lok'nStore's ability to attract investment partners and create innovative ownership structures to drive the growth of the operating business without stretching the balance sheet.

The UK self-storage market

There remains significant opportunity in the UK self-storage market where there are an estimated 830 self-storage facilities. This equates to approximately 30.1 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 7.5 square feet per person in the USA (2012 US Self-Storage Almanac).

The sector remains in good health. The Drivers Jonas Deloitte 2013 report for the Self-Storage Association says "the total annual turnover for the UK self-storage industry in 2012 was £380 million from approximately 400 different operators, and they employed in excess of 2,000 staff (full time equivalent) in their self-storage facilities. The self-storage sector has seen increased levels of corporate activity, with several transactions across Europe"

Outlook

Lok'nStore is a robust business with a record of consistent profit growth and cash generation and has built a firm base for the coming years. We continue to grow revenue against tightly controlled costs, and this together with the strong occupancy growth provides continued momentum for the business. With Group adjusted EBITDA up 4.1% and occupancy up over 10% on the previous year, the strength of the Group's business model has been securely established.

Our innovative approach to financing new stores will enable us to grow our operating footprint to 25 stores by next year with limited capital expenditure, and the sale of our Ashford store close to its valuation underlines the strength of the asset base.

Our target is to continue to increase EBITDA per share over the coming years. We believe there is significant opportunity for further growth and we will focus our efforts on five key areas:

1. Filling existing stores and improving pricing

2. Developing new stores on a self-funded basis

3. Opportunistic site acquisitions

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

5. Developing our document storage offering through organic growth

We have significant operating experience to execute these opportunities effectively and we can fund these from our existing cash flow and the headroom within our current bank facilities.

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 delivering growth and working for the interest of all shareholders.

Increasing the annual dividend by 20% and maintaining a progressive dividend policy demonstrates the Board's continuing confidence.

Simon G Thomas

Chairman

11 October 2013

Chief Executive's Operating Review

Sales, Earnings and Occupancy Up

Revenue for the year was £12.97 million, up 1.6% year on year (2012: £12.77 million). This was a 2.8% increase after adjusting for the sale and manage-back of our Ashford store in March 2013. Our self-storage occupancy rose particularly strongly during the year increasing by 10% over last year with pricing broadly stable (down 0.5% year on year).

With costs firmly under control this turnover growth translates into strong profit growth. Total store EBITDA in the self-storage business, a key performance indicator of profitability and cash flow, increased 7.6% to £5.38 million (2012: £5.0 million). Group operating profit for the year is up 32.4% to £2.57 million (2012: £1.94 million).

Self-storage revenue for the year was £11.14 million up 3.4% (2012: £10.77 million). This was a 4.9% increase after adjusting for the sale of our Ashford store. During the year occupancy of the self-storage units increased 10.4% to 64.5% (2012: 58.3%) of current lettable area.

Performance of Self-Storage Centres

We have again managed to increase the overall adjusted EBITDA margin across all stores by 2.2 percentage points from 46.5% to 48.7%. The adjusted EBITDA margins of the freehold stores were 61.2% (2012: 59.1%) and the leasehold stores achieved margins of 30.8% (2012: 30.8%).

At the end of July 2013 36.6% of Lok'nStore's revenue was from business customers (2012: 38.1%) and 63.4% was from household customers, (2012: 61.9%). By number of customers 20.8% of our customers were business customers (2012: 22.4%) and 79.2% household customers (2012: 77.6%).

Store Performance Analysis				Owned Stores	Stores under Management contracts	Total Stores

Weeks old at 31 July 2013	Over 250	100-250	Pipeline	Total
Year ended 31 July 2013
Revenue* (£'000)	10,423	619	-	11,042
Store EBITDA (£'000)	5,041	334	-	5,375
EBITDA margin (%)	48.4	54.0	-	48.7
As at 31 July 2013
Maximum Area ('000 sq. ft.)	974	69	121	1,164
Freehold and long leasehold ('000 sq. ft.)	555	69	121	745
Short leasehold ('000 sq. ft.)	419	-	-	419
Number of stores
Freehold and long leasehold	10	1	2	13	4	17
Short leasehold	9	-	-	9	-	9
Total stores	19	1	2	22	4**	26

* 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.

** Four stores are managed by Lok'nStore under a Management Services Agreement for third party owners, three are trading and one store is under development.

Ancillary Sales

Ancillary sales which consist of boxes and packaging materials, insurance and other sales increased 5.2% over the year accounting for 10.7% of self-storage revenues (2012: 10.4%).

We continue to promote our insurance to new customers with the result that 90% of our new customers purchased our insurance over the year and this has resulted in a 5.6% increase in the percentage of our customers who are insured through Lok'nStore to 75% (2012: 71%).

Marketing

During the year our marketing focused on the internet and this produces an increasing proportion of our enquiries; printed directories account for a decreasing proportion. For the year internet enquiries were up 41% on last year and total enquiries were up 34%. 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 37% (2012: 39%) of our business still comes from passing traffic and signage, so the visibility of our stores is also very important to our marketing efforts. With their prominent positions, distinctive design and bright orange elevations, our stores raise the profile of the whole Lok'nStore brand.

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

Website

As discussed above the internet has rapidly taken over as the main media channel for our advertising and Lok'nStore has adapted to accommodate this change. Our new website at www.loknstore.co.uk was launched in February 2012 and has been extremely successful.

The site has clear navigation making it easy for customers to find their way around. Customers visiting the site are encouraged to book online to take advantage of our online reservation system. We have a "state of the art" space estimator 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. New features this year include online chat facility and 'click and collect' box shopping. 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.

Document storage business

Lok'nStore has completed the integration of the back office systems as well as the marketing and human resource functions during the year. There were further property cost savings achieved in August 2013 as the Saracen business consolidated its warehouse capacity from 3 to 2 stores. Following this consolidation we have the capacity to double the number of boxes stored. As part of this strategy additions of £0.4 million were made in the current year to fixtures, fittings and equipment.

In line with our overall Company values we have adopted a more customer friendly strategy by simplifying our billing and pre-agreeing annual price increases to give our customers more certainty. This investment has resulted in excellent customer feedback and puts us in a good position to win new business, but has resulted in a 7.7% dip in sales in the year. We believe this focus will create long term value for customers and shareholders as our customer base grows. Notwithstanding this in the year under review we have reduced the operating cost of Saracen by 1% to protect our margins.

Momentum to continue

Lok'nStore is trading well with increased occupancy driving cash flow per share and growth in net asset value. The Group has delivered record margins, operating profits and cash flow and we expect this momentum to continue.

Andrew Jacobs

Chief Executive Officer

11 October 2013

Property Review

Strong Cash Flows and Asset Base Underpin Opportunities

Lok'nStore's secure asset base, 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.

In the year under review we opened one managed store in Crawley and sold our existing Ashford store on a sale and manage back deal. We now have 4 stores under management.

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 limit our property costs.

Sale and manage-back of Ashford store

On 28 March 2013 Lok'nStore completed the sale of its store in Ashford, Kent for £2.9 million in cash, achieving a sale price equivalent to 99.3% of the carrying value at July 2012.

Lok'nStore is continuing to manage the store as a branded Lok'nStore operation on behalf of the investor, and receives a management fee, as well as an additional performance fee should the store beat certain targets or is ultimately sold. The structure of the deal allows us to recycle our capital and grow our operating footprint without stretching our balance sheet or diluting our equity.

The sale and manage-back contract of the Ashford store increases the number of Lok'nStore managed stores to four on behalf of three different clients.

Management Contracts

Aldershot: In June 2012 Lok'nStore signed an agreement to develop and manage a new self-storage centre in Aldershot, Hampshire. Lok'nStore will advance approximately £2.5 million of development funds of the estimated £4.5 million total cost of development of this new purpose-built store, and will manage the building and operation of the store. The other investors, including the original land owner, have invested the remaining £2 million. The property already has the benefit of a planning permission for a self-storage facility and we are currently working to improve and enhance the existing planning permission prior to commencement of construction works. An improved planning permission which will secure enhancements to the overall proposition is in progress and has been agreed in principle subject to finalisation of the S106 Agreement. Lok'nStore will generate a return by receiving a return on its capital and by charging a management fee for the construction, operation and branding of the store

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

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

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 planning permissions are current. 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, the discount supermarket and granted a lease to them for a consideration of £1.55 million.

We are now building this new self-storage centre which will have around 60,000 sq. ft. of self-storage space with Lidl sharing the ground floor space with Lok'nStore's operation. Lok'nStore will also occupy the entirety of the three floors above. The store will open in December 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.

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. 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%. Building has now commenced on this project with the new store scheduled to open in the middle of 2014.

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

We currently own and operate 20 stores with capacity of around 1.04 million sq. ft. of storage space when fully fitted. Further sites at Woking and Crawley are run under management contacts and with the managed store in Aldershot and the sale of the Ashford store under a sale and management arrangement this takes the sites operated under management contacts up to four. With the owned store in Maidenhead opening in the coming financial year, the stores under Lok'nStore's management will increase to 25.

At the year end the average length of the seven leases which were valued at July 2013 increased by two months to 14 years and 8 months (2012: 14 years and 6 months). Eight out of nine of our leasehold stores are inside the Landlord and Tenant Act providing us with a strong security of tenure. The leasehold sites produced 32% of the store EBITDA in the year (2012: 30%)

We prefer to own freeholds if possible, and where opportunities arise we will seek to acquire the freehold of our leasehold stores. 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 site's development.

Property Assets and Net Asset Value

Lok'nStore's freehold and operating leasehold properties have been independently valued by Cushman & Wakefield (C&W) at £67.7 million (NBV £30.6 million) as of 31 July 2013 (2012: £67.9 million: NBV £32.8 million). As we sold the Ashford store during the year this equates to an underlying increase of 4.2% in the value of the property assets. Property valuation is referred to further in the Financial Review and is detailed in note 10b of the notes to the financial statements.

Adding our stores under development at cost, our total property valuation is £79.2 million (historic cost value £42.6 million) (2012: £79.7 million; historic cost value £44.65 million). This translates into an adjusted net asset value of £2.48 per share up 8.8% on last year (2012: £2.28 per share).

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 transactiondemonstrate our tactical 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

11 October 2013

Financial Review

Trading

Total revenue for the year grew to £12.97 million (2012: £12.77 million), an increase of 1.6% or 2.8% excluding the Ashford store which was sold in March 2013. Pre-tax profit for the year was £1.43 million (2012: £0.93 million) up 54%. Document storage revenue was £1.84 million (2012: £2.0 million). Document storage adjusted EBITDA before inter-company management charges, was lower at £0.31 million (2012: £0.47 million).

There is no current corporation tax liability to pay due to the availability of tax losses. Almost all of the Group's tax losses have now been utilised with tax losses available to carry forward for offset against future profits of £0.2million. The Group will therefore pay tax on the majority of its earnings next year.

Basic earnings per share were 5.75 pence (2012: 3.01 pence per share). Diluted earnings per share were 5.72 pence (2012: 2.99 pence per share).

Purchase of shares for Treasury

During the year the Group purchased 1.32 million shares into Treasury at an average price of £1.23 per share. Clearly with the Group's opening Net Asset Value per share (NAV) at £2.28 any such purchases are significantly NAV enhancing on a per share basis and this has contributed to the increase in NAV per share to £2.48. We are proposing to renew our on-going authority to buy back shares at this year's AGM. Full details are provided in note 25 - Own Shares.

Management of Interest Rate Risk

The Board regularly reviews the Group's interest rate hedging position and monitors prevailing LIBOR and swap rates.

Last year we fixed a significant proportion of our floating rate debt by entering 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. On 30 May 2012 the Group also 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% 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 secure the current low interest rates. An effective fixed 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 £26.8 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 £6.8 million floating at a current all-in average rate of around 2.85% and results in an overall weighted average rate of 3.36%. The £20 million fixed rate is treated as an effective cash flow hedge and its fair value stated as a liability. See note 16b.

Operating Costs

For the previous five years we have reduced our group operating costs and this year through disciplined management we have managed to limit the increase this year to 0.4%. For the self-storage business operating costs amounted to £8.57 million for the period, a small increase from last year. This year we reduced operating costs at Saracen by 1% compared to last year. This rigorous approach to costs ensures that the majority of the turnover growth that we have achieved contributes to Group profits.

Group	Increase/ (Decrease) in costs %	2013 £'000	2012 £'000
Property costs	(4.2)	3,732	3,895
Staff costs	3.1	3,538	3,432
Overheads	7.5	1,127	1,048
Distribution costs	5.0	173	165
Total	0.4	8,570	8,540
Lok'nStore Limited**	Increase/ (Decrease) in costs %	2013 £'000	2012 £'000
Property costs	(5.3)	3,228	3,409
Staff costs	6.2	2,976	2,801
Overheads Distribution costs	5.6 -	952 -	902 -
Total	0.6	7,156	7,112
Saracen Datastore Limited	Increase in costs %	2013 £'000	2012 £'000
Property costs	3.9	504	486
Staff costs	(11.0)	562	631
Overheads Distribution costs	19.3 5.0	175 173	147 165
Total	(1.0)	1,414	1,429

** Includes 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 2013 the Group had cash balances of £4.2 million (2012: £4.0 million). Net debt, defined as gross debt before deferred financing costs less total cash and cash equivalents, has been reduced from £25.7 million to £22.5 million.

At 31 July 2013 we had £26.8 million of gross borrowings (2012: £29.7 million) representing gearing of 55.8% on net debt of £22.5 million (2012: 66.1%). After adjusting for the uplift in value of leaseholds which are stated at depreciated historic cost in the statement of financial position, gearing is 45.2% (2012: 54.9%). After adjusting for the deferred tax liability carried at year-end of £9.7 million gearing drops to 37.8% (2012: 45.2%).

Cash inflow from operating activities before investing and financing activities was £4.3 million(2012: £3.1 million). As well as using cash generated from operations to fund some capital expenditure, the Group has a five year revolving credit facility. This provides sufficient liquidity for the Group's current needs. Undrawn committed facilities at the year-end amounted to £13.2 million (2012: £10.3 million).

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 £11.5 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 £386,538 higher for the year (2012: £275,859) on the assumption that the £11.5 million is fully funded by borrowings.

By excluding the £386,538 of interest costs of carrying the development sites from the total net interest charge of £1,142,203 the interest on the operating portfolio would be £755,665 for the year. Funds from operations (FFO) represented by £4,136,512 EBITDA minus interest on the operating portfolio is therefore £3,380,847 equating to 14.1 pence per share, up 8.5% on last year (2012: 13 pence per share).

The Group has grown 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 £0.6 million. This included some limited capex at existing stores, planning and other professional costs incurred in maximising the potential of the existing planning permissions. We also invested £0.4 million in further racking fit-out and fire vault capacity at the Saracen Olney warehouse. Additionally, the construction of our new Maidenhead store commenced and building costs at the balance sheet date amounted to £1.17 million. The Company has no further capital commitments beyond the completion of its Maidenhead store, its £2.5 million development commitment at Aldershot and some minor works to existing properties. Refer note 30a: Capital Commitments.

Statement of Financial Position

Net assets at the year-end were £40.4 million (2012: £39.0 million). Freehold property values at 31 July 2013 were £54.5 million compared to £56.1 million at 31 July 2012 following the sale of our Ashford store.

Market Valuation of Freehold and Operating Leasehold Land and Buildings

Our eleven freehold properties are held in the statement of financial position at fair value, and have been valued externally by Cushman and Wakefield LLP (C&W). Refer to note 10b - 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 2013 professional valuations were prepared by valuers C&W in respect of eleven freehold and seven operating leasehold properties. The valuation was prepared in accordance with the RICS Valuation - Professional Standards, published by The Royal Institute of Chartered Surveyors ("the Red Book"). 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 10b in the notes to the financial statements for a more detailed description of the valuation methodology).

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 in 2007. 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 £13.2 million (2012: £11.8 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 2013 Valuation £'000	No of stores/sites	31 July 2012 Valuation £'000
Freehold valued by C & W	11**	54,460	12***	56,050
Leasehold valued by C & W	7	13,200	7	11,830
Subtotal	18	67,660	19	67,880
Sites in development at cost	4	11,517	4	11,850
Total	22	79,177	23*	79,730

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

** Ashford store sold during the year for £2.9 million.

*** 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.

At July 2013 the adjusted net asset value per share increased to £2.48 from £2.28 last year, up 8.8%. This increase is a result of higher property values, cash generated from operations and the share buy-back reducing the number of shares.

Analysis of net asset value (NAV)

2013

£'000

2012

£'000

Total non-current assets

Adjustment to include leasehold stores at valuation

Add: C & W leasehold valuation*

Deduct: leasehold properties and their fixtures and fittings at NBV

74,774

13,200

(3,696)

76,903

11,830

(3,910)

84,278

84,823

Add: current assets

Less: current liabilities

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

Less: derivative financial instruments

6,799

(4,803)

(26,422)

(271)

5,956

(4,106)

(29,223)

(496)

(24,697)

(27,869)

Adjusted net assets before deferred tax provision

Deferred tax

Deferred tax arising on revaluation of leasehold properties**

59,581

(9,705)

(2,186)

56,954

(10,073)

(1,822)

Adjusted net assets

47,690

45,059

Shares in issue

Number

Opening shares

Shares issued for the exercise of options

26,759

382

26,759

Closing shares in issue

Shares held in treasury

Shares held in EBT

27,141

(2,467)

(623)

26,759

(1,142)

(623)

Closing shares for NAV purposes

24,051

24,994

Adjusted net asset value per share after deferred tax provision

£1.98

£1.80

Adjusted net asset value per share before deferred tax provision

£2.48

£2.28

* 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 8 months at the date of the 2013 valuation (2012 valuation: 14 years and 6 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 robust business which generates increasing cash flow from its strong asset base. With a low LTV of 28.5% and our interest rate risks substantially hedged through to 2016 we have a firm base for growth. The value of the Group's property assets continue to increase underpinning a flexible business model with relatively low credit risk and tightly controlled operating costs.

Ray Davies

Finance Director

11 October 2013

Consolidated Statement of Comprehensive Income

For the year ended 31 July 2013

	Notes	2013 £'000	2012 £'000
Revenue	1a	12,974	12,765

Total property, staff, distribution and general costs	2a	(8,838)	(8,791)
Adjusted EBITDA*		4,136	3,974
Amortisation of intangible assets		(165)	(165)
Depreciation based on historic cost		(954)	(1,304)
Additional depreciation based on revalued assets		(250)	(273)
Loss on sale of motor vehicle		(18)	(4)
Equity settled share based payments		(94)	(92)
Professional and related costs - management contract set-up	2c	-	(196)
Loss on sale of property	2c	(86)	-
		(1,567)	(2,034)

Operating profit*		2,569	1,940

Finance income	3	33	15
Finance cost	4	(1,175)	(1,029)

Profit before taxation	5	1,427	926
Income tax credit /(expense)	7	2	(155)

Profit for the year		1,429	771

Profit attributable to:
Owners of the parent	24	1,421	753
Non-controlling interest		8	18

		1,429	771

Other Comprehensive Income

Increase in property valuation		2,025	48
Deferred tax relating to change in property valuation		426	523
Increase / (decrease) in fair value of cash flow hedges		225	(496)
Deferred tax relating to cash flow hedges		(60)	114
Other comprehensive income		2,616	189
Total comprehensive income for the year Attributable to:		4,045	960
Owners of the parent		4,037	942
Non-controlling interest		8	18
		4,045	960

Earnings per share
Basic	9	5.75p	3.01p
Diluted	9	5.72p	2.99p

* Adjusted 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 2013

	Share capital £'000	Share premium £'000	Other reserves £'000	Revaluation reserve £'000	Retained earnings £'000	Attributable to owners of the parent £'000	Non controlling interest £'000	Total equity £'000
1 August 2011	268	698	12,858	20,161	4,587	38,572	254	38,826

Profit for the 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
Total comprehensive income for the year	-	-	(382)	571	753	942	18	960

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

Profit for the year	-	-	-	-	1,421	1,421	8	1,429
Other comprehensive income:
Increase in property valuation	-	-	-	2,025	-	2,025	-	2,025
Deferred tax relating to increase
in property valuation	-	-	-	426	-	426	-	426
Increase in fair value of cash flow hedges	-	-	225	-	-	225	-	225

Deferred tax relating to cash flow hedges	-	-	(60)	-	-	(60)	-	(60)
Total comprehensive income for the year	-	-	165	2,451	1,421	4,037	8	4,045

Transactions with owners:
Purchase of own shares into treasury	-	-	-	-	(1,648)	(1,648)	-	(1,648)
Asset disposal	-	-	-	(1,120)	1,120	-	-	-
Dividend paid	-	-	(1,399)	-	-	(1,399)	-	(1,399)
Total transactions with owners	-	-	(1,399)	(1,120)	(528)	(3,047)	-	(3,047)

Transfer additional dep'n on revaluation
net of deferred tax	-	-	-	(193)	193	-	-	-
Equity settled share based payments	-	-	94	-	-	94	-	94
Exercise of share options	4	315	-	-	-	319	-	319
31 July 2013	272	1,013	10,511	21,665	6,631	40,092	280	40,372

Company Statement of Changes in Equity

For the year ended 31 July 2013

	Share capital £'000	Share premium £'000	Retained deficit £'000	Other reserves £'000	Total £'000
1 August 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

Loss for the year	-	-	(203)	-	(203)

Dividend paid	-	-	-	(1,399)	(1,399)

Equity settled share based payments	-	-	-	94	94

Exercise of share options	4	315	-	-	319

31 July 2013	272	1,013	(735)	4,433	4,983

Statements of Financial Position

31 July 2013

Company Registration No. 04007169

	Notes	Group 2013 £'000	Group 2012 £'000	Company 2013 £'000	Company 2012 £'000
Assets
Non-current assets
Intangible assets	10a	4,088	4,253	-	-
Property, plant and equipment	10b	67,886	69,470	-	-
Property lease premiums	10c	2,800	3,180	-	-
Investments	11	-	-	1,776	1,682
Amounts due from subsidiary undertakings	29	-	-	3,207	4,490
		74,774	76,903	4,983	6,172
Current assets
Inventories	12	138	140	-	-
Trade and other receivables	13	2,417	1,855	-	-
Cash and cash equivalents	15	4,244	3,961	-	-
		6,799	5,956	-	-
Total assets		81,573	82,859	4,983	6,172

Liabilities
Current liabilities
Trade and other payables	14	(4,798)	(4,084)	-	-
Borrowings	16a	(5)	(22)	-	-

		(4,803)	(4,106)	-	-

Non-current liabilities
Borrowings Derivative financial instruments Deferred tax	16a 16b 17	(26,422) (271) (9,705)	(29,223) (496) (10,073)	- - -	- - -

		(36,398)	(39,792)	-	-

Total liabilities		(41,201)	(43,898)	-	-
Net assets		40,372	38,961	4,983	6,172

Equity
Equity attributable to owners of the parent
Called up share capital	18	272	268	272	268
Share premium		1,013	698	1,013	698
Other reserves	23	10,511	11,651	4,433	5,738
Retained earnings / (deficit)	24	6,631	5,545	(735)	(532)
Revaluation reserve		21,665	20,527	-	-
Total equity attributable to owners of the parent		40,092	38,689	4,983	6,172
Non-controlling interests		280	272	-	-

Total equity		40,372	38,961	4,983	6,172

Approved by the Board of Directors and authorised for issue on 11 October 2013 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 2013

	Notes	2013 £'000	2012 £,000
Operating activities
Cash generated from operations	26a	4,286	3,143

Net cash from operating activities		4,286	3,143
Investing activities
Purchase of property, plant and equipment		(603)	(1,839)
Purchase additions to property lease premiums		(1,171)	(235)
Proceeds from disposal of property, plant and equipment		4,459	10
Interest received		33	15
Net cash used in investing activities		2,718	(2,049)
Financing activities Purchase of shares for treasury Proceeds from new borrowings Repayment of borrowings Arrangement fees - refinancing of group revolving credit facility		(1,648) - (2,922) -	- 29,681 (28,195) (555)
Finance costs paid		(1,071)	(926)
Equity dividends paid		(1,399)	(917)
Proceeds from issuance of ordinary shares (net)		319	-
Net cash used in financing activities		( 6,721)	(912)

Net increase in cash and cash equivalents in the year		283	182
Cash and cash equivalents at beginning of the year		3,961	3,779
Cash and cash equivalents at end of the year		4,244	3,961

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 Group 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.co.uk.

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 2012.

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 19

IAS 27**

IAS 28**

IFRS 1*

IFRS 7*

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

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.

** Effective in the EU for financial years starting on or after 1 Jan 2014.

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 EU-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 10b. The carrying value of land and buildings held at valuation at the reporting date was £50.8 million (2012: £51.9 million) as shown in note 10b.

In their report to us, our valuers Cushman & Wakefield LLP (C&W) have drawn attention to valuation uncertainty resulting from a lack of transactions in the self-storage investment market. Please see note 10b for more details.

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. 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 £11.5 million (2012: £11.9 million) of which £2.8 million (2012: £3.18 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 2013 intangible assets, excluding goodwill, amounted to £2.98 million (2012: £3.1m).

The valuation method used and key assumptions are described in note 10a.

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 principally reflects management's view of the average economic life of the customer base and is assessed by reference to customer churn rates. Typically, the customer base for a serviced archive business is relatively inert. Corporate customers do not tend to switch service providers and indeed they incur box withdrawal charges should they do so. An increase in churn rates may lead to a reduction in the estimated useful life and an increase in the amortisation charge.

Notes to the Financial Statements

For the year ended 31 July 2013

1a Revenue

Analysis of the Group's revenue is shown below:

	2013	2012
Stores trading	£'000	£'000
Self-storage revenue	9,776	9,550
Other storage related revenue	1,168	1,111
Ancillary store rental revenue	4	5
Management fees	94	20
Sub-total	11,042	10,686
Stores under development
Non-storage income	95	88
Sub-total	11,137	10,774
Serviced archive and records management revenue	1,837	1,991
Total revenue per statement of comprehensive income	12,974	12,765

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.

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 2013 is as follows:

2013	Self-storage 2013 £'000	Serviced archive and records management 2013 £'000	Total 2013 £'000
Revenue from external customers	11,137	1,837	12,974

Adjusted EBITDA	3,822	314	4,136
Management charges	100	(100)	-
Segment adjusted EBITDA	3,922	214	4,136
Depreciation Amortisation of intangible assets	(1,093) -	(111) (165)	(1,204) (165)
Loss on disposal - motor vehicles	(9)	(9)	(18)
Equity settled share based payments	(94)	-	(94)
Loss on sale of property	(86)	-	(86)
Segment profit	2,640	(71)	2,569
Central costs not allocated to segments:
Finance income			33
Finance costs			(1,175)
Profit before taxation			1,427
Income tax credit			2

Consolidated profit for the financial year			1,429

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

Adjusted EBITDA Management charges	3,500 185	474 (185)	3,974 -
Segment adjusted EBITDA	3,685	289	3,974
Depreciation Amortisation of intangible assets Loss on disposal - motor vehicles Equity share based payments	(1,498) - (4) (92)	(79) (165) - -	(1,577) (165) (4) (92)
Segment profit	2,091	45	2,136
Central costs not allocated to segments: Professional fees - management contract set up Finance Income Finance costs			(196) 15 (1,029)
Profit before taxation Income tax expense			926 (155)
Consolidated profit for the financial year			771

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 315 customers has a greater customer concentration with its ten largest corporate customers accounting for 32.5% (2012: 39%) of revenue its top 50 accounting for 62.4% (2012: 68.8%) and its top 100 accounting for 77.6% (2012: 84.0%) of revenue. The self-storage segment with over 6,750 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.

2013	Self-storage 2013 £'000	Serviced archive & records management 2013 £'000	Total 2013 £'000

Segment and total assets	75,930	5,643	81,573

Segment liabilities	(13,578)	(925)	(14,503)
Borrowings			(26,427)

Derivative financial instruments			(271)
Total liabilities			(41,201)
§ Capital expenditure	1,412	362	1,774

§ Capital expenditure includes fixed asset additions. Refer note 10b and additions to property lease premiums note 10c.

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 Derivative financial instruments			(29,245) (496)
Total liabilities			(43,898)
Capital expenditure	1,700	374	2,074

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 Property, staff, distribution and general costs
	2013 £'000	2012 £'000
Property and premises costs	3,733	3,895
Staff costs	3,538	3,432
General overheads	1,128	1,048
Distribution costs	173	165
Retail products cost of sales (see note 2b)	266	251
	8,838	8,791

2b 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.

	2013 £'000	2012 £'000
Retail	104	103
Insurance	27	21
Van hire	22	35
Other	5	3
	158	162
Serviced archive consumables and direct costs	108	89
	266	251

2c Other costs

	2013 £'000	2012 £,000
Legal fees and associated costs - management contract setup costs	-	196
Loss on sale of Ashford store (see note 10b)	86	-
	86	196

3 Finance income

2013

£'000

2012

£'000

Bank interest

All interest receivable arises on cash and cash equivalents (see note 15).

4 Finance costs

	2013 £'000	2012 £'000
Bank interest	962	814
Non-utilisation fees and amortisation of bank loan arrangement fees	207	201
Other interest	6	14
	1,175	1,029

5 Profit before taxation

	2013 £'000	2012 £'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	1,198 6 166 1,619	1,556 21 166 1,729

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	46	41
Other services
-the auditing of accounts of associates of the Company pursuant to legislation	12	16
Other services supplied pursuant to such legislation
- interim review	9	7
Tax services
- compliance services	36	27
- advisory services	24	56
Other services	2	11

	129	158
Comprising:
Audit services	58	57
Non-audit services:	71	101

	129	158

6 Employees

	2013 No	2012 No
The average monthly number of persons (including Directors) employed by the Group during the year was:
Store management	104	102
Administration	27	31
	131	133

	2013 £'000	2012 £'000
Costs for the above persons:
Wages and salaries	2,804	2,717
Social security costs	267	256
Pension costs	50	34
	3,121	3,007
Share based remuneration (options)	94	92
	3,215	3,099

Share based remuneration is separately disclosed in the statement of comprehensive income. Wages and salaries of £110,262 (2012: £106,213) 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 £3,839 (2012: £2,948) outstanding at the year-end.

Directors' remuneration

2013	Emoluments £	Bonuses £	Benefits £	Sub total £	Gains on share options £	Total £
Executive:
A Jacobs	196,564	20,010	3,154	219,728	33,937	253,665
SG Thomas	49,141	4,378	3,036	56,555	33,937	90,492
RA Davies	100,000	6,000	2,380	108,380	54,685	163,065
CM Jacobs	56,700	3,000	2,563	62,263	6,643	68,906
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
D Hampson	12,205	-	-	12,205	-	12,205
	479,610	33,388	11,133	524,131	129,202	653,333

					Gains on
	Emoluments	Bonuses	Benefits	Sub total	share options	Total
2012	£	£	£	£	£	£
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

During the year services, including re-imbursement of expenses, totalling £321,773 (2012: £309,578) 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 £15,000 (2012: £12,500). See note 29 on 'Related party transactions' for further information.

Pension contributions of £30,047 (2012: £15,062) 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 (2012: one).

7 Taxation

	2013 £'000	2012 £'000
Current tax:
UK corporation tax at 24% (2012: 25%)	-	-
Deferred tax:
Origination and reversal of temporary differences	402	376
Impact of change in tax rate on closing balance	(525)	(351)
Adjustments in respect of prior periods	121	130
Total deferred tax (credit) / charge	(2)	155
Income tax (credit) / expense for the year	(2)	155

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

	2013 £'000	2012 £'000
Profit before tax	1,426	926
Tax on ordinary activities at the standard rate of corporation tax in the UK of 24% (2012: 25%)	342	232
Expenses not deductible for tax purposes	4	18
Depreciation of non-qualifying assets	35	103
Share based payment charges in excess of corresponding tax deduction	22	22
Impact of change in tax rate	(525)	(351)


Adjustments in respect of prior periods - deferred tax Other	121 (1)	130 1
Income tax credit / expense for the year	(2)	155
Effective tax rate	-%	17%

The UK's main rate of corporation tax is expected to reduce to 21% from 1 April 2014. The applicable rate for this period is 24%.

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 £662,232 (2012: £522,585) and the movement in the fair value of cash flow hedges of £59,827 (2012: £114,057) has been recognised as a debit directly in other comprehensive income. Refer note 17 on deferred tax.

8 Dividends

	2013 £'000	2012 £'000
Amounts recognised as distributions to equity holders in the year:

Final dividend for the year ended 31 July 2011 (2.67 pence per share)	-	667
Interim dividend for the six months to 31 January 2012 (1.00 pence per share)	-	250
Final dividend for the year ended 31 July 2012 (4.0 pence per share)	1,000	-
Interim dividend for the six months to 31 January 2013	399	-

	1,399	917

In respect of the current year the Directors propose that a final dividend of 4.33 pence per share will be paid to the shareholders. The total estimated dividend to be paid is £1,043,305 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 13 November 2013; the record date 15 November 2013; with an intended payment date of 16 December 2013.

9 Earnings per share

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

	2013 £'000	2012 £'000
Profit for the financial year attributable to owners of the parent	1,421	753

	2013 No. of shares	2012 No. of shares
Weighted average number of shares
For basic earnings per share	24,700,318	24,993,653
Dilutive effect of share options*	147,825	186,893
For diluted earnings per share	24,848,143	25,180,546

623,212 (2012: 623,212) shares held in the Employee Benefit Trust and 2,466,869 (2012: 1,142,000) Treasury shares are excluded from the above. Refer note 25.

*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 notes 19 to 22.

	2013	2012
Earnings per share
Basic	5.75p	3.01p
Diluted	5.72p	2.99p

10 a) Intangible assets

Group	Goodwill £'000	Contractual customer relationships £'000	Total £'000
Cost and net book value at 1 August 2011	1,110	3,309	4,419
Amortisation charge	-	(166)	(166)
Net book value at 31 July 2012	1,110	3,143	4,253
Amortisation charge	-	(165)	(165)
Net book value at 31 July 2013	1,110	2,978	4,088

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

* The remaining amortisation period of the contractual customer relationships at 31 July 2013 is 17 years and 11 months (2012: 18 years 11 months).

The values 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

- long term sustainable growth rates of 2.75%

- a forward corporation tax rate of 23%

- sensitivity: the Group has conducted a sensitivity analysis on the impairment test of each CGU's carrying value. A cut in projected sales by around 7.25% would result in the carrying value of goodwill being reduced to its recoverable amount.

10 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 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	10,178
Net book value at 31 July 2012	8,670	51,868	1,094	7,719	118	69,470
Cost or valuation
1 August 2012	8,670	51,868	2,514	16,379	217	79,648
Additions	46	67	30	450	10	603
Disposals	-	(2,700)	-	(681)	(82)	(3,463)
Revaluations	-	1,539	-	-	-	1,539
31 July 2013	8,716	50,774	2,544	16,148	145	78,327

Depreciation
1 August 2012	-	-	1,420	8,659	99	10,178
Depreciation	-	486	89	611	18	1,204
Disposals	-	-	-	(415)	(40)	(455)
Revaluations		(486)	-	-	-	(486)
31 July 2013	-	-	1,509	8,855	77	10,441
Net book value at 31 July 2013	8,716	50,774	1,035	7,293	68	67,886

If all property, plant and equipment were stated at historic cost the carrying value would be £42.6 million (2012: £44.65 million).

Capital expenditure ("capex") during the year totalled £0.60 million (2012: £1.8 million). This included small limited expenditures at existing stores, 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 £67.9 million (2012: £69.5 million) are pledged as security for bank loans, refer note 16a. The Maidenhead property with a carrying value of £2,800,495 (2012: £3,179,668), refer note 10c, is also pledged as security for the bank loans.

The net book value of assets held under finance leases at 31 July 2013 was £14,059 (2012: £116,080) and the depreciation charge includes £5,712 (2012: £20,593) in relation to these assets.

Market Valuation of Freehold and Operating Leasehold Land and Buildings

On 31 July 2013, 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 - Professional Standards, published by the Royal Institute of Chartered Surveyors ("the Red Book"). The valuations were prepared on the basis of Fair Value or Fair 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 nine 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 £67.7 million (2012: £67.9 million) of which £54.5 million (2012: £56.1 million) relates to freehold properties, and £13.2 million (2012: £11.8 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 Fair 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 £54.5 million valuation of the freehold properties £3.7 million (2012: £4.3 million) relates to the net book value of fixtures, fittings and equipment, and the remaining £50.8 million (2012: £51.9 million) relates to freehold properties.

The 2013 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 2013.

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 67.72% (2012: 68.26%). 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 7.17% (2012: 6.31%). This rises to 11.10% (2012: 11.38%) 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 12.02% (2012: 12.05%).

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 8 months as at 31 July 2013 (14 years and 6 months: 31 July 2012). 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 and 2012.

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 Fair 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.

10 c) Property lease premiums

£2.8 million of costs relating to the long lease at Maidenhead is classified as a non-current asset in the statement of financial position (2012: £3.2 million). This represents a lease premium paid on entering the lease and other related costs. The lease runs until 31 March 2076. A peppercorn rent is payable until 2027 and a market ground rent thereafter. During the year under a site sharing agreement with a discount supermarket retailer, the group disposed of a part interest in its site for £1,550,000 in cash.

Group	2013 £'000	2012 £'000
Balance 1 August	3,179	2,944
Additions during the year	1,171	236
Disposal during the year	(1,550)	-
Balance 31 July	2,800	3,180

11 Investments

Company Investments in subsidiary undertakings	£'000
31 July 2011	1,590
Capital contributions arising from share-based payments	92
31 July 2012	1,682
Capital contributions arising from share-based payments	94
31 July 2013	1,776

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.

12 Inventories

Group

2013

£'000

Group

2012

£'000

Consumables and goods for resale

138

140

The amount of inventories recognised as an expense during the year was £179,833 (2012: £135,673).

13 Trade and other receivables

	Group 2013 £'000	Group 2012 £'000
Trade receivables	1,249	1,225
Other receivables	733	163
Prepayments and accrued income	435	467
	2,417	1,855

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 £375,458 (2012: £382,270) 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 41 days past due (2012: 41 days past due).

Ageing of past due but not impaired receivables

	Group 2013 £'000	Group 2012 £'000
0-30 days	136	137
30-60 days	204	204
60+ days	35	41
Total	375	382

Movement in the allowance for bad debts
	Group	Group
	2013	2012
	£'000	£'000
Balance at the beginning of the year	138	101
Impairment losses recognised	61	58
Amounts written off as uncollectible	(50)	(22)
Balance at the end of the year	149	137

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.

Ageing of impaired trade receivables

	Group 2013 £'000	Group 2012 £'000
0-30 days	-	-
30-60 days	-	-
60+ days	148	137
Total	148	137

14 Trade and other payables

	Group 2013 £'000	Group 2012 £'000
Trade payables	1,256	767
Taxation and social security costs	434	294
Other payables	912	911
Accruals and deferred income	2,196	2,112
	4,798	4,084

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

15 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 16a, 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:

Capital Management	Group 2013 £'000	Group 2012 £'000
Debt	(26,786)	(29,708)
Cash and cash equivalents	4,244	3,961
Net debt	(22,542)	(25,747)
Statement of financial position equity	40,372	38,961
Net debt to equity ratio	55.8%	66.1%

The decrease in the Group's gearing ratio arises through the combined effect of a decrease in debt arising from the application of the sale proceeds of the Ashford store to the bank loan, an increase in the C&W valuation of its freehold properties and a decrease in the liability arising on the market to market 'fair value' of the two interest rate swaps executed last year. Cash generated from operations also contributed to the overall 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. Last year the Group executed two separate interest rate swaps with Lloyds TSB plc. These have been maintained and are reported fully in the Financial Review.

B Debt management

Debt is defined as non-current and current borrowings, as detailed in note 16a. 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 £81.6 million (2012: £82.9 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 (2012: £40 million). This facility expires on 19 October 2016. Undrawn committed facilities at the year-end amounted to £13.2 million (2012: £10.3 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 16a. 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. The Group continues its two cash flow hedging interest rate swap arrangements in order to reduce the risk of such upward movements in LIBOR rate. These instruments and the movement in their fair values are detailed in note 16b.

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 £26.8 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 16b.

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 2013 are as follows:

	Group 2013 £'000	Group 2012 £'000
Variable rate treasury deposits*	4,171	3,612
SIP trustee deposits	51	39
(Overdraft) /cash in operating current accounts	(74)	256
Other cash and cash equivalents	96	54
Total cash and cash equivalents	4,244	3,961

* 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 2013 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 2013, it is estimated that an increase of one percentage point in interest rates would have reduced the Group's annual profit before tax by £67,816 (2012: £96,815) and conversely a decrease of one percentage point in interest rates would have increased the Group's annual profit before tax by £67,816 (2012: £96,815). 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 2.86% applying to the variable rate borrowings of £6.8 million in the year (2012: £9.8 million / 2.33%).

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 13. 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 2013 was £1,430,879 (2012: £1,265,638) on receivables and £4,243,522 (2012: £3,960,772) on cash and cash equivalents.

H Maturity analysis of financial liabilities

The undiscounted contractual cash flow maturities are as follows:

2013 - Group

	Trade and other payables £'000	Borrowings £'000	Interest on borrowings £'000
From two to five years	-	26,781	1,997
From one to two years	-	-	898
Due after more than one year	-	-	2,895
Due within one year	3,038	5	900
Total contractual undiscounted cash flows	3,038	26,786	3,795

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

I Fair values of financial instruments

	2013 £'000	2012 £'000
Categories of financial assets and financial liabilities
Financial assets
Trade and other receivables	1,431	1,266
Cash and cash equivalents	4,244	3,961
Financial liabilities
Trade and other payables	(3,038)	(2,327
Bank loans	(26,422)	(29,219)
Finance lease payables	(5)	(26)

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 £3.2 million (2012: £4.5 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.

16a Borrowings

	Group 2013 £'000	Group 2012 £'000
Non-current
Bank loans repayable in more than two years
but not more than five years
Gross	26,781	29,682
Deferred financing costs	(359)	(463)
Net bank borrowings	26,422	29,219
Finance lease liabilities	-	4
Non-current borrowings	26,422	29,223

Current
Finance lease liabilities	5	22
Current borrowings	5	22
Total borrowings	26,427	29,245

The £40 million revolving credit facility with Lloyds TSB plc is secured by legal charges and debentures over the freehold and leasehold properties and other assets of the business with a net book value of £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 2013 £'000	Group 2012 £'000
Gross finance liabilities - minimum lease payments
Within one year	6	27
Later than one year and no later than five years	-	6
Later than five years	-	-
	6	33
Future finance charges on finance leases	(1)	(7)

	5	26

The present value of finance lease liabilities is as follows:

	Group 2013 £'000	Group 2012 £'000
Gross finance liabilities - minimum lease payments
Within one year	5	21
Later than one year and no later than five years	-	5
	5	26

16b Derivative financial instruments

The Group continues to operate two separate £10 million interest rate swaps as a cash flow hedge with Lloyds TSB Bank plc both effective from 31 May 2012, the first at a fixed 1 month sterling LIBOR rate of 1.2% and the second 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 £6.8 million (2012: £9.7 million) remains at a floating rate.

	Currency	Principal £'000	Maturity date	Fair value 2013 £'000	Fair value 2012 £'000
3032816LS Interest rate swap	GBP	10,000	20/10/2016	(143)	(258)
3047549LS Interest rate swap	GBP	10,000	20/10/2016	(128)	(238)
		20,000		(271)	(496)

The movement in fair value of the interest rate swaps of £225,000 (2012: £496,000), has been recognised in other comprehensive income in the year.

17 Deferred tax

	Group	Group
Deferred tax liability	2013 £'000	2012 £'000
Liability at start of year	10,073	10,555
(Credit) / charge to income for the year	(2)	154
Tax credited directly to other comprehensive income	(366)	(636)
Liability at end of year	9,705	10,073

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

	Accelerated Capital Allowances £'000	Tax losses £'000	Intangible assets £'000	Other temporary differences £'000	Revaluation of properties £'000	Rolled over gain on disposal £'000	Total £'000
At 1 August 2011	1,307	(599)	827	24	6,721	2,275	10,555
Charge/ (credit) to income for the 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
Charge/ (credit) to income for the year	(359)	226	(127)	(3)	521	(260)	(2)
Charge to other comprehensive income	-	-	-	60	(426)	-	(366)
At 31 July 2013	1,075	(6)	596	(35)	6,242	1,833	9,705

There is no current corporation tax liability to pay due to the availability of tax losses. Almost all of the Group's tax losses have now been utilised with tax losses available to carry forward for offset against future profits amount to £0.2million (2012: £1.15 million). The Group will therefore pay tax on the majority of its earnings next year.

A deferred tax asset of £6,000 (2012: £232,000) 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 £75,000 (2012: £55,000) arises in respect of the share options in existence at 31 July 2013 but has not been recognised in the accounts. No deferred tax asset arises in relation to the remainder of the share options as at 31 July 2013 as the share price at the year-end is below the exercise price of the options.

The UK's main rate of corporation tax is expected to reduce to 21% from 1 April 2014 with a further reduction to 20% from 1 April 2015. 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.

18 Share capital

	2013	2012
Authorised:	£'000	£'000
35,000,000 ordinary shares of 1 pence each (2012: 35,000,000)	350	350

Allotted, issued and fully paid ordinary shares	£'000	£'000
Balance 1 August	268	268
Options exercised (382,328 shares)	4	-
Balance 31 July	272	268
	Called up,	Called up,
	allotted and	allotted and
	fully paid	fully paid
	Number	Number
Number of shares at 31 July	27,141,193	26,758,865

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

19 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:

2013	As At				As at
Summary	31 July 2012				31 July 2013
	No. of options	Granted	Exercised	Lapsed/ surrendered	No. of options
Enterprise Management Initiative Scheme	349,166	-	(185,798)	-	163,368
Unapproved Share Options	2,442,175	408	(135,000)	(151,000)	2,156,583
Approved CSOP Share Options	283,713	23,592	(61,530)	(12,000)	233,775
Total	3,075,054	24,000	(382,328)	(163,000)	2,553,726
	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

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

				At 31 July 2013
	As at 31 July 2012	Option granted	Options exercised	EMI Scheme	Unapproved Scheme	Approved CSOP share options		Total at 31 July 2013
2013
Executive Directors
A Jacobs - Unapproved	500,000	-	(50,000)	-	450,000	-		450,000
SG Thomas - Unapproved	500,000	-	(50,000)	-	450,000	-		450,000
RA Davies - EMI	98,039	-	(98,039)	-	-	-		-
RA Davies - Unapproved	528,431	-	(15,000)	-	513,431	-		513,431
RA Davies - CSOP	23,530	-	(23,530)	-	-	-		-
RA Davies total	650,000	-	(136,569)	-	513,431	-		513,431
CM Jacobs - EMI	79,173	-	(47,759)	31,414	-	-		31,414
CM Jacobs - Unapproved	216,082	-	-	-	216,082	-		216,082
CM Jacobs - CSOP	24,745	-	-	-	-	24,745		24,745
CM Jacobs total	320,000	-	(47,759)	31,414	216,082	24,745	272,241
Non-Executive Directors		-
RJ Holmes - Unapproved	10,000	-	-	-	10,000	-	10,000
ETD Luker - Unapproved	15,000	-	-	-	15,000	-	15,000
C P Peal - Unapproved	10,000	-	-	-	10,000	-	10,000
Non Executive total	35,000	-	-	-	35,000	-		35,000
All Directors total	2,005,000	-	(284,328)	31,414	1,664,513	24,745		1,720,672

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 (2012: 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 £94,256 (2012: £91,821), all of which relates to equity-settled share-based payment transactions.

20 Enterprise Management Initiative Scheme

The Company operates a share option scheme under the Enterprise Management Initiative ('EMI'), the vesting conditions of which have been met.

Movements in the year are shown in the table below.

	Options 2013 number	Weighted average exercise price 2013 pence	Options 2012 number	Weighted average exercise price 2012 pence
Outstanding at 1 August	349,166	121.23	349,166	121.23
Exercised during the year	(185,798)	102.00	-	-
Outstanding at 31 July	163,368	144.00	349,166	121.23
Exercisable at 31 July	163,368	144.00	349,166	121.23

The share price at the year-end was 136.00 pence per share. The share price ranged from 102.49 pence per share to 137.00 pence per share during the year. The exercise prices for shares exercisable at 31 July ranged from 113.00 pence per share to 156.00 pence per share. The options outstanding at 31 July 2013 had a weighted average contractual life of 2 years (2012: 1.7 years).

The following table shows options held by Directors under this scheme.

	As at 31 July 2012	Granted	Surrendered	Exercised	As at 31 July 2013	Exercise price (pence)	Date from which exercisable	Expiry date
CM Jacobs	25,000	-	-	(25,000)	-	102	20/01/07	20/01/14
CM Jacobs	22,759	-	-	(22,759)	-	113	30/07/07	30/07/14
CM Jacobs	31,414	-	-	-	31,414	152	30/07/08	30/07/15
RA Davies	98,039	-	-	(98,039)	-	102	19/01/07	19/01/14
	177,212	-	-	(145,798)	31,414

21 Unapproved Share Options

The Company issues unapproved share options, the vesting conditions of which have been met.

Movements in the year are shown below:

	Options 2013 number	Weighted average exercise price 2013 pence	Options 2012 number	Weighted average exercise price 2012 pence
Outstanding at 1 August	2,442,175	124.19	2,164,386	127.09
Granted during the year	408	136.00	277,789	108.50
Forfeited during the year	(151,000)	73.00	-	-
Exercised during the year	(135,000)	58.00	-	-
Outstanding at 31 July	2,156,583	133.00	2,442,175	124.19
Exercisable at 31 July	1,637,869	140.00	1,796,888	131.70

The options outstanding at 31 July 2013 had a weighted average remaining contractual life of 4.7 years (2012: 5.7 years). The exercise prices for shares exercisable at 31 July 2013 ranged from 56.50 pence per share to 269.50 pence per share.

The inputs into the Black-Scholes model used to value the options issued during the year are as follows:

Date of grant

Expected

life

(years)

price at

date of

grant

(pence)

Exercise

price

(pence)

Expected

volatility

(%)

Expected

dividend

yield

(%)

Risk free

interest

rate (%)

Fair value

charge per

award

(pence)

31 July 2013

136.00

39.71

4.17

1.36

34.05

The following unapproved share options have been granted to Directors of the Company.

	As at 31 July 2012	Granted £	Exercised /lapsed £	As at 31 July 2013	Exercise price (pence)	Date from which exercisable	Expiry date
A Jacobs	500,000	-	(50,000)	450,000	0.565 - 213.5	21/01/07 - 31/07/15	21/01/14 - 31/07/22
S Thomas	500,000	-	(50,000)	450,000	0.565 - 213.5	21/01/07 - 31/07/15	21/01/14 - 31/07/22
R Davies	528,431	-	(15,000)	513,431	0.565 - 213.5	21/01/07 - 31/07/15	21/01/14 - 31/07/22
C Jacobs	216,082	-	-	216,082	0.565 - 213.5	21/01/07 - 31/07/15	21/01/14 - 31/07/22
ETD Luker	15,000	-	-	15,000	56.5	31/07/12	31/07/19
R Holmes	10,000	-	-	10,000	56.5	31/07/12	31/07/19
C Peal	10,000	-	-	10,000	56.5	31/07/12	31/07/19

Total

1,779,513

(115,000)

1,664,513

22 CSOP Approved Share Options

On 2 June 2010 the Group adopted a Company Share Option Plan (CSOP). The CSOP subsequently achieved HMRC approval on 28 June 2010. There are no performance conditions attached to share options issued under CSOP.

Movements in the year are shown below:

	Options 2013 number	Weighted average exercise price 2013 pence	Options 2012 number	Weighted average exercise price 2012 pence
Outstanding at 1 August	283,713	94.17	232,002	90.97
Granted during the year	23,592	136.00	52,211	108.50
Forfeited during the year	(12,000)	108.00	(500)	107.86
Exercised during the year	(61,530)	85.00	-	-
Outstanding at 31 July	233,775	107.00	283,713	94.17
Exercisable at 31 July	107,489	85.00	-	-

The options outstanding at 31 July 2013 had a weighted average remaining contractual life of 7.9 years (2012: 8.6 years). There were no options exercisable at 31 July 2013.

The inputs into the Black-Scholes model used to value the options issue during the year are as follows:

Date of grant

Expected

life

(years)

price at

date of

grant

(pence)

Exercise

price

(pence)

Expected

volatility

(%)

Expected

dividend

yield

(%)

Risk free

interest

rate (%)

Fair value

charge per

award

(pence)

31 July 2013

136.00

39.70

4.2

1.36

34.05

The following CSOP approved share options have been granted to Directors of the Company.

	As at 31 July 2012	Granted £	Exercised /lapsed £	As at 31 July 2013	Exercise price (pence)	Date from which exercisable	Expiry Date
R Davies	23,530	-	(23,530)	-	85.0	30/07/13	30/07/20
C Jacobs	24,745	-	-	24,745	85.0	30/07/13	30/07/20
	48,275	-	(23,530)	24,745

23a Other reserves

	Cash flow			Capital	Share-based
	hedge	Merger	Other	redemption	payment
	reserve	reserve	reserve	reserve	reserve	Total
Group	£'000	£'000	£'000	£'000	£'000	£'000
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
Share based remuneration (options)	-	-	-	-	94	94
Cash flow hedge reserve net of tax	165	-	-	-	-	165
Dividend paid	-	-	(1,399)	-	-	(1,399)
31 July 2013	(217)	6,295	2,837	34	1,562	10,511

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.

23b Other reserves

		Share-based
	Other	payment
	reserve	reserve	Total
Company	£'000	£'000	£'000
1 August 2011	4,973	1,590	6,563
Share based remuneration (options)	-	92	92
Dividend paid	(917)	-	(917)
31 July 2012	4,056	1,682	5,738
Share based remuneration (options)	-	94	94
Dividend paid	(1,399)	-	(1,399)
31 July 2013	2,657	1,776	4,433

24 Retained earnings

	Retained
	earnings before		Retained
	deduction of	Own shares	earnings
	own shares	note 25	Total
Group	£'000	£'000	£'000
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
1 August 2012	8,138	(2,593)	5,545
Purchase of shares into treasury	-	(1,648)	(1,648)
Profit attributable to owners of Parent for the financial year	1,421	-	1,421
Transfer from revaluation reserve (Additional depreciation on revaluation)	193	-	193
Transfer from revaluation reserve Realised gain on disposal of property (net of deferred tax)	1,120	-	1,120
31 July 2013	10,872	(4,241)	6,631

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 £203,637 (2012: £193,995).

25 Own shares

	ESOP	ESOP	Treasury	Treasury	Own shares
	shares	shares	shares	shares	total
	Number	£	Number	£	£
1 August 2011 and 31 July 2012	623,212	499,910	1,142,000	2,092,902	2,592,812
Purchase of shares in the year	-	-	1,324,869	1,648,134	1,648,134
31 July 2013	623,212	499,910	2,466,869	3,741,036	4,240,946

During the year the Group purchased 1,324,869 shares for Treasury at an average price of £1.23. Lok'nStore Limited holds a total of 2,466,869 of Lok'nStore Group plc ordinary shares of 1p each for treasury with an aggregate nominal value of £24,669 purchased for an aggregate cost of £3,741,036 at an average price of £1.503 per share. These shares represent 9.09% of the Parent Company's called-up share capital. The maximum number of shares held by Lok'nStore Limited in the year was 2,466,869. 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 2013, the Trust held 623,212 (2012: 623,212) ordinary shares of 1 pence each with a market value of £847,568 (2012: £676,185). No shares were transferred out of the scheme during the year (2012: nil).

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

26 Cash flows

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

	2013	2012
	£'000	£'000
Profit before tax	1,426	926
Depreciation	1,204	1,577
Amortisation of intangible assets Loss on disposal of freehold Property	165 86	165 -
Equity settled share based payments	94	92
Loss on sale of motor vehicles	18	4
Interest receivable	(33)	(15)
Interest payable	1,175	1,029
Increase / (decrease) in inventories	2	(30)
Increase in receivables	(562)	(34)
Increase / (decrease) in payables	711	(571)
Cash generated from operations	4,286	3,143

(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 16a less cash and cash equivalents.

	31 July	31 July
	2013	2012
	£'000	£'000
Increase in cash in the year	283	182
Change in net debt resulting from cash flows	2,922	(1,540)
Movement in net debt in year	3,205	(1,358)
Net debt brought forward	(25,747)	(24,389)
Net debt carried forward	(22,542)	(25,747)

27 Commitments under operating leases

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

The Group as a lessee:

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

	Group	Group
	2013	2012
	£'000	£'000
Land and buildings
Amounts due:
Within one year	1,515	1,618
Between two and five years	5,592	6,090
After five years	10,023	6,087
	17,130	13,795

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

The Group as lessor:

Property rental income earned during the year was £95,285 (2012: £88,213). 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:

28 Events after the reporting date

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. HMRC were allowed leave to appeal to the Upper Tribunal in respect of the First Tier Tribunal Judgement (FTT). This appeal is likely to be heard in December 2013. Full details on this matter are provided under note 30c below.

29 Related party transactions

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

	2013	2012
	£'000	£'000
Net amount due from Lok'nStore Limited	3,207	4,490

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 2013.

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 11.

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.

	2013	2012
	£'000	£'000
Short term employee benefits	653	504
Post-employment benefits	30	15
Share-based payments	38	59
Total	721	578

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 usually settled monthly and there were no outstanding amounts due to Value Added Services LLP at the year-end (2012: £nil). The maximum balance outstanding at any time during the year was £91,001 (ex VAT) (2012: £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 (2012: £6,000). The balance outstanding to Trucost plc at year-end was £nil (2012: £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 £26,519 (2012: £21,310). There were no amounts outstanding due to Keith Jacobs at the year-end (2011: £nil). The maximum balance outstanding at any time during the year is £3,153 (ex VAT) (2012: £1,956).

30a) Capital commitments and guarantees

The Group has capital expenditure contracted but not provided for in the financial statements of £3.98 million (2012: £2.56 million) relating to the £2.5 million development commitment at Aldershot, remaining commitments on the build-out at Maidenhead, £0.34 million at Saracen relating to increasing warehouse racking and fire vault capacity, and various other minor works.

30b) 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 £26.8 million (2012: £29.7 million).

30c) 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 was 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 2012 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 were allowed leave to appeal to the Upper Tribunal in respect of the First Tier Tribunal Judgement (FTT). This appeal is likely to be heard in December 2013.

Accordingly, in light of the potential for HMRC to overturn 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 2013 which may become repayable to HMRC totals £520,957 (2012: £438,504) based on the standard method restriction. Of this £219,205 (2012: £227,926) relates to capital expenditure inputs and £301,752 (2012: £210,578) 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 the result of HMRC's appeal is determined. However while that outcome at present remains uncertain it is not considered that any material provision is necessary.

This information is provided by RNS

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