Correction - Final Results
Safestore Holdings PLC
22 January 2008
The following amendment has been made to RNS 2436M released today at 07:00am.
The Adjusted Profit after Tax is £14.7m, an increase of 116.2%, and not as
originally shown.
FOR IMMEDIATE RELEASE 22 January 2008
Safestore Holdings plc
('Safestore' or the 'Company')
Preliminary Results for the year ended 31 October 2007
Safestore Holdings plc, the largest self storage retailer in the UK and Paris,
is pleased to report its preliminary results for the year ended 31 October 2007.
Highlights
Year ended Year ended Increase
31 October 07 31 October 06 %
Revenue £74.3m £64.3m 15.5%
Like-for-like revenue* £72.6m £63.7m 14.1%
Ancillary revenue £10.4m £8.5m 23.0%
EBITDA** before exceptional £40.7m £33.5m 21.7%
items and gains on investment
properties
Profit after Tax ('Earnings') £78.2m £45.1m 73.2%
Adjusted Profit after Tax (1) £14.7m £6.8m 116.2%
Basic Earnings Per Share ('EPS') 43.02p 26.31p 63.5%
Adjusted EPS (1) 8.08p 3.95p 104.6%
Net Asset Value ('NAV') per 132.5p 79.5p 66.7%
Share
Adjusted NAV per Share (2) 198.8p 138.4p 43.6%
Dividend - Final per Share 3.0p -
Total per Share 4.5p -
1 See note 8
2 See note 12
* Like for like stores are those stores which have two full financial years
trading
** EBITDA - Earnings before interest, taxation, depreciation and amortisation
*** EBITDA margins -Earnings before interest, taxation, depreciation and
amortisation, exceptional items and investment property gains
. Average rate per square foot ('sq ft') increased by 8.3% to £21.56
(like-for-like increase of 9.6% to £21.88).
. Closing occupancy increased by 7.4% to 2.91 million sq ft.
. EBITDA margins*** have increased by 2.8% to 54.8% (2006: 52.0%).
. As at 31 October 2007, Safestore's property portfolio was valued at £583.7
million, an increase of 24.0%, or £113.1 million, since 31 October 2006.
This represents an increase of 17.4%, or £85.8 million, since 30 April 2007.
. During the financial year, Safestore successfully opened six new stores at
Slough, Guildford, Hayes, Newcastle, Eastbourne (relocation), Kremlin
Bicetre (Paris) and two satellite stores in Burnley and Stevenage. We also
extended the leases on three stores during the period.
. The pipeline of expansion stores has increased to 18 of which one has now
opened. Of the remaining 17, ten are due to open in 2008 with a further
seven planned to open in 2009/10. The expansion pipeline will increase the
total number of current stores in the portfolio from 104 to 119 with two
relocations.
. Total Maximum Lettable Area ('MLA'), combined with the expansion stores will
increase to approximately 5.34 million sq ft.
Steve Williams, Safestore's Chief Executive, said:
'We are pleased to report good growth in all our key performance indicators
during the year which, combined with tight cost controls, has resulted in strong
financial results.
'In line with our strategy, we have continued to increase our development
pipeline and remain confident in delivering our expansion programme within the
next two years. The Board has recommended a final dividend of 3.0 pence per
share, resulting in a total dividend of 4.5 pence per share for the full year.
'Current trading in the first quarter is consistent with historic seasonal
trading patterns and revenues remain in line with our expectations. We look
forward to the traditionally stronger second and third quarters of the financial
year.
'We believe that the fundamentals of our business remain robust and this, along
with the increasing awareness of self storage, will enable the Company as the
market leader in both the UK and Paris, to take advantage of a growing sector.
While the broader economic environment is uncertain, Safestore has a resilient
business model, strong operating skills and a high quality asset base which will
underpin our performance.'
ENDS
For further information, please contact:
Safestore Holdings plc T: 020 8732 1500
Steve Williams, Chief Executive
Richard Hodsden, Chief Financial Officer
Cardew Group T: 020 7930 0777
Nadja Vetter / Sofia Rehman / David Roach
A presentation for analysts will be held at 10am today at 60 Cannon Street,
London. EC4N 6JP
The analyst presentation document will be available for download on Safestore's
investor relations website: www.safestore.co.uk
Certain statements in this announcement are forward looking statements. By their
nature, forward-looking statements involve a number of risks, uncertainties or
assumptions that could cause actual results or events to differ materially from
those expressed or implied by the forward-looking statements. These risks,
uncertainties or assumptions could adversely affect the outcome and financial
effects of the plans and events described herein. Forward-looking statements
contained in this announcement regarding past trends or activities should not be
taken as a representation that such trends or activities will continue in the
future. You should not place undue reliance on forward-looking statements, which
speak only as of the date of this announcement. Information in this announcement
relating to the price at which investments have been bought or sold in the past
or the yield on investments cannot be relied upon as a guide to future
performance. Except as required by law, the Company is under no obligation to
update or keep current the forward-looking statements contained in this
announcement or to correct any inaccuracies which may become apparent in such
forward-looking statements.
Chief Executive's Review
Introduction
I am pleased to report another year of good progress. This year has been both
busy and exciting with the continued growth of the business and our listing on
the London Stock Exchange on 9 March 2007. Revenue for the year rose 15.5% to
£74.3 million (2006: £64.3 million) with like-for-like store revenue increasing
by 14.1% to £72.6 million (2006: £63.7 million).
The key drivers for revenue growth have been the increases in occupancy, rates
and ancillary revenues: occupancy rose by more than 200,000 sq ft (7.4%) to 2.91
million sq ft, the average rate per sq ft increased by 8.3% to £21.56, and
ancillary revenues were up 23.0% to £10.4 million. All these key performance
indicators have shown good growth during the year which, combined with tight
cost controls, has resulted in a 21.7% increase in EBITDA (before exceptional
items and investment property gains) to £40.7 million (2006: £33.5 million).
EBITDA margins have increased to 54.8% (2006: 52.0%).
In June 2007, Safestore reached a significant milestone in its development with
the opening of its 100th store. During the year, we opened six new stores at:
Slough, Guildford, Hayes, Newcastle, Eastbourne and Kremlin Bicetre (Paris), as
well as two satellite stores at Burnley and Stevenage. The new purpose built
facility in Eastbourne allowed us to relocate from our previous site which has
now closed. Six of the eight newly opened properties are purpose built
facilities and the remaining two have been highly specified conversions. Each of
the new stores has had a promising start and are trading in line with our
expectations.
Following the successful acquisition of new development sites and properties,
our pipeline of expansion stores has increased to 18 (including two
relocations), all of which are planned to open within the next two years. Of
these expansion stores, 14 are freehold/long leasehold, four are short
leaseholds and ten have planning permission already granted. We are confident in
our ability to obtain planning consent for the remaining eight stores. Of the 18
expansion stores 14 will be new purpose built facilities and four highly
specified conversions of existing buildings. I am pleased to report that since
the financial year end we have opened one of these stores in Glasgow bringing
the total number (excluding satellite stores) to 104.
These expansion stores will deliver approximately 0.9 million sq ft of
additional net lettable space, resulting in approximately 5.3 million sq ft of
self storage space when fully fitted out. We believe that our development
pipeline has clear visibility and we are confident in delivering our stated
objective of expanding by seven to ten stores per annum.
Operating Review
The self storage model is based on three key drivers: growth in occupancy, rates
per sq ft and ancillary revenues. During the year, we have achieved positive
results across all three key metrics in both the UK and France. Using the same
key performance indicators, both established and mature stores have performed
strongly across all regions, with the occupancy growth in new stores being
particularly encouraging having exceeded our own expectations.
The number of enquiries has continued to rise during the year. The Web and store
signage are increasingly becoming the main drivers behind enquiries compared to
other channels. Both have shown good growth, leading to a high level of new lets
during the period with the traditionally busiest period of spring and early
summer being particularly strong.
Neil Riding, Chief Operations Officer, and his team have focused on call capture
and web enquiries during 2007 to ensure that Safestore gets the maximum
conversion rate from the generated enquiries. While significant progress is
being achieved, there is still plenty to aim for in this area.
At 31 October 2007 we had in excess of 39,000 customers, an increase of 9.2%
over the previous year. The average length of stay for current customers has
increased to 80 weeks from 73 weeks in October 2006 and 77 weeks in April 2007.
Our focus has also been to further improve our customer service. We have made a
significant investment in this area and have devoted considerable time to
improving the quality of the customer experience through our customer service
reports (led via mystery shoppers) in our stores across the UK and France.
We continually seek ways to improve the experience of our customers whilst
visiting Safestore, with the aim of offering excellent value for money, while
maintaining a healthy increase in rates per sq ft. We aim to achieve these
objectives through the micro management of pricing and space utilisation within
each of the stores and continued investment in the portfolio. So far, this
approach has resulted in continued improvements in the rate per sq ft. The
average rate per sq ft has grown by 11.2% to £26.92 in London (2006: £24.20),
4.8% (6.3% in constant currency) to £20.94 in Paris (2006: £19.98) and 7.2% to
£17.80 in the rest of the UK (2006: £16.61).
Property
The strong combination of a retail led business with a significant property
asset base has consistently delivered high quality cash flow and earnings. Our
UK business now has significant footholds in major Cities including London,
Glasgow, Edinburgh, Manchester, Birmingham and Bristol as well as the South East
and North West. This is in line with our strategy of clustering stores, giving
us a competitive advantage in key markets and maximising convenience for our
customers.
The majority of the expansion stores are in existing markets, further
strengthening our position, and two stores are situated in areas where we are
not currently represented. I am pleased with the balance we have been able to
achieve in terms of the geographic spread of new and expansion stores across the
UK. The development plan consolidates our position as the only self storage
company with a national footprint and we remain fully committed to our strategy
of furthering our presence across the UK.
During the year we have invested £45.5 million, of which £8.4 million has been
invested in the existing store portfolio. Of this £1.5 million has been to build
out further self storage space, £0.6 million has been spent on signage with the
balance of £6.3 million being spent on improvements and maintenance to the
general fabric of the portfolio. This has resulted in improved facilities for
customers such as additional lighting, increased levels of security, more
24-hour access and general improvements to the ambience of the storage and
reception areas. This investment is crucial in maintaining Safestore as one of
the recognised European leaders in self storage.
We have continued to build out additional self storage units and stand-alone
drive up units in a number of the stores, thereby increasing storage space and
options. We have also improved the level of signage and external illumination in
our stores which has contributed to the significant increase in enquiries.
Our aim is to grow our business by adding seven to ten new stores per annum.
This will not only add between 320,000 sq ft and 500,000 sq ft of new space on
an annual basis, but will also continue to improve the quality of the store
portfolio. Two of the new purpose built expansion stores will replace two of our
smaller first generation stores. The balance between mature, established and new
stores should ensure there is minimal risk in a business with a good quality
cash flow.
Our French subsidiary 'Une Piece en Plus', managed by Frederic Vecchioli, is
focused on the Paris region, the most developed self storage market in France.
It has a strong foothold in central Paris and has continued to demonstrate solid
growth during the year following the opening of a new store at Kremlin-Bicetre
and the significant increase in MLA at our existing store in Clichy. The
business now operates 20 stores, all branded under the 'Une Piece en Plus' name.
The strategy is similar to that of the UK in that we look to cluster our stores.
The addition of Kremlin Bicetre, plus a new store due to open in Central Paris
in 2008, and a further store planned to open in 2009, will further consolidate
our market leading position in this important and growing market.
Safestore has retained its No.1 position in the UK and Paris in terms of number
of stores. Our aim is to maintain this market leadership without jeopardising
our prudent but flexible approach to the terms we are willing to agree to for
new stores. Our new store model is flexible in terms of size and tenure; which
we believe gives us an advantage over some of our competitors. With the current
uncertainty in the real estate market we will constantly review our financial
evaluation model and the required rate of return. We believe that the current
market conditions will be in favour of well branded self storage companies that
have good covenants and solid earnings growth enabling Safestore to purchase
land and property at a level which provides good returns while further
increasing the barriers to entry. At this stage we have seen no evidence of the
market softening for prime quality self storage assets.
The estate is managed in-house with regular reviews of the portfolio on an
individual and collective basis, with particular attention paid to the value of
each property, as well as opportunities for additional revenue streams and cost
savings. During the period we have extended the leases on three stores which has
enhanced the value of these businesses. We continue to review opportunities to
buy the freehold of leasehold stores or to extend leases where appropriate and
prudent.
All stores are regularly reviewed in terms of development potential. During 2007
we added two satellite stores and increased self storage space in a number of
our current stores. We are currently reviewing stores for extensions or
additional self storage in 2008/09.
Retail Store Portfolio
At the year end the Company had 103 stores (including three business centres) of
which 83 were in the UK and 20 in France. 14 of these stores were classified as
new (open for less than two full financial years), 54 established (open for more
than two years, but not prior to 1998) and 35 mature (pre-1998). The
geographical breakdown includes 36 stores in London, 47 in the rest of the UK
and 20 in Paris. The right balance between the various categories provides good
solid cash flows in the mature stores with earnings similar to annuities, while
the established stores and new stores deliver real growth upside.
The 103 stores provide 4.47 million sq ft of MLA of which 3.63 million sq ft is
in the UK and 0.84 million sq ft in France. At 31 October 2007, 2.91 million sq
ft was let, of which 2.31 million was in the UK and 0.6 million in France.
Average occupancy compared to MLA was 67.3% for the Company with London at
77.9%, Paris at 73.0% and the rest of the UK at 59.1%. Occupancy in the rest of
the UK continues to grow well. The average occupancy percentage is affected by
the increasing number of new stores which have exceeded our expectations in
early trading, and the number of large stores which have a built out area in
excess of 60,000 sq ft.
The average store size for the Company is 42,000 sq ft, although we have stores
smaller than 20,000 sq ft and greater than 100,000 sq ft, all of which trade
profitably.
The breakdown of freehold/long leasehold and short leasehold across the whole
portfolio is as follows:
% of % of % of
Existing Portfolio UK Portfolio France Portfolio Total Portfolio
________________________________________________________________________________
Freehold/Long
Leasehold 52 63% 5 25% 57 55%
Short Leasehold 31 37% 15 75% 46 45%
______________________________________________________________
Total 83 20 103
______________________________________________________________
Expansion Stores
Pipeline as at % of % of % of
31 October 2007 UK Portfolio France Portfolio Total Portfolio
________________________________________________________________________________
Freehold/Long
Leasehold 12 75% 2 100% 14 78%
Short Leasehold 4 25% - - 4 22%
______________________________________________________________
Total 16 2 18
______________________________________________________________
In France, the short leasehold properties have commercial protection rights and
have similar characteristics to UK freehold sites.
Of the expansion stores above, 14 will be purpose built state of the art self
storage centres and four highly specified conversions.
Retail and Operational Focus
The Company has a dedicated operations team which consists of eight regional
managers and two divisional directors in the UK and two regional managers in
France. The UK Operations team is headed by Neil Riding, Chief Operations
Officer, and the French Operations team is headed by Laurent Judas. In both the
UK and France we also have a dedicated Retail Services team based in Head
Office.
We have clear processes and procedures in place to deal effectively and
professionally with each new enquiry. Comprehensive training, coaching and
monitoring is in place to ensure we obtain the maximum conversion rate while
giving excellent customer service and value for money.
All customers are encouraged to visit the store and undertake a store tour so
they can fully understand the proposition and the full range of services as well
as see the secure environment in which their possessions are stored.
Each customer is offered the option of a risk free reservation in order to
reserve the room of their choice for an agreed period.
The emphasis is on a welcoming atmosphere and a professional and friendly
service. The reception areas are designed to make the customer feel comfortable
and wherever possible provide an area for a discrete discussion of their needs.
Safestore was the first self storage retailer to recognise that this industry
was a customer led, retail service proposition and, as such, has first mover
status in a number of customer facing service initiatives. We believe that this,
combined with the micro management of pricing and our space management
techniques, has been instrumental in delivering continual occupancy growth and
improved rates per square foot.
The focus during 2008 will be to further improve call capture and conversion
rates from the increasing number of enquiries that are being delivered through
our marketing strategy.
Security
Security of our premises, customer contents, customers and employees remain a
top priority of the Company. Safestore has a risk manager who is focused on all
aspects of security and health and safety. We constantly review all our
processes and procedures to ensure that we provide the highest levels of
security and safety within our stores for both our customers and employees. This
is a crucial element of the service we provide to our customers, who leave their
valuables within our care. Many customers continue to see this as their highest
priority and an important factor in determining which self storage company they
choose. It also ensures that we are focused on protecting the assets of the
business.
We continue to invest heavily in security technology within our new stores and
the existing estate. The elements of security include automated swipe card
entry, mechanised gates and doors, additional digital cameras and monitors and
increased lighting. We work closely with the appropriate authorities in the UK
and France and the Self Storage Association.
Safestore has a strict policy in monitoring all new customers and has clear
signage on goods that cannot be stored within the buildings.
Systems
Safestore continues to place high importance in its administrative and IT
systems and believes that leading IT technology will give the Company a
competitive edge. Having upgraded our capacity and hardware in 2006 we have
concentrated on improving the effectiveness and efficiency of our systems during
2007.
A great deal of emphasis has been placed on ensuring that we extract the best
value from our data and systems. All stores in the UK and France now share the
same trading system and platform ensuring simplified and standardised reporting
across the group and more efficient development of enhancements.
By working closely with Operations and as an integral part of the business, our
IT team has enhanced reporting both in terms of quality and speed. By using the
in-house knowledge of the systems and operations they have also automated many
previously manual business processes saving time and resource across the estate.
Our IT team consists of the Head of IT and a support team of three people in the
UK, plus one other person in France. We also have a Business Analyst who works
closely with the IT and Operations teams.
Marketing
The Company is committed to ensuring that it maintains its leading market
position. During the period under review, the Company has concentrated on
targeted marketing activities specifically in relation to the internet and
signage. Whilst we are pleased with the increase in awareness of the Safestore
brand and the heightened awareness of self storage in general we are
particularly pleased with the increased level of enquiries generated from the
Web and store signage. This will again be a key part of our marketing efforts
during 2008.
The Web has now become our highest driver of enquiries; just ahead of signage
although the latter still gives us the greatest volume of business due to the
higher conversion rate. During the period we recruited an experienced web
professional to specifically manage our website and all aspects of search engine
optimisation, strategic alliances and web sponsorship and are already seeing the
benefits of this investment.
We believe that the targeted marketing strategy deployed during the year has
enabled Safestore to take increased market share in the growing medium of the
internet and will continue this strategy in 2008. The marketing team will fully
concentrate on all aspects of 'push & pull' targeted marketing supported by a
range of mass and specialist media activity.
We continue to reduce our commitment to directories as the number of enquiries
from this medium continues to diminish. It is however still an important source
of enquires, particularly in some parts of the UK and will therefore still
command a significant, if lessening percentage of our marketing spend.
In France, we have continued with our strategy to integrate all stores in the
portfolio and re-brand them under the 'Une Piece en Plus' name. The four main
drivers for enquiries mirror those in the UK, namely signage, web, directories
and referrals. Our two main areas of investment are the internet, which yields
the largest number of enquiries and Le Metro, where 'Une Piece en Plus'
advertises all year round. This investment strategy will continue in 2008.
The overall investment in resource and expenditure will be continued during 2008
with approximately 4% of group revenue budgeted for the advertising spend in the
financial year.
Real Estate Investment Trusts ('REITS')
We continue to examine the possibility of converting our businesses into a REIT,
but as we have previously highlighted, we currently benefit from carried forward
tax losses, and, whilst we can utilise the tax losses there is no need to
convert. Having reviewed our tax position at the year end we consider it
unlikely that the Company will pay tax in the current financial year. We will
continue to monitor the position and consider conversion to a REIT at such time
as it would be financially advantageous to do so.
Corporate and Social Responsibility
Safestore has a responsibility to all its stakeholders including customers,
shareholders, its employees and the communities in which we operate.
We have programmes in place at our stores to ensure compliance with legislative
requirements and in the majority of instances we seek to exceed the laid down
guidelines. In new stores we are very aware of any impact to the community and
the environment and as such strive to ensure that we work with the relevant
bodies to build high specification stores that provide a support to the local
community in which we operate.
All our stores are able to give space to charities either on an ongoing planned
basis or in the event of a local, national or global emergency. Our stores can
also request sponsorship for local community projects.
We provide a service to the local community with the majority of our customers
living within five miles of their local store. The service we provide can be for
a short term emergency or event or for a much longer term where the customer
seeks an extra room. All our stores have both local and national business
customers. Self storage is an ideal solution for local entrepreneurs just
starting in business as well as an ideal solution for large corporate business
customers operating across the UK. We seek the views of customers on a regular
basis both formally and informally and consistently review the services we
offer.
Our investors and bankers provide capital for the business and we aim to keep
them informed on a regular basis through a variety of media including the
investor web site and quarterly updates. Our aim is to build on our market
leading position and continue to successfully grow the business and provide an
attractive total return for our investors.
We are currently reviewing how we can further our support of local communities
and the environment and to this end we have set up a working party reporting
regularly to the Executive Directors.
People
We strongly believe that our people are our greatest asset and that they are a
key differentiating factor between Safestore and its competitors.
During the year the Board has been strengthened by the appointments of Roger
Carey and Richard Grainger as Non-Executive Directors. Both appointments have
given the Board additional support in the key areas of real estate, corporate
finance and corporate governance adding to the existing strong background the
Board has in retailing and the service industry.
We are pleased to announce that David Penniston has agreed to join as Property
Director of Safestore's Operational Board with effect from 3 March 2008
following the resignation of Neil Moulder. David joins us from Whitbread where
he has been employed for the last 5 years, firstly as Property Director of David
Lloyd Leisure and more recently as UK and Ireland Development Director for
Whitbread. He has extensive experience within the real estate and retail sector
having previously worked for Sainsbury's and Waitrose. The Board would like to
thank Neil for his significant contribution and commitment over the past five
years and wish him the very best for the future.
The senior management team has a wealth of experience in a number of sectors and
a proven record of accomplishment within the self storage industry for improving
existing operations as well as turning around acquired underperforming
businesses. It is the only management team in the UK self storage sector with
the proven expertise to successfully acquire and integrate other self storage
businesses both in the UK and Europe, whilst realising their growth potential.
The team has expanded over the past 18 months and has a depth of expertise and
experience which we consider is unsurpassed in the industry. This gives the
Company confidence that we can continue to build on our market leading position
as a first class self storage provider.
We continue with our comprehensive training programme for all store employees
and Head Office personnel. Since the year end we have further supplemented our
HR team and recruited an additional trainer who is bilingual to facilitate
common training in both the UK and France.
All our people, at every level, have annual appraisals and six monthly reviews
which are linked to pre-set competencies that highlight personal development
needs, as well as department and corporate training requirements.
All part-time and full-time employees participate in an annual bonus scheme
which is aligned to the Group's financial performance and each individual's
personal objectives. In addition, our store teams and field management
participate in a monthly incentive scheme related to specific key performance
indicators. This scheme is designed to recognise and reward personal
achievements and stores' performances, as well as the Company's performance with
the aim of ensuring we have highly motivated teams in each of our stores.
Since listing on the London Stock Exchange, the Company has implemented a Share
Save Scheme for all employees who have been employed for a qualifying period of
12 months. All members of the team have been invited and encouraged to join the
scheme which has very flexible savings plans within the HMRC guidelines.
On behalf of the Board I would like to thank all our people throughout the UK
and France for their continued commitment and support and to congratulate them
once again for achieving such excellent results.
Outlook
Current trading in the first quarter is consistent with historic seasonal
trading patterns and revenues remain in line with our expectations. The first
quarter of the financial year is always the weakest occupancy quarter and we
therefore look forward to the traditionally stronger second and third quarters
of the financial year.
We believe that the fundamentals of our business remain robust and this, along
with the increasing awareness of self storage, will enable the Company as the
market leader in both the UK and Paris, to take advantage of a growing sector.
Whilst the broader economic environment is uncertain, Safestore has a resilient
business model, strong operating skills and a high quality asset base which will
underpin our performance.
S W Williams
Chief Executive Officer
22 January 2008
Financial Review
International Financial Reporting Standards ('IFRS')
This report is prepared in accordance with IFRS and includes a summary of the
Group's IFRS accounting policies together with further details on the key
performance measures.
Results of Operations
The table below sets out the Group's results of operations for the year ended 31
October 2007 (Financial Year 2007) and the year ended 31 October 2006 (Financial
Year 2006), as well as the year on year change.
Year ended 31 October
2007 2006
£'000 £'000 % Change
________________________________________________________________________________
Revenue 74,303 64,313 15.5%
Cost of sales (23,469) (21,853) 7.4%
_________________________________________
Gross profit 50,834 42,460 19.7%
Administrative expenses (9,474) (16,112) (41.2%)
_________________________________________
Operating profit before gains on
investment properties 41,360 26,348 57.0%
Gains on investment properties 81,264 63,631 27.7%
_________________________________________
Operating profit 122,624 89,979 36.3%
Net finance costs (19,006) (28,993) (34.4%)
_________________________________________
Profit before income tax 103,618 60,986 69.9%
Income tax expense (25,433) (15,849) (60.5%)
_________________________________________
Profit for the year 78,185 45,137 73.2%
_________________________________________
Revenue
Revenue for the Group consists primarily of revenue derived from the rental of
self storage space, ancillary products such as insurance and merchandise such a
packing and storage products in both the UK and France.
The table below set out the Group's revenues by geographic segment for each of
the Financial Years 2007 and 2006.
Year ended 31 October
2007 2006
£'000 % of Total £'000 % of Total % Change
________________________________________________________________________________
United Kingdom 61,440 82.7% 52,932 82.3% 16.1%
France 12,863 17.3% 11,381 17.7% 13.0%
____________________________________________________________
Total revenue 74,303 100.0% 64,313 100.0% 15.5%
____________________________________________________________
The Group's revenue increased by approximately £10.0 million (an increase of
15.5%) from £64.3 million in Financial Year 2006 to £74.3 million in Financial
Year 2007. As covered in the Chief Executive's Report, the key drivers for
revenue growth have been the increases in occupancy (growth of over 200,000 sq
ft year on year), average rate per sq ft (growth of 8.3%) and ancillary revenues
(growth of 23%). It is pleasing to note that both the UK and France have
contributed significantly to the overall increase in revenue in the year.
Cost of sales
Cost of sales consists, principally of staff salaries, business rates,
utilities, insurance and repairs and renewals. The Group's cost of sales
increased by £1.6 million or 7.4% from £21.9 million to £23.5 million in the
year to 31 October 2007. The main reasons for the increase in the year are
additional costs relating to the new stores opened in the year, the higher
levels of business this year on last and general inflationary pressure.
Administrative expenses
Administrative expenses consist principally of directors' salaries, head office
salaries, marketing and advertising expenses and depreciation and amortisation
expenses. The Group's administrative expenses in both years were significantly
affected by exceptional items. Administrative expenses decreased by £6.6 million
or 41.2% from £16.1 million to £9.5 million in Financial Year 2007. The main
reason for this is the movement in exceptional items between the two years. In
Financial Year 2007 the exceptional items net out to a credit of £0.8 million
compared to a charge of £6.2 million in the prior year. This is set out in more
detail below.
EBITDA before exceptional items and gain on investment properties
EBITDA before exceptional items is calculated as follows for Financial Year 2007
and Financial Year 2006:
Financial Year
2007 2006
£'000 £'000
_______________________________________________________________
Operating profit 122,624 89,979
Less gain on investment properties (81,264) (63,631)
Plus depreciation 123 103
Plus goodwill impairment - 756
(Less)/plus exceptional items (758) 6,245
___________________________
EBITDA before exceptional items 40,725 33,452
___________________________
The Group's EBITDA before exceptional items increased by £7.3 million or 21.7%
from £33.5 million in Financial Year 2006 to £40.7 million in Financial Year
2007. This increase principally reflects the increase in revenues discussed
above.
Exceptional Items
Financial Year
2007 2006
£'000 £'000
_______________________________________________________________
IPO related costs (2,157) -
Release/(creation) of IFRS 2 cost
of shares provision 3,222 (6,245)
Other exceptional items (307) -
___________________________
Exceptional income/(expense) 758 (6,245)
___________________________
As noted in the administrative expenses section above, the exceptional items net
out to a credit of £0.8 million in Financial Year 2007 compared to a charge of
£6.2 million in the prior year. The only exceptional item in Financial Year 2006
was the creation of an IFRS 2 share related provision of £6.2 million, £3.2
million of which was released in the current Financial Year. The release of the
over provision from the prior year more than offsets the costs for the IPO taken
to the income statement (£2.2 million) and the other exceptional charge of circa
£0.3 million which mostly relates to costs associated with the residual pension
scheme.
Gains on Investment Properties
Gains on investment properties consists of the fair value revaluation gains and
losses with respect to the investment properties under IAS40. The Group's gain
on investment properties was £81.3 million in Financial Year 2007 and £63.6
million in Financial Year 2006. These increases reflect the combination of yield
compression within the valuations together with improved revenue and cash flow
performance from the investment property estates and are discussed in more
detail in the property valuation section below.
Operating Profit
Operating profit increased by £32.6 million or 36.3% to £122.6 million for
Financial Year 2007 from £90.0 million in Financial Year 2006. This increase
reflects a combination of factors including the increase in EBITDA before
exceptional items generated through the trading movements throughout the year,
the significantly reduced exceptional costs in the year and the significant
increase in the gain on investment properties covered above and in more detail
in the property valuation section below.
Net Finance Costs
Net finance costs consist of interest receivable from bank deposits as well as
interest payable and interest on obligations under finance leases as summarised
in the table below.
Financial Year
2007 2006
£'000 £'000 % Change
________________________________________________________________________________
Bank interest receivable 1,381 572 141.4%
Bank and other interest payable (17,071) (21,120) (19.2%)
Interest on obligations under finance
leases (3,316) (3,947) (16.0%)
Exceptional write off of debt issue - (4,498) (100%)
costs on refinancing
________________________________________
Net finance costs (19,006) (28,993) (34.4%)
________________________________________
The bank interest receivable has benefited from the higher cash balances
throughout the second half of Financial Year 2007 reflecting the £35 million
primary raised at the time of the IPO.
Bank and other interest payable reflect purely bank interest in Financial Year
2007 whereas it included loan note interest in Financial Year 2006 up to the
refinancing in June 2006. It is pleasing to note that, despite the quantum of
debt increasing over the period under review, the debt charge has decreased.
The interest on obligations under finance leases reflects part of the costs of
the property rental payments traditionally charged to cost of sales under UK
GAAP. The total charge for rent under UK GAAP in Financial Year 2007 was
£9,118,000 and the remaining £5,802,000 has been offset against the gain on
investment properties.
The exceptional write off of the debt issuance costs arose in Financial Year
2006 and did not recur.
The Company has a £237 million senior debt facility provided by a syndicate of
six banks, a £60 million capex facility which is provided jointly by Royal Bank
of Scotland and HSBC, and a £5 million working capital facility provided by
National Westminster Bank. At 31 October 2007, the Company had drawn the senior
facility in full, £9.1 million of the capex facility and £0.1 million of the
working capital facility.
Under the terms of the facility documents Safestore pays interest at LIBOR plus
a margin. The Company has taken out an interest rate hedge swapping LIBOR on
£178 million of the debt at 5.24% which runs until June 2011. The Company has
recently renegotiated the terms of the senior and capex facilities to introduce
a common margin ratchet across both facilities. The margin will ratchet between
90 basis points and 125 basis points dependent upon the Interest Cover Ratio.
Under the terms of the previous facility the margin was 125 basis points on the
senior facility and 125 basis points to 175 basis points on the capex facility.
All of the above gives significant comfort on the expected financing costs over
the remaining 31/2 years of the existing facilities.
Gearing
Net borrowings at 31 October 2007 stood at £225.1 million, broadly in line with
the balance of £225.5 million at 31 October 2006. During this time Net Assets
increased by £111.4 million or 81.6% to £247.9 million at 31 October 2007 from
£136.5 million at 31 October 2006. The net impact is that gearing levels reduced
to 90.8% at 31 October 2007 from 166.7% at 31 October 2006.
Dividend
As set out at the time of the IPO, it is the Board's intention to adopt a
progressive dividend policy. The Company expects to pay interim and full year
dividends based on a ratio of approximately one third and two thirds,
respectively, of the total annual dividend.
The Board is therefore pleased to recommend a final dividend of 3.0 pence per
share bringing the total dividend for the year to 4.5 pence per share. Subject
to shareholder approval, the final dividend will be paid on 7 April 2008 to
shareholders who are on the Company's register at the close of business on 29
February 2008.
Income tax
Income tax expense increased by £9.6 million or 60.5% to £25.4 million for
Financial Year 2007 from £15.8 million for Financial Year 2006. Income tax
expense recognised principally reflects deferred tax on investment property
movements on the balance sheet. Actual tax paid in each period was insignificant
due to the availability of carried forward tax losses in both the United Kingdom
and France.
Profit for the year
Profit for the year increased by £33.1 million or 73.2% for Financial Year 2007
to £78.2 million from £45.1 million for Financial Year 2006.
Property valuation
The Company's property portfolio has been valued by Cushman & Wakefield. As at
31 October 2007, the total value of the Company's portfolio was £583.7 million,
up £113.1 million (24.0%) from £470.7 million at 31 October 2006. Of the overall
uplift of £113.1 million, £92.2 million is derived from the existing store
portfolio, from which we estimate that £64.5 million (57.0% of the overall
uplift) stems from operational performance, such as higher achievable rents,
lease renegotiations and increased occupancy, and £27.7 million (24.5% of the
overall uplift) is attributable to yield shift. The remaining £20.9 million
(18.5% of the overall uplift) is attributable to new stores opened in the year.
The valuation at 31 October 2007 is £85.8 million up from £497.9 million as at
30 April 2007. Of the overall uplift £67.9 million is derived from the existing
store portfolio and we estimate that substantially all of this uplift (79.2% of
the overall uplift) stems from operational performance with no gain attributable
to yield shift. The remaining £17.9 million (20.8% of the overall uplift) is
attributable to new stores opened in the year.
The freehold exit yield for the valuation as at 31 October 2007 was 7.12%,
reflecting a 40 bps compression compared to the 31 October 2006 when it was
7.52%. The yield as at 31 October 2007 was approximately 9 bps higher than the
yield at 30 April 2007 of 7.03%. The higher yield in the second half was due to
a minor realignment of a number of specific stores within the Safestore
portfolio. The most important factor in calculating yield movements within self
storage is the underlying prime self storage yield. This moved in 50 bps in the
first half of the financial year and has remained constant in the second half of
the year with rates as at October 2007 and April 2007 being 5.625% in the UK and
6.50% in France respectively. We believe that the yield on self storage assets
remains relatively undemanding in comparison to other property asset classes.
The weighted average annual discount rate for the whole portfolio has followed a
similar trend to the exit capitalisation rate above. At 31 October 2006 it was
11.48% and moved in to 11.25% at 30 April 2007. We have seen a marginal
softening of this in the second half of the year with it being 11.58% at 31
October 2007. This is consistent with the slight movement in yields during the
second half of the year and the general reduction in the life of the leasehold
assets.
At the year-end the Company's property portfolio consisted of 103 trading
stores; the freehold/long leasehold properties were valued at £449.7 million and
the short leasehold properties were valued at £134.0 million. Freehold/Long
leasehold stores account for 77.0% of the valuation, against only 55% of the
portfolio when measured in store numbers, with the remaining 23.0% being
attributable to the short leasehold portfolio.
The Company's pipeline of 18 expansion stores (one has opened since the year end
valuation) is currently held at cost, amounting to around £31.6 million.
The effect of the valuation has led to an adjusted NAV per share of 198.8 pence
representing an increase of 60.4 pence or 43.6% from 138.4 pence as at 31
October 2006, and an increase of 41.4 pence or 26.3% from 157.4 pence as at 30
April 2007.
The valuations have consistently been based on the assumption that purchaser's
costs would amount to 5.75% in the UK and 6.2% in France.
Self storage is still a relatively new and specialised asset class in the UK and
Europe and this is reflected in the level of our property valuations and the
yield applied. We believe that over time familiarity with the assets and their
performance will increase and result in a further re-rating of the yields being
applied to self storage businesses closer to those prevailing in more mature
markets or alternative uses. This, together with our proven ability to drive
occupancy levels and rental growth, provides investors in the self storage
sector with a combination of growth dynamics which offers good defensive
qualities in the current market and deliver long term attractive returns.
Cash Flows
The following table summarises the Group's cash flow activity during the
Financial Years 2007 and 2006 in accordance with IFRS:
Financial Year
2007 2006
£'000 £'000
_______________________________________________________________
Net cash inflow/(outflow) from
operating activities 22,561 (35)
Net cash outflow from investing
activities (37,290) (20,661)
Net cash provided by financing
activities 24,303 18,464
___________________________
Net increase/(decrease) in cash
and cash equivalents 9,574 (2,232)
___________________________
Net cash inflow/(outflow) from operational activities
There are two main factors influencing the £22.6 million improvement in cash
from operating activities in Financial Year 2007 compared to Financial Year
2006. Firstly, the profitability of the Company has risen as described in the
income statement notes above. This, mixed with continued good working capital
control, has resulted in cash generated from operations increasing by £6.7
million or 20.2% to £39.8 million for Financial Year 2007 from £33.1 million
form Financial Year 2006. Second, the net interest paid has fallen by £15.4
million in the year due, in the main, to the one-off nature of the loan note
payments to Bridgepoint upon refinancing the debt during Financial Year 2006.
Net cash outflow from investing activities
Cash outflow from investing activities has increased by £16.6 million or 80.5%
to £37.3 million for Financial Year 2007 from £20.7 million for Financial Year
2006. Whilst there are several contributing factors affecting this movement it
is almost entirely down to the increase in expenditure on investment and
development assets. Expenditure in Financial Year 2007 in this area was £45.5
million an increase of £18.2 million or 66.8% from £27.3 million in Financial
Year 2006 to finance the growth in the development store pipeline.
Net cash inflow from financing activities
The cash flows from financing activities increased by £5.8 million or 31.6% in
Financial Year 2007 to £24.3 million from £18.4 million in Financial Year 2006.
This is primarily due to money raised by the issuance of new shares at the time
of the IPO in Financial Year 2007 being incrementally higher than the new debt
drawn as a result of the refinancing in Financial Year 2006.
Future Liquidity and Capital Resources
The Group anticipates funding any future small to medium acquisitions or new
store developments from available cash and borrowings. Borrowings under the
existing bank facilities are subject to certain financial covenants.
Annual General Meeting
At the forthcoming Annual General Meeting a proposal will be put before the
shareholders to adopt a new set of Articles of Association for the Company which
will update the Articles of Association in light of those provisions of the
Companies Act 2006 which have come into force since the Articles of Association
were adopted pursuant to the special resolution of the Company passed on 8 March
2007 and certain of those which will come into force on 1 October 2008.
R D Hodsden
Chief Financial Officer
22 January 2008
Risk Management
The Company regularly reviews the risk within the Company. It is a fundamental
aspect of the business and is subject to regular and ongoing reviews.
Self Storage market risk
While the self storage model appears resilient to an economic and housing market
downturn, we would not be completely immune to macro economic factors which
could impact financial performance.
We believe that our market leading position in the UK and Paris, our strong
brand, depth of management as well as retail expertise and infrastructure would
help mitigate the effects of any downturn.
Furthermore, the UK self storage market is still very immature, therefore,
although awareness is now starting to grow rapidly there is very little risk of
supply outstripping demand in the medium term. The fundamentals for people
requiring self storage are also unlikely to change in spite of the threat of an
economic downturn. The number of new customers using self storage tends to be
lower during a housing downturn, however the average length of stay tends to
increase when compared to a strong housing market, as the nature of demand
changes. Our current customers have an average length of stay of 80 weeks and
are spread between domestic customers and business customers. Whilst a large
proportion of domestic customers' storage requirements are related to a house
move it is evident by the length of stay and the large number of long term
customers that there are other drivers for people to seek a self storage
solution.
Our rental rates to customers are not directly correlated to property values and
with more than 39,000 customers we have a relatively solid and consistent cash
flow with no reliance on any one company or tenant.
Property risk
We regularly review all our properties to ensure they are legally compliant in
all aspects and that each store has regular risk assessments carried out. All
our properties are insured against a number of perils, events and eventualities.
The cover and risk is reviewed on a regular basis.
We have a prudent approach to acquisitions and regularly review the hurdle rates
in line with current and forecast market trends, therefore our exposure is
limited to any corrections in commercial property values.
Our approach in acquiring seven to ten new stores per annum reduces our
dependence on the number of non trading investment properties in relation to the
established and mature stores that provide relatively stable and growing cash
flow. It also ensures we have a good balance between investment pipeline, new
stores, established stores and mature stores.
All new store acquisitions are in high visibility locations and the majority are
new purpose built self storage centres. Within the existing estate, we
continually review the store portfolio and invest where necessary and plan the
relocation of those sites which no longer fit with the brand positioning. Three
such recent examples are Eastbourne, Bolton and Southend where we have or plan
to relocate from first generation buildings in to modern purpose built self
storage centres.
The Board sets internal limits on the individual and aggregate amounts that can
be invested at any one time in any proposed investment without planning
permission.
Treasury risk
The Company borrows in Sterling and has an interest hedge swap which effectively
fixes LIBOR on £178m of borrowings at 5.24% running until June 2011. The
interest hedge swap covers approximately 78% of our net debt. The Company has
also renegotiated the terms of the senior and capex facilities and introduced a
common margin ratchet across both facilities. The margin will ratchet between 90
bps and 125 bps dependent upon the ICR cover compared to fixed margins of 125
bps across both facilities previously.
The Company considers the current and forecast projections of interest cover,
covenant head room and cash flow as part of its monthly financial review.
There is some risk to exchange rates as we have a business in France that trades
in Euros. This exposure is relatively limited and we constantly review the
structure of the Company to mitigate risk and improve returns. We are currently
reviewing the structure in France to enable the business to borrow in Europe and
in Euros at prevailing EU interest rates.
Taxation risk
The Company is exposed to any changes in legislation in connection with the tax
regimes affecting the cost of corporation tax, VAT and stamp duty as well as a
number of less material impositions such as empty property relief.
We work closely with our advisors and trade bodies to fully understand the risks
and look at how we can mitigate these as well as working with the relevant
bodies to challenge specific proposals or current legislation that impacts the
business and industry.
Consolidated income statement
for the year ended 31 October 2007
Year Year
ended 31 ended 31
October 2007 October 2006
Note £'000 £'000
__________________________________________________________________________
Revenue 2 74,303 64,313
Cost of sales (23,469) (21,853)
__________________________________________________________________________
Gross profit 50,834 42,460
Administrative expenses (9,474) (16,112)
__________________________________________________________________________
| |
|EBITDA before exceptional |
|items and gain on |
|investment properties 40,725 33,452 |
| |
|Depreciation (123) (103)|
| |
|Exceptional items (net) 7 758 (6,245)|
| |
|Goodwill impairment - (756)|
|__________________________________________________________________________|
Operating profit before
gain on investment properties 41,360 26,348
Gain on the revaluation
of investment properties 9 81,264 63,631
__________________________________________________________________________
Operating profit 2 122,624 89,979
Finance income 1,381 572
Finance expense 3 (20,387) (29,565)
__________________________________________________________________________
Profit before taxation 103,618 60,986
Income tax expense 4 (25,433) (15,849)
__________________________________________________________________________
Profit for the year
(attributable to equity
shareholders) 78,185 45,137
__________________________________________________________________________
- Basic and diluted
earnings per share 8 43.02p 26.31p
All items in the income statement relate to continuing operations.
A final dividend of 3.0 pence per ordinary share has been proposed for the year
ended 31 October 2007.
Consolidated balance sheet
as at 31 October 2007
31 October 31 October
2007 2006
Note £'000 £'000
_______________________________________________________________________
Non-current assets
Investment property 9 647,131 519,291
Development property 9 31,867 7,921
Plant, equipment and 1,477 1,408
owner-occupied property
Deferred tax asset 5 8,407 9,633
_______________________________________________________________________
688,882 538,253
_______________________________________________________________________
Non-current assets classified - 670
as held for sale
Current assets
Inventories 252 172
Trade and other receivables 12,730 10,421
Other financial assets - 8,397
Derivative financial
instruments 3,009 -
Cash and cash equivalents 18,583 9,478
_______________________________________________________________________
34,574 28,468
_______________________________________________________________________
Total assets 723,456 567,391
_______________________________________________________________________
Current liabilities
Financial liabilities
- borrowings (3,340) (5,947)
- derivative financial - (203)
instruments
Trade and other payables (41,610) (36,673)
Obligations under finance (8,940) (7,719)
leases
Provisions - (5)
_______________________________________________________________________
(53,890) (50,547)
_______________________________________________________________________
Non-current liabilities
Bank borrowings (240,386) (234,586)
Trade and other payables (1,605) (1,822)
Deferred tax liabilities 5 (124,049) (101,614)
Obligations under finance
leases (55,453) (41,882)
Provisions (130) (175)
Pension liability - (247)
_______________________________________________________________________
(421,623) (380,326)
_______________________________________________________________________
Total liabilities (475,513) (430,873)
_______________________________________________________________________
Net assets 247,943 136,518
_______________________________________________________________________
Equity
Called up share capital 13, 14 1,871 4
Share premium account 14 28,410 368
Other reserves 14 2,068 (968)
Retained earnings 14 215,594 137,114
_______________________________________________________________________
Equity shareholders' funds 14 247,943 136,518
_______________________________________________________________________
Consolidated statement of recognised income and expense for the year ended 31
October 2007
Year Year
ended 31 ended 31
October October
2007 2006
£'000 £'000
_______________________________________________________________________
Profit for the financial year 78,185 45,137
Net exchange adjustment offset in
reserves net of tax 1,120 (368)
Impact of change in UK tax rate on
deferred tax (note 5) 3,157 -
Cash flow hedge: net fair value gains net of tax 1,916 -
Movement on deferred tax relating to
pension deficit (74) (8)
Actuarial gain recognised in the pension scheme - 3
_______________________________________________________________________
Net gain/(loss) recognised directly in equity 6,119 (373)
_______________________________________________________________________
Total recognised income in year 84,304 44,764
_______________________________________________________________________
Consolidated cash flow statement
for the year ended 31 October 2007
Year Year
ended 31 ended 31
October October
2007 2006
Note £'000 £'000
_________________________________________________________________________
Cash generated from operating activities 15 39,774 33,092
Interest paid (18,867) (33,509)
Interest received 1,158 399
Tax received/(paid) 496 (17)
_________________________________________________________________________
Cash inflows/(outflows) from operating
activities 22,561 (35)
_________________________________________________________________________
Investing activities
Acquisition of subsidiaries (net of cash
acquired) - (4,111)
Expenditure on investment and development
properties (45,495) (27,278)
Net proceeds from disposal of investment
properties - 6,492
Net proceeds from disposal of assets held
for resale - 5,070
Purchase of property, plant and equipment (198) (17)
Proceeds from sale of property, plant and
equipment 6 40
Sale of available for sale financial assets 8,397 (857)
_________________________________________________________________________
Cash outflows from investing activities (37,290) (20,661)
_________________________________________________________________________
Financing activities
Issue of share capital 29,243 75
Equity dividends paid (2,806) -
Net proceeds from issue of new borrowings 9,146 237,000
Finance lease principal payments (5,802) (4,873)
Repayment of borrowings (5,478) (213,738)
_________________________________________________________________________
Cash inflows from financing activities 24,303 18,464
_________________________________________________________________________
Net increase/(decrease) in cash and cash
equivalents 9,574 (2,232)
Opening cash and cash equivalents 9,009 11,241
_________________________________________________________________________
Closing cash and cash equivalents 18,583 9,009
_________________________________________________________________________
Reconciliation of net cash flow to movement in net debt
for the year ended 31 October 2007
Year Year
ended 31 ended 31
October October
2007 2006
£'000 £'000
_________________________________________________________________________
Net increase/(decrease) in cash and cash 9,574 (2,232)
equivalents in the year
Cash inflow from increase in debt
financing (18,454) (14,346)
_________________________________________________________________________
Movement in net debt in the year (8,880) (16,578)
Net debt at start of year (280,656) (264,078)
_________________________________________________________________________
Net debt at end of year (289,536) (280,656)
_________________________________________________________________________
1 Accounting policies
Basis of preparation
The financial information set out above (which was approved by the Board on 22
January 2008) has been compiled in accordance with IFRS, but does not contain
sufficient information to comply with IFRS. That financial information does not
constitute the Company's statutory accounts for the year ended 31 October 2007
for the purpose of Section 240 of the Companies Act 1985 which comply with IFRS,
but is extracted from those accounts. The Company's statutory accounts for the
year ended 31 October 2007 will be filed with the Registrar of Companies
following the Annual General Meeting. The independent auditors' report on those
accounts was unqualified and did not contain any statement under Section 237(2)
or (3) of the Companies Act 1985. The Company's statutory accounts for the year
ended 31 October 2006 have been filed with the Registrar of Companies. The
independent auditors' report on those accounts was unqualified and did not
contain any statement under Section 237 (2) or (3) of the Companies Act 1985.
The annual financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) adopted for use in the
European Union and therefore comply with Article 4 of the EU IAS Regulation and
with those parts of the Companies Act 1985 that are applicable to companies
reporting under IFRS. The Group has applied all accounting standards and
interpretations issued by the International Accounting Standards Board and
International Financial Reporting Interpretations Committee relevant to its
operations and effective for accounting periods beginning 1 November 2006. IFRS
7 Financial Instruments: Disclosure and IFRS 8 Operating Segments were in issue
at the date of authorisation of the financial statements but not yet effective.
IFRS 7 and IFRS 8 affect only disclosures and therefore are not expected to have
a material impact on the financial statements of the Group.
The financial statements have been prepared using accounting policies which have
been applied consistently throughout the year and preceding year.
2 Segmental information
The Group's revenue, profit before income tax and net assets are attributable to
one activity; the provision of self storage accommodation and related services.
Segmental information is presented in respect of the Group's geographical
segment. This is based on the Group's management and internal reporting
structure.
The operating profits, assets and liabilities include items directly
attributable to a segment as well as those that can be allocated on a reasonable
basis. Unallocated items comprise mainly of corporate and head office
liabilities.
Year ended 31 October 2007
UK France Group
£'000 £'000 £'000
_________________________________________________________________________
Continuing operations
Revenue 61,440 12,863 74,303
Operating profit 108,430 14,194 122,624
Financial expenses (20,240) (147) (20,387)
Financial income 1,318 63 1,381
_________________________________________________________________________
Profit before tax 89,508 14,110 103,618
Income tax expense (25,433)
_________________________________________________________________________
Profit for the year 78,185
_________________________________________________________________________
Segment assets 622,158 89,882 712,040
Unallocated assets
- derivatives 3,009
- tax asset 8,407
_________________________________________________________________________
Total assets 723,456
_________________________________________________________________________
Segment liabilities (86,637) (21,101) (107,738)
Unallocated liabilities
- group borrowings (243,726)
- tax liabilities (124,049)
_________________________________________________________________________
Total liabilities (475,513)
_________________________________________________________________________
Net assets 247,943
_________________________________________________________________________
Other segment items
Capital expenditure
- development properties 20,380 4,611 24,991
- property, plant and equipment 198 - 198
Depreciation (112) (11) (123)
Impairment of trade receivables (224) (406) (630)
_________________________________________________________________________
There were no Inter-segment transfers or transactions entered into during the
years ended 31 October 2007 and 31 October 2006.
2 Segmental analysis (continued)
Year ended 31 October 2006
UK France Group
£'000 £'000 £'000
Restated Restated
_________________________________________________________________________
Continuing operations
Revenue 52,932 11,381 64,313
Operating profit 73,756 16,223 89,979
Finance expenses (28,318) (1,247) (29,565)
Finance income 572 - 572
_________________________________________________________________________
Profit before tax 46,010 14,976 60,986
Income tax expense (15,849)
_________________________________________________________________________
Profit for the year 45,137
_________________________________________________________________________
Segment assets 487,448 70,310 557,758
Unallocated assets
- tax assets 9,633
_________________________________________________________________________
Total assets 567,391
_________________________________________________________________________
Segment liabilities (73,703) (20,767) (94,470)
Unallocated liabilities
- group borrowings (234,586)
- derivatives (203)
- tax liabilities (101,614)
_________________________________________________________________________
Total liabilities (430,873)
_________________________________________________________________________
Net assets 136,518
_________________________________________________________________________
Other segment items
Capital expenditure
- development properties 7,921 - 7,921
- property, plant and equipment 20 - 20
Depreciation (92) (11) (103)
Impairment of trade receivables (88) (519) (607)
_________________________________________________________________________
Deferred tax assets of £9.63m have been reclassified as unallocated in the year.
Administrative costs of £1,685,000 and finance costs of £940,000 have been
reclassified between the UK and France for the year ended 31 October 2006 for
comparison purposes.
3 Finance expense
Year Year
ended 31 ended 31
October October
2007 2006
£'000 £'000
__________________________________________________________________________
Finance costs:
Interest payable on bank loans and overdrafts (16,235) (10,852)
Amortisation of debt issue costs on bank loan (660) (1,105)
Interest payable on other loans (176) (8,951)
Interest payable on pension scheme - (9)
Interest on finance lease obligations (3,316) (3,947)
Change in fair value of interest rate swaps - (203)
swaps
__________________________________________________________________________
Finance cost before exceptional item (20,387) (25,067)
__________________________________________________________________________
Exceptional write off of debt issue costs
on refinancing - (4,498)
__________________________________________________________________________
Finance costs (20,387) (29,565)
__________________________________________________________________________
4 Taxation
Analysis of charge in year
2007 2006
£'000 £'000
_________________________________________________________________________
Current tax:
UK Corporation tax charge (76) (13)
Adjustment in respect of prior year 568 -
_________________________________________________________________________
Deferred tax
- Current year (26,073) (15,770)
- Adjustment in respect of prior year 148 (66)
_________________________________________________________________________
Tax expense (25,433) (15,849)
_________________________________________________________________________
4 Taxation (continued)
Reconciliation of income tax charge
The tax for the year is lower (2006: lower) than the standard rate of
corporation tax in the UK (30%). The differences are explained below:
2007 2006
£'000 £'000
_______________________________________________________________________
Profit before taxation 103,618 60,986
_______________________________________________________________________
Tax calculated at domestic tax rates applicable in
the UK: 30% (2006: 30%) 31,085 18,296
Effect of:
Expenses not deductible for tax purposes 442 1,354
Release of provisions not subject to tax (1,407) -
Indexation on property revaluation (475) (441)
French tax losses not previously recognised (71) (1,127)
Prior year adjustment on change in use of property - (1,387)
Prior year adjustments (716) 66
Income not taxable for tax purposes - (912)
Remeasurement of deferred tax change in UK tax rate (3,425) -
_______________________________________________________________________
Tax expense 25,433 15,849
_______________________________________________________________________
5 Deferred tax
The movement on the deferred tax account is as shown below:
2007 2006
£'000 £'000
_______________________________________________________________________
At 1 November (91,981) (75,418)
Profit and loss charge (25,925) (15,849)
Charged to equity (819) (37)
Tax rate change - charged to equity 3,157 -
Exchange differences (74) 79
Acquisitions - (756)
_______________________________________________________________________
At 31 October (115,642) (91,981)
_______________________________________________________________________
Deferred tax asset 8,407 9,633
_______________________________________________________________________
Deferred tax liability (124,049) (101,614)
_______________________________________________________________________
(115,642) (91,981)
_______________________________________________________________________
5 Deferred tax (continued)
Deferred tax is calculated in full on temporary differences under the liability
method using a tax rate of 28% (2006: 30%).
At 31 October 2007, the Group had capital losses of £2.6 million (2006: £2.6
million) in respect of its UK operations.
Deferred tax assets have been recognised in respect of all tax losses and other
temporary differences giving rise to deferred tax assets because it is probable
that these assets will be recovered.
Deferred tax assets and liabilities are only offset where there is a legally
enforceable right of offset and there is an intention to settle the balances
net.
6 Dividends
The dividend paid in 2007 was £2,806,000 (1.5p per share). A dividend in respect
of the year ended 31 October 2007 of 3.0p per share, amounting to a dividend
payment of £5,612,000, is to be proposed at the annual general meeting on 27
March 2008. The ex-dividend date will be 27 February 2008 and the record date 29
February 2008, with an intended payment date of 7 April 2008. The final dividend
has not been included as a liability at 31 October 2007.
7 Exceptional items
Exceptional items (included within administrative expenses) that have been
credited/(charged) during the year are set out below:
2007 2006
£'000 £'000
______________________________________________________________________
Professional fees (IPO process) (2,157) -
Pension restructuring costs (307) -
Cost of share issues (IFRS 2) 3,222 (6,245)
______________________________________________________________________
Exceptional income/(expense) 758 (6,245)
______________________________________________________________________
The costs of share issues in 2005 and 2006 relate to an exceptional IFRS 2
charge of £6.2m on the issue of shares to employees at below market value and
related tax costs, and in 2006 also include the bonus costs to certain employees
in lieu of share awards not issued. £3.2m of this charge was released in the
second half of this year following agreement of share valuations.
8 Earnings per ordinary share
Earnings per share is calculated by dividing the profit attributable to equity
holders of the company by the weighted average number of ordinary shares in
issue during the year.
Year ended Year ended
31 October 2007 31 October 2006
Earnings Shares Pence Earnings Shares Pence
£m million per £m million per
share share
__________________________________________________________________________
Basic and Diluted 78.19 181.77 43.02 45.14 171.55 26.31
__________________________________________________________________________
Adjustments:
Gain on investment
properties (81.26) - (44.71) (63.63) - (37.08)
Exceptional items (0.76) - (0.41) 6.25 - 3.64
Goodwill impairment - - - 0.76 - 0.44
Exceptional finance
costs - - - 4.50 - 2.62
Tax on adjustments 18.52 - 10.18 13.75 - 8.02
_________________________________________________________________________
Adjusted 14.69 181.77 8.08 6.77 171.55 3.95
_________________________________________________________________________
The number of shares for the year ended 31 October 2006 has been adjusted for
the bonus share issues prior to the IPO.
9 Property portfolio
Investment properties, development properties and interest in leasehold
properties
Investment Interest Total Development
properties in Investment properties
leasehold properties
properties
£'000 £'000 £'000 £'000
__________________________________________________________________________
At 1 November 2006 469,690 49,601 519,291 7,921
Additions 23,033 20,594 43,627 24,991
Reclassifications 1,743 - 1,743 (1,743)
Revaluation 87,066 (5,802) 81,264 -
Transfer of asset held for
resale - - - 670
Exchange movements 1,206 - 1,206 28
__________________________________________________________________________
At 31 October 2007 582,738 64,393 647,131 31,867
__________________________________________________________________________
3 Valuations
Deemed Valuation Revaluation
cost on deemed
cost
£'000 £'000 £'000
_________________________________________________________________________
Freehold stores
As at 1 November 2006 195,252 356,690 161,438
Movement in year 16,908 92,867 75,959
_________________________________________________________________________
At 31 October 2007 212,160 449,557 237,397
_________________________________________________________________________
Leasehold stores
As at 1 November 2006 47,702 113,000 65,298
Movement in year 9,074 20,181 11,107
_________________________________________________________________________
At 31 October 2007 56,776 133,181 76,405
_________________________________________________________________________
All stores
As at 1 November 2006 242,954 469,690 226,736
Movement in year 25,982 113,048 87,066
_________________________________________________________________________
At 31 October 2007 268,936 582,738 313,802
_________________________________________________________________________
The valuation of £583.1m excludes £1 million in respect of owner occupied
property.
The freehold and leasehold investment properties have been valued as at 31
October 2007 by external valuers, Cushman & Wakefield, Real Estate Consultants
('C&W'). The valuation has been carried out in accordance with the RICS
Appraisal and Valuation Standards published by The Royal Institution of
Chartered Surveyors ('the Red Book'). The valuation of each of the investment
properties has been prepared on the basis of Market Value as a fully equipped
operational entity, having regard to trading potential. The valuation has been
provided for accounts purposes and as such, is a Regulated Purpose Valuation as
defined in the Red Book. In compliance with the disclosure requirements of the
Red Book, C&W have confirmed that:
• The members of the RICS who have been the signatories to the valuations
provided to the Company for the same purposes as this valuation have been so
since October 2004.
• 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%.
• C&W have continuously been carrying out this valuation for the same purposes
as this valuation on behalf of the Company since October 2004.
Valuation method and assumptions
The valuation of the operational self-storage facilities has been prepared
having regard to trading potential. Cashflow projections have been prepared
for all of the properties reflecting estimated absorption, revenue growth and
expense inflation. A discounted cash flow method of valuation based on
these cash flow projections has been used to arrive at Market Value for these
properties.
C&W have adopted different approaches for the valuation of the leasehold and
freehold assets as follows:
10 Valuations (continued)
Freehold (UK and France)
The valuation is based on a discounted cash flow of the net operating income
over a ten year period and notional sale of the asset at the end of the tenth
year.
Leasehold (UK)
The same methodology has been used as for freeholds, except that no sale of the
assets in the tenth year is assumed but the discounted cash flow is extended to
the expiry of the lease.
Leasehold (France)
In relation to the French commercial leases C&W have valued the cash flow
projections in perpetuity due to the security of tenure arrangements in that
market and the potential compensation arrangements in the event of the landlord
wishing to take possession. The valuation treatment is therefore the same as for
the freehold properties. Our capitalisation rates on these stores reflect the
risk of the landlord terminating the lease arrangements.
11 Financial Liabilities
Current
2007 2006
£'000 £'000
_____________________________________________________________________
Bank loans and overdrafts due within one year or on
demand:
Secured - bank loans 4,000 -
Debt issue costs - due within one year (660) -
Secured - bank overdraft - 469
_____________________________________________________________________
3,340 469
Other borrowings
Loan notes - deferred consideration for
acquisition(1) - 5,478
_____________________________________________________________________
3,340 5,947
_____________________________________________________________________
11 Financial Liabilities (continued)
Non-current
2007 2006
£'000 £'000
_____________________________________________________________________
Bank loans:
Secured(2) 242,146 237,000
Debt issue costs - due within one year - (660)
- due after one year (1,760) (2,420)
_____________________________________________________________________
240,386 233,920
_____________________________________________________________________
Other borrowings:
Convertible preferred ordinary shares - 666
_____________________________________________________________________
240,386 234,586
_____________________________________________________________________
Finance costs of £2,420,000 (2006: £3,080,000) have been capitalised against
bank loans and other borrowings and are being amortised over the life of the
banking and loan facilities.
1. The bank loans and overdrafts are secured by a fixed charge over the group's
investments property portfolio. In July 2006, as part of the interest rate
management strategy the group entered into one interest rate swap for a
notional principal amount of £177,750,000 commencing in December 2006 and
maturing in July 2011. Under this swap, the group receives interest on a
variable basis and pays interest at a rate of 5.21525%.
2. Deferred consideration for acquisitions relates to deferred loan notes
payable of £5,348,000 for the acquisition of a subsidiary by Mentmore Plc.
The loan notes were redeemed during the year.
12 Adjusted net assets per share
Year Year
ended 31 ended 31
October October
2007 2006
Analysis of net asset value £'000 £'000
___________________________________________________________________________
Net asset value 247,943 136,518
Redesignation of preferred share capital - 666
___________________________________________________________________________
Basic and diluted net asset value 247,943 137,184
___________________________________________________________________________
Adjustments:
Deferred tax on revaluation 124,049 101,614
___________________________________________________________________________
Adjusted net asset value 371,992 238,798
___________________________________________________________________________
Basic net assets per share (pence) 132.5 79.5
Diluted net assets per share (pence) 132.5 79.5
Adjusted net assets per share (pence) 198.8 138.4
___________________________________________________________________________
Number Number
___________________________________________________________________________
Shares in issue 187,083,333 25,875,000
Redesignation of preferred share capital - 146,625,000
___________________________________________________________________________
Basic and diluted shares used for
calculation 187,083,333 172,500,000
___________________________________________________________________________
Net assets per share are shareholders' funds divided by the number of shares at
the period end.
Adjusted net assets per share excludes deferred tax on the revaluation uplift on
freehold and leasehold properties.
13 Share capital
Year Year
ended 31 ended 31
October October
2007 2006
£'000 £'000
__________________________________________________________________________
Authorised
300,000,000 (2006: 375,000) ordinary
shares of 1p each 3,000 4
__________________________________________________________________________
Called up, issued and fully paid
187,083,333 (2006: 375,000) ordinary
shares of 1p each 1,871 4
__________________________________________________________________________
Ordinary shares
The holders of the ordinary shares shall be entitled to one vote for each
ordinary share. On a return of capital on liquidation, capital reduction or
otherwise the surplus assets of the Group remaining after the payment of its
liabilities shall be applied, subject to the payment of all amounts payable to
the holders of the preferred ordinary shares.
Preferred ordinary shares
The value of preferred ordinary shares including share premium of £666,000 have
been transferred to other debt at 31 October 2006 as they have a right to a
dividend of 15% of net profits cumulative from 1 November 2006.
On 21 February 2007 the Company carried out a bonus issue of two Ordinary Shares
for each Ordinary Share and two Preferred Ordinary Shares for each Preferred
Ordinary Share of the Company that was in issue. By a resolution passed on 8
March 2007, the Company resolved, conditional upon Admission, to (i) redesignate
the Preferred Ordinary Shares as Ordinary Shares, and (ii) to make a further
bonus issue of twenty two Ordinary Shares for each Ordinary Share the Company
has in issue. This restructuring increased the Company's issued share capital by
165,000,000 Ordinary Shares to 172,500,000 Ordinary Shares. On 14 March 2007 the
Company issued 14,583,333 Ordinary Shares through an Initial Public Offering on
the London Stock Exchange at a share price of £2.40, generating share premium of
£29,097,000 after deducting costs of issuing of £5,757,000 which have been
offset against the share premium created on issue.
14 Statement of changes in shareholders' equity
Group Share Share Translation Hedge Retained
capital premium reserve reserve earnings Total
£'000 £'000 £'000 £'000 £'000 £'000
______________________________________________________________________________
Balance at 1 4 368 (968) - 137,114 136,518
November 2006
Profit for the year - - - - 78,185 78,185
Share based payment - - - - 18 18
Exchange
differences on
translation of
foreign operations - - 1,120 - - 1,120
Redesignation of
preferred shares 21 645 - - - 666
Adjustment in
respect of share
issue 1,700 (1,700) - - - -
Shares issued 146 29,097 - - - 29,243
Interest swap
movement (net of
tax) - - - 1,916 - 1,916
Movement on
deferred tax
relating to pension
deficit - - - - (74) (74)
Tax rate change - - - - 3,157 3,157
Dividends - - - - (2,806) (2,806)
______________________________________________________________________________
Balance at 31
October 2007 1,871 28,410 152 1,916 215,594 247,943
______________________________________________________________________________
The translation reserve, £152,000 (2006: £968,000) comprises all foreign
exchange differences arising from the translation of the financial statements of
foreign operations.
15 Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating activities:
Cash generated from continuing operations
2007 2006
£'000 £'000
______________________________________________________________________
Profit before income tax 103,618 60,986
Adjustments for:
Gain from fair value adjustment on investment
properties (81,264) (63,631)
Depreciation 123 103
Negative goodwill written back/(goodwill impairment) - 756
Finance income (1,381) (572)
Finance expense 20,387 29,565
Employee share options 18 -
Changes in working capital:
Increase in inventories (80) (35)
Decrease in trade and other receivables (2,085) 702
Increase in trade and other payables 735 5,390
Decrease in pension scheme liabilities (247) (124)
Decrease in provisions (50) (48)
______________________________________________________________________
Cash generated from continuing operations 39,774 33,092
______________________________________________________________________
This information is provided by RNS
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