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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Lok'n Store Group Plc | LSE:LOK | London | Ordinary Share | GB0007276115 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 1,110.00 | 1,105.00 | 1,110.00 | 1,110.00 | 1,105.00 | 1,110.00 | 605,259 | 16:29:46 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Business Services, Nec | 28.96M | 4.69M | 0.1420 | 78.17 | 366.83M |
From Apr 2019 to Apr 2024
TIDMLOK
RNS Number : 5772F
Lok'nStore Group PLC
29 October 2018
29 October 2018
Lok'nStore Group Plc
Preliminary results correction
In the Preliminary results released today at 07.00 under RNS Number 3853F the dividend record date stated in Note 8 should have referred to 30 November 2018, not 30 December 2018. In all other respects this morning's announcement remains unaffected and is reproduced below in corrected form in full:
LOK'NSTORE GROUP PLC
("Lok'nStore" or "the Group")
Preliminary results
for the year ended 31 July 2018
Lok'nStore Group Plc, a leading company in the UK self-storage market announces results for the year ended 31 July 2018.
Highlights of Lok'nStore Group plc results 2018
"Impressive growth and expanding new store opening programme"
Robust trading
ü Group Revenue GBP17.75 million up 6.6 % (2017: GBP16.65 million)
ü Group Adjusted EBITDA(1) GBP7.30million up 12.3% (2017: GBP6.49 million)
ü Operating Profit GBP5.71 million up 33.9% (2017: GBP4.26 million) after exceptionals(2)
ü Profit before taxation GBP5.33 million up 34.3% (2017: GBP3.97 million)
Significant growth in asset value
ü Adjusted Total Assets(3) up 18.2% to GBP181.4 million (2017: GBP153.5 million)
ü Adjusted Net Asset Value(4) per share up 15.3% to GBP4.80 (2017: GBP4.16)
Cash flow drives 10.0% dividend increase - progressive dividend policy
ü Annual dividend 11 pence per share up 10.0% (2017: 10 pence per share)
ü Cash available for Distribution (CAD) (5) GBP5.60 million up 8.3% (2017: GBP5.17 million)
ü CAD (5) per share up 7.5% to 19.4 pence (2017: 18.1 pence)
Strong balance sheet, efficient use of capital, conservative debt
ü Net debt GBP32.3 million (2017: GBP17.4 million)
ü Loan to value ratio(6) 19.7% (2017: 14.0%)
ü Increased bank facility from GBP40 million to GBP50 million - runs until January 2023
13 stores in pipeline(7) to deliver further growth in revenue, profits and assets
ü 3 new stores opened this year accounting for 29.2 pence of increase in NAV per share
ü 3 new stores opening this coming financial year
ü Plus 5 new sites secured
ü Expanding pipeline of 13 new landmark stores
ü Taking total to 42 stores once developed
For all of the definitions of the terms used in the highlights above refer to the notes section below.
Commenting on the Group's results, Andrew Jacobs CEO of Lok'nStore Group said,
"Lok'nStore Group has had an excellent year successfully implementing our strategic objectives. We have created a strong platform for an exciting period of growth for Lok'nStore with revenue, profits and asset values all moving ahead. Our adjusted net asset value per share has increased by a substantial 15.3% to GBP4.80 this year and we are raising the dividend by 10.0% to 11 pence per share."
"We have achieved a notable acceleration in our store pipeline to 13 sites which will increase operating space by 32.4% over the coming three years. This will add considerable momentum to sales and earnings growth.
Lok'nStore's strong balance sheet and strategy of opening new landmark stores position the Group well for future growth."
Notes - What we mean when we say ... (and why we use these key performance indicators (KPIs))
In addition to IFRS accounting performance measures, we use some Alternative Performance Measures (APMs) to help us understand how the underlying business is performing. The following table identifies those measures and explains what we mean when we use them and importantly why we use them and what they tell you about our business and performance.
1. Group Adjusted EBITDA - Earnings before interest, tax, depreciation and amortisation - The measure is designed to give clarity on the operating cash flow of the business stripping away non-cash charges, finance charges and tax. Adjusted EBITDA is defined as EBITDA before losses or profits on disposal, share-based payments, acquisition costs, exceptional items, finance income, finance costs and taxation.
2. Exceptional items - refers to 'one-off' items of a non-operational nature which arose during the year and are unlikely to be recurring. (Refer Note 2(c) of the Financial Statements).
3. Adjusted Total Assets - The value of adjusted total assets of GBP181.4 million (2017: GBP153.5 million) is calculated by adding the independent valuation of the leasehold properties of GBP18.2 million (2017: GBP16.7 million) less their corresponding net book value (NBV) GBP2.7 million (2017: GBP2.9 million) to the total assets in the Statement of Financial Position of GBP165.9 million (2017: GBP139.7 million). This provides clarity on the significant value of the leasehold stores as trading businesses which under accounting rules on operating leases are only presented at their book values within the Statement of Financial Position.
4. NAV - Net Asset Value per share - Adjusted net asset value per share is the net assets adjusted for the valuation of leasehold stores (properties held under operating leases) and deferred tax divided by the number of shares at the year-end. The shares held in the Group's employee benefits trust and treasury shares are excluded from the number of shares. The calculation of the Net Asset Value per share is set out in the Financial Review.
5. CAD - Cash available for Distribution - is calculated as Adjusted EBITDA minus total net finance cost, less capitalised maintenance expenses, New Works Team costs and current tax. This measure is designed to give clarity to the capacity of the business to generate ongoing net operating cash that can be used to pay dividends to shareholders. The calculation of the Cash available for Distribution is set out in the Financial Review.
6. LTV - Loan to value ratio - measures the debt of the business expressed as a percentage of total property assets giving a perspective on the gearing of the business. The calculation is based on net debt of GBP32.3 million as set out in note 24(b) (2017: GBP17.4 million) as a percentage of the total properties independently valued by JLL and including development land assets totalling GBP162.8 million (2017: GBP124.8 million) as set out in the Financial Review.
7. Pipeline sites - means sites for new stores that we have either exchanged contracts on or have agreed heads of terms on and are now with our lawyers for completion. We now have 13 pipeline sites which include 9 secured and 4 sites which are currently with lawyers.
8. Adjusted Store EBITDA is Adjusted EBITDA (see 1 above) before the deduction of central and head office costs. This important information provides an insight into the underlying performance of the trading stores and shows the cash generating core of the business. Use of this metric enables us to provide additional information on store EBITDA contributions and the margins analysed between freehold and leasehold stores and according to the age of the stores. This analysis is set out in a table in the Chief Executive Officer's Review.
9. Gearing - refers to the level of a company's debt related to its equity capital, usually expressed in percentage form. It is a measure of a company's financial leverage and shows the extent to which its operations are funded by lenders versus shareholders. Gearing can be measured by a number of ratios and we use the debt-to-equity ratio in this document. The calculation of the Gearing percentage, also referred to as the net debt to equity ratio is set out in Note 16 of the Financial Statements.
10. Group Adjusted EBITDAR - EBITDAR is Earnings before interest, tax, depreciation amortisation and rent. The measure is designed to give clarity on the effect of the rent payable by leasehold stores and how its elimination enables an analytical comparison between freehold stores operating performance (which do not pay rent) and leasehold stores operating performance. This analysis is set out in a table in the Chief Executive Officer's Review.
11. Cost Ratio - calculates the ratio of the total operating costs of the business as set out in the Financial Review, expressed as a percentage of total group revenue (note 1a), giving a perspective on the cost efficiency of the business when compared to the cost ratio of the previous year.
Chairman's Statement
Last year we committed to a period of rapid and sustainable growth based on the strong platform we have built. It is my pleasure to introduce this year's results which show that we are fulfilling that commitment.
During the year we opened 3 new landmark stores which are all trading above expectations and have contributed to both the growth in turnover and the significant rise (15.3%) in our Adjusted Net Asset Value per share to GBP4.80 (2017: GBP4.16). Of this 64.4 pence increase, 29.2 pence was accounted for by the new store openings demonstrating the value creative capacity of our landmark store opening strategy. Our new store pipeline is 9 sites and we have 4 more progressing with our lawyers. Of these, 6 are scheduled to open in 2019 and 3 in 2020. This acceleration in new store openings is reflected in the increase in capital expenditure to GBP21.9 million this year up from GBP6.3 million last year (Refer note 10(b)). When these stores open they will add further to our profits and asset value.
The detail behind these results is discussed further in our Chief Executive's review and the Financial Review. For me the performance of Lok'nStore this year can be summarised under three headings:
-- Strong operating performance resulting in an increase in turnover and profits -- Growing asset value driven by existing store performance and growth in new stores -- Many more stores under development and more acquisitions on the horizon
The increasing value of our assets is emphasised by further transactions in the market positively reflecting the demand for established self-storage assets, especially of the quality of our newly built stores. In their July 2018 Market Commentary Report JLL estimate, "there have been around EUR350m of self-storage transactions over the last 12 months in Europe" and note that they are "seeing a broad base of specialist self-storage investors, private equity and institutions looking to invest in the sector - with real appetite for scale of over GBP100m."
Managed Stores
Our growth strategy includes increasing the number of stores we manage for third party owners. This enables the Company to earn revenue without having to commit our capital, to amortise fixed central costs over a wider operating base and drive further traffic to our website which benefits our entire operation. Our current pipeline includes an additional 4 managed stores which will take the total number of managed stores to 12.
For the first time in these accounts (note 2(c)) we are recognising carried interest fee receivable of GBP361,000 relating to a managed store demonstrating the value of this strategy.
Committed People
None of these results are possible without the commitment of our members of staff who deserve our thanks and importantly our continued investment in them. This year we have provided over 5,000 hours of training via our Academy and you can read more about this in our corporate social responsibility report. We have also reviewed our pay levels to ensure that all of our employees are paid fairly and we continue to promote equity ownership to our staff via our Share Investment Plan and the granting of options.
We will continue to invest in our people because it makes business sense, directly contributing to our strategic and operational objectives which are to:
-- Steadily increase cash available for distribution (CAD) per share enabling a predictable growth of the dividend from a strong asset base with conservative levels of debt
-- Fill existing stores and improve pricing -- Acquire more sites to build new landmark stores -- Increase the number of stores we manage for third parties
Board Governance
In March 2018 the London Stock Exchange published AIM Notice 50 requiring companies to comply with a recognised corporate governance code. Your Board has decided to apply the Quoted Companies Alliance's (QCA) Corporate Governance code which takes a proportionate principle based approach to the application and reporting of good governance. We believe this code is appropriate to the size and nature of the Company. Please refer to the Corporate Governance sections of this report and our website for more information.
The composition of the Board is also my responsibility and once again this year I spent time reviewing the Board's configuration with our team. An account of this work is given under board performance and evaluation; it has reconfirmed to me that the current composition of your board continues to be in the best interest of Shareholders as a whole.
Progressive Dividend Policy
For the seventh consecutive year and in line with our stated aim to provide a predictable growth in dividend, we are proposing to increase the annual dividend pay-out by one penny. The Group will therefore pay a final dividend of 7.67 pence per share on 11 January 2019 following the payment of an interim dividend of 3.33 pence per share in June 2018 making a total annual dividend of 11 pence per share, up 10% from 10 pence last year.
I hope you enjoy reading this year's report and that you will feel as confident and optimistic as I do about the future of Lok'nStore Group plc.
Simon G Thomas
Chairman
26 October 2018
The Strategic Report
-- The UK Self-Storage Market -- Our Business Model -- Our Strategic Objectives -- Chief Executive Officer's Review -- Property Review -- Financial Review -- Principal Risks and Uncertainties
The UK Self-Storage Market
The Self-Storage Association UK Annual Industry Survey 2018 reports that the UK Self-Storage industry is made up of about 1,505 sites offering 44.6 million square feet of space. It calculates an 8.8% increase in space used by customers in 2017.
Hot Features
Premium
Square Feet of Self Annual Turnover of Average Store Size
Storage per head of UK Self-Storage Industry
Population
UK Australia US GBP750m 29,600 sq. ft.
0.674 1.8 9.3
--------- ------------ ------ -------------------------- -------------------
2.4m sq. ft. of additional 3% rise in occupancy Only 42% of people
space used by customers across the industry have a reasonable
in 2017 in 2017 or good awareness
of self-storage
-------------------------- -------------------
Market overview
As reported in the Self-Storage Association UK (SSA UK) Annual Industry Survey 2018 the UK self-storage market continues to grow but remains under-developed relative to Australia and the US. In the UK, there are an estimated 1,505 self-storage facilities providing approximately 44.6 million square feet of storage space. With a population of 65.2 million people in the UK this equates to only 0.7 square feet per person compared to 9.3 square feet per person in the USA and 1.8 square feet in Australia.
The structure of the UK industry is changing. When the industry first emerged companies were predominately single owner occupied sites often located in industrial areas but larger operators (defined as operators managing 10 or more sites), such as Lok'nStore, have recently been developing purpose built stores in retail facing locations offering customers a higher standard of product and service.
The main barriers to entry to the market remain the difficulty in finding and securing suitable sites as well as gaining the appropriate planning consents. As a result, according to the SSA UK, larger operators now own or manage around 30% of facilities which translates to 40% of market share in terms of revenue and space. Currently Lok'nStore is the 4(th) largest operator in the UK with 29 stores providing 1.4 million square feet of space.
Drivers of demand for self-storage
Demand for self-storage by both business and household customers is driven by a specific need based on changing circumstances as well as economic activity and business confidence.
For household customers their need is often linked to a life event where they will need space temporarily, for example to support a house sale, but increasingly householders are using storage on a semi-permanent basis to free up space at home or store belongings they don't have room for.
Business customers use self-storage for a variety of purposes including storage of goods, excess or seasonal stock, document archiving or storage of equipment and tools. Businesses tend to store for longer than household customers and take larger units, although they also take advantage of self-storage for temporary periods to support seasonal sales or office moves or refurbishments.
Lok'nStore's opportunity in the market
The Self-Storage Association UK (SSA UK) Annual Industry Survey 2018 notes that public awareness of and demand for self-storage is increasing. We know that on average customers chose a store within 5 miles of their home or business. With a pipeline of 9 secured stores and a further 4 stores progressing through the acquisitions process, Lok'nStore is well placed to attract these customers and add further momentum to the growth of our sales and profits.
Combining the Company's competitive strengths (recognised brand, excellent customer service, rigorous cost control) and the attractive market dynamics of the storage sector (growing sector, under supply, proven resilience during an economic downturn) with our strong balance sheet and flexible operating and ownership model (see our portfolio strategy on page 10), we believe Lok'nStore can take advantage of the opportunities presented and grow at a rapid rate without significantly increasing risk.
Our Business Model
Our overriding objective is to steadily increase the cash available for distribution (CAD) enabling a predictable growth of the dividend from a strong asset base and conservatively geared balance sheet.
What we do How we create value Sharing value with our
stakeholders
Shareholders
* Buy (or lease) prominent sites * Take a flexible approach to site selection * High quality earnings
* Build (or refurbish) landmark, * Increase our asset base * Growing NAV
highly visible orange
storage centres
* Careful cost control * Progressive dividend policy
* Offer clean, dry, secure stora
ge to business and * Managed pricing strategy
household customers Customers
* Easy to locate stores
* Earn fees from managing stores on behalf of others
* Friendly and high level customer service
* Wide range of storage solutions
* Transparent and open contracts
Our people
* Development Opportunities through the Lok'nStore
Academy
* Uncapped store bonus scheme
* Share ownership plans
* Strong health and safety approach
------------------------------------------------------------ ----------------------------------------------------------
Our Strategic Objectives
Our objectives Achievements in 2018 Strategy in action
Steadily increase cash available Cash available for distribution 10% increase
for distribution (CAD) per (CAD) per share up 7.5% to in annual dividend
share 19.4 pence (2017:18.1 pence) to 11 pence per
share
------------------------------------- --------------------
Fill existing stores and We developed the customer Self-storage
improve pricing journey giving customers the unit occupancy
ability to find and respond up 7.7%
to previous quotes with one
click. Self-storage
We focussed on developing pricing up 0.5%.
our teams' sales and customer
service through the Lok'nStore
Academy. These actions resulted
in conversion of new enquiries
improving by 1% over the year
------------------------------------- --------------------
Acquire more sites to build Gillingham and Wellingborough
new landmark stores stores opening in the year. Acquired 5 sites
Both are in prominent retail
locations with little established
competition.
------------------------------------- --------------------
Increase the number of stores The Hemel Hempstead store 4 managed stores
we manage for third parties opened during the year in pipeline
We are developing managed
stores in Exeter, Dover, Gloucester
and Ipswich and have
1 managed store site with
lawyers.
------------------------------------- --------------------
Chief Executive Officer's Review
Lok'nStore Group has had an excellent year successfully implementing all of our strategic objectives. Revenue, profits and asset values have all moved ahead steadily. Our rapidly expanding pipeline of new stores will substantially increase the proportion of our store space which is new or purpose-built and will add further momentum to the growth of sales and profits with plenty of new capacity contributing to growth over the coming three years.
Robust trading
Group revenue for the year was GBP17.75 million, up 6.6% year on year (2017: GBP16.65 million) driven by occupancy increases in both old and new stores. This revenue growth led to a 12.3% increase in Group Adjusted EBITDA. Tight control over operating costs leading to a 2% increase in self-storage margins has also contributed in pushing the Group's profits to record levels.
ü Self-storage revenue GBP14.78 million up 5.6% (2017: GBP13.99 million)
ü Adjusted Store EBITDA GBP8.42 million up 9.3 % (2017: GBP7.70 million)
ü Unit occupancy up 7.7%
ü Unit pricing up 0.5%
With costs firmly under control revenue growth translates into healthy profit growth. Total adjusted store EBITDA in self-storage, a key performance indicator of profitability and cash flow of the business, increased 9.3% to GBP8.42 million (2017: GBP7.70 million). The overall adjusted EBITDA margin across all stores was nearly 2 percentage points higher at 57.0% (2017: 55.1%) with the adjusted Store EBITDA margins of the freehold stores at 64.1% (2017: 63.4%) and the leasehold stores at 44.1% (2017: 41.5%).
Over the course of the year unit occupancy rose by a healthy 7.7% and unit pricing increased 0.5%. Out of 29 stores open 15 were trading at above 70% occupancy. At the end of July 2018 33.9% of Lok'nStore's self-storage revenue was from business customers (2017: 33.5%) and 66.1% was from household customers, (2017: 66.5%). By number of customers 17.8% of our customers were business customers (2017: 18.1%) and 82.2% household customers (2017: 81.9%).
By the year-end we had 8 managed stores following the opening of the Hemel Hempstead store in November 2017.
The average unexpired term of the Group's operating leaseholds is approximately 11 years and 1 month as at 31 July 2018 (10 years and 8 months: 31 July 2017). The leaseholds produced 27.6% of the total store EBITDA in the year (2017: 28.5%).
In the table below we show how the performance of the stores varies between freehold and leasehold stores. Currently 67.2% of Lok'nStore owned trading space is freehold and 32.8% is leasehold. Inevitably the leaseholds trade on lower margins due the rent payable, but nevertheless the 44.1% margins achieved is substantial, and leads to a higher return on capital than the freehold stores which require much larger capital expenditure to buy the land and buildings. The freehold stores produce 72.4% of the store EBITDA and account for 88.8% of valuations (including secured pipeline stores).
When the secured pipeline is fully developed the freeholds will account for 55.8% of trading space, leaseholds will be 19.5% and managed stores 24.7%. This mix of tenures with their different risk and return characteristics provides strength in the balance sheet and opportunities to create value throughout the cycle, and is always driven solely by consideration of the operating business.
Portfolio Analysis and Performance Breakdown
When fully Developed
Portfolio Analysis Number % of Valuation % of Adjusted % lettable Number Total
and Performance of stores Adjusted Store EBITDA space of Stores % lettable
Breakdown Store margin (%) space
EBITDA
----------- --------------- ---------- -------------- ----------- ----------- ------------
As at 31 July Lok
2018 Owned
----------- --------------- ---------- -------------- ----------- ----------- ------------
Freehold and
long leasehold 14 78.6 72.4 64.1 67.2 19 55.8
----------- --------------- ---------- -------------- ----------- ----------- ------------
Operating
Leaseholds 7 11.2 27.6 44.1 32.8 7 19.5
----------- --------------- ---------- -------------- ----------- ----------- ------------
Managed Stores 8 - - 100 - 12 24.7
----------- --------------- ---------- -------------- ----------- ----------- ------------
Total Stores
Trading 29 - - - - 38 -
----------- --------------- ---------- -------------- ----------- ----------- ------------
Pipeline Stores
----------- --------------- ---------- -------------- ----------- ----------- ------------
Owned 5 10.2 - - - - -
----------- --------------- ---------- -------------- ----------- ----------- ------------
Managed Stores 4 - - - - - -
----------- --------------- ---------- -------------- ----------- ----------- ------------
Total Self-Storage 38 100 100 57.0 100 38 100
----------- --------------- ---------- -------------- ----------- ----------- ------------
Document Storage 2 - - - - 2 -
----------- --------------- ---------- -------------- ----------- ----------- ------------
In the table below we show how the performance breaks down between the age brackets of the stores. Clearly older stores have had time to fill up and produced a 67% EBITDAR profit (earnings before interest, tax, depreciation, amortisation and rent) margins. Over time as new stores goes through their life cycle they will progress towards the same margins as the fully established stores and add substantially to revenues and profits.
Operating Performance at a glance (Lok'nStore owned stores only)
Weeks Old Pipeline Under 100 to 250 over 250 Total
100
Year Ended 31 July 2018
--------- -------- ----------- --------- -------
Sales GBP000 180 1,607 12,992 14,779
--------- -------- ----------- --------- -------
Stores Adjusted EBITDA
GBP'000 (75.91) 1,025 7,471 8,420
--------- -------- ----------- --------- -------
EBITDA Margin (%) (42%) 64% 58% 57%
--------- -------- ----------- --------- -------
Stores Adjusted EBITDAR
GBP'000 (75.91) 1,025 8,662 9,611
--------- -------- ----------- --------- -------
EBITDAR Margin (%) (42%) 64% 67% 65%
--------- -------- ----------- --------- -------
As at 31 July 2018 ('000
sq. ft.)
--------- -------- ----------- --------- -------
Maximum Net Area 300 105 111 915 1,432
--------- -------- ----------- --------- -------
Freehold & Long Leasehold
('000 sq. ft.) 300 105 111 544 1,060
--------- -------- ----------- --------- -------
Short Leasehold ('000 sq.
ft.) - - - 372 372
--------- -------- ----------- --------- -------
Number Stores
--------- -------- ----------- --------- -------
Freehold and Long Leasehold 5 2 2 10 19
--------- -------- ----------- --------- -------
Short Leasehold - - - 7 7
--------- -------- ----------- --------- -------
Total Stores 5 2 2 17 26
--------- -------- ----------- --------- -------
Table covers Lok'nStore owned stores only
In respect of the Farnborough Store (>250 weeks) the total store revenue includes a GBP100,000 contribution receivable from Group Head Office.
Ancillary Sales
Ancillary sales which consist of boxes and packaging materials, insurance and other sales increased 4.0% (2017: 2.6%) over the year accounting for 11.0% of self-storage revenues (2017: 11.2%).
Serviced document storage revenue and profits up
ü Revenue GBP2.38 million up 2.4% (2017: GBP2.33 million)
ü Adjusted EBITDA GBP0.662 million up 23.7% (2017: GBP0.54 million) (after adjustment for Lok'nStore Management charges)
Revenue and adjusted EBITDA have increased in our document storage business as operating metrics improve in response to the Company's more customer facing marketing stance. This approach has resulted in excellent customer feedback and puts us in a good position to win new business.
Marketing
Store visibility remains pivotal to our marketing efforts. Our new landmark stores are located in highly prominent locations and we continually invest in new signage and lighting at our existing stores.
During the year our marketing efforts have continued to focus on the presentation of our buildings to attract passing traffic and internet marketing. With their prominent positions, distinctive design and bright orange elevations, our stores raise the profile of the Lok'nStore brand and generate a substantial proportion of our business. We continue to invest in new signage and lighting at our existing stores as well as creating striking designs for our new landmark stores to promote and enhance their visual prominence, and engage the local community.
The internet continues to be the main media channel for our advertising. Our website at www.loknstore.co.uk is one of the most established self-storage websites in the UK. The website delivers a high level of customer experience across desktop, tablet and smartphone devices. This is a very dynamic area and we are committed to its continued development. We believe the internet provides a strong competitive advantage for the major operators such as Lok'nStore with relatively large marketing budgets.
Pipeline of new stores
Against this background of ever improving operating performance we have invested GBP21.7 million in store development this year and we have now seen a rapid increase in our new store pipeline to 9 secured stores by the reporting date, which will take the total to 38 stores. These will all be purpose built landmark stores in highly prominent locations and will add substantially to the Group's capacity for revenue, profit and asset growth. We have 4 further store acquisitions progressing through the legal process.
When we break the speed of fill-up of our stores into their age groups, we see that over time the stores have filled up faster with the most recently opened stores filling fastest of all. We believe that this shows that the UK self-storage market is still in its infancy with low penetration and increased consumer awareness leading to faster fill. It also shows the strength of Lok'nStore's newly developed landmark store model.
Managed stores
Lok'nStore manages an increasing number of stores for third party owners. Under this model Lok'nStore provides a turnkey package for investors wishing to own the underlying self-storage assets. The investor supplies all the capital for the project which Lok'nStore manages. Lok'nStore will buy, build and operate the stores under the Lok'nStore brand and within our current management structure.
The operating expenses of the store are paid for by the third party out of the store revenue with Lok'nStore receiving various fees and performance bonuses. Lok'nStore has no costs directly associated with this function and no equity capital at risk. Therefore this activity generates an increasing return at minimal risk increasing the overall risk adjusted return of the Group as a whole.
Notable in this year's accounts (note 2(c)) is a carried interest receivable of GBP361,000 in relation to a management contract, over and above the GBP534,000 store management fees noted elsewhere. This is the first time the Group has recognised such a gain. As the number of managed stores increases rapidly over the coming years the revenue from them will rise commensurately.
Future
Lok'nStore Group has had an excellent year successfully implementing our strategic objectives. We have created a strong platform for an exciting period of growth for Lok'nStore with revenue, profits and asset values all moving ahead.
Against this background of a strong performance from our existing stores, we have also achieved a notable increase in our pipeline to 13 new stores. This will increase operating space by 32.4% over the coming three years, adding considerable momentum to sales and earnings growth.
Lok'nStore's strong operating performance and robust balance sheet underpin our strategy of new landmark store openings positioning the Group well for future growth.
Andrew Jacobs
Chief Executive Officer
26 October 2018
Property review
Store and portfolio strategy
In the self-storage industry each operating store is a profitable unit in its own right. Therefore our strategy is to continue to increase the number of stores we operate without stretching our balance sheet. The core focus of this strategy is the acquisition of highly prominent freehold locations in busy towns in Southern England where we will build well branded landmark stores.
Flexible approach to site acquisition
All of the projects detailed below are part of our strategy of actively managing our operating portfolio to ensure we are maximising both trading potential and value. This includes strengthening our distinctive brand, increasing the size and number of our stores and replacing stores or sites where it will increase shareholder value.
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 store's development. We also consider selling established stores on sale and manage back contracts in order to recycle the capital and protect the balance sheet. Indeed some of our stores have been freehold, leasehold and managed stores during their operating life cycle! Our most important consideration is always the trading potential of the store rather than the property tenure.
Lok'nStore now operates 29 stores and 2 serviced document stores in Southern England. Of the 29 stores Lok'nStore owns the freehold or long leasehold interest in 14 stores, 7 stores are held under commercial leases with all of our leasehold stores inside the Landlord and Tenant Act providing us with a strong security of tenure. The average unexpired term of the Group's operating leaseholds is approximately 11 years and 1 month as at 31 July 2018.
A further 5 freehold stores are under development which will be owned by Lok'nStore.
Additionally we have 8 managed stores for third party owners and a further 4 managed stores under development. One of the features of Lok'nStore's strategy is to increase the number of stores we manage for third parties selling our expertise in storage solutions management, operating systems and marketing, leveraging our brand and skill rather than retaining a proprietary interest in the land. From a very low base Lok'nStore has grown this managed store revenue to around GBP0.5 million currently (up 27.3%) but with the pipeline of secured sites and further additional sites anticipated for the foreseeable future we expect this revenue stream to continue to grow strongly.
Group Group
Year ended Year ended
31 July 2018 31 July 2017
Management fees GBP GBP
----------------------- -------------- --------------
Management fees 534,888 420,117
Total management fees 534,888 420,117
----------------------- -------------- --------------
When this secured development pipeline of 9 sites has been completed Lok'nStore will operate from 38 stores and 2 serviced document stores, including 12 managed stores. In addition 4 further new store opportunities are progressing with lawyers.
The 9 secured pipeline sites represent a combination of owned and managed stores. These will add 465,000 sq. ft. of new capacity adding 39% to freehold trading space and 54% to the managed store portfolio delivering a 32% increase in overall trading space.
Lok'nStore's strong operating cash flow, solid asset base, and tactical approach to its store property portfolio provide the Group with opportunities to improve the terms of its property usage in all stages of the economic cycle. Our focus on the trading business gives us many opportunities and our property tenure is always driven by the requirements of the trading business.
Growth from new stores and more new stores to come
ü Early trading at our new Hemel Hempstead, Gillingham and Wellingborough stores has been excellent
ü Dover store to open December 2018
ü Exeter store to open spring 2019
ü Cardiff store to open spring 2019
ü Ipswich store to open summer 2019
Acquisition of sites for new landmark stores - sites acquired during FY2018
ü Bedford - scheduled to open in 2020 55,000 sq.ft. ü Bournemouth - scheduled to open in 2020 80,000 sq.ft. ü Cheshunt - scheduled to open in 2020 60,000 sq.ft. ü Leicester - scheduled to open end of 2019 60,000 sq.ft. ü Cardiff - see above
We have 4 more pipeline sites currently with lawyers.
Growing Store property assets and Net Asset Value
ü Adjusted total assets now circa GBP181.4 million(3) (2017: GBP153.5 million) up 18.2% on last year
ü Adjusted net asset value of GBP4.80 per share up 15.3% on last year (2017: GBP4.16 per share)
Lok'nStore has a strong and growing asset base. Our freehold and operating leasehold stores have been independently valued by Jones Lang LaSalle (JLL) at GBP146.2 million (Net Book Value (NBV) GBP55.4 million) as at 31 July 2018 (2017: GBP119.6 million: NBV GBP45.3 million). The change in property valuation is referred to further in the Financial Review section of the Strategic Report and is detailed in note 10b of the notes to the financial statements.
Adding our stores under development at cost and land and buildings held at director valuation, our total property valuation is GBP165.2 million (2017: GBP127.8 million). This translates into an adjusted net asset value of GBP4.80 per share up 15.3% on last year (2017: GBP4.16 per share).
The increase in the property values of properties which were also valued last year was 6.33% (2017: 6.14%).
Financial Review
Record financial results on all measures
ü Group Revenue GBP17.75 million up 6.6 % (2017: GBP16.65 million)
ü Group Adjusted EBITDA GBP7.30 million up 12.3% (2017: GBP6.49 million)
ü Operating profit (before exceptional items(2) ) GBP5.17 million up 16.9% (2017: GBP4.38 million)
ü Operating profit (after exceptional items(2) ) GBP5.71 million up 33.9% (2017: GBP4.26 million)
The Group has again delivered strong financial results.
Earnings per share
Basic earnings per share (EPS) were 13.05 pence up 18.4% (2017: 11.02 pence per share). Diluted EPS were 12.83 pence up 20.6% (2017: 10.64 pence per share). If 2018 figures are adjusted to eliminate the 2018 exceptional items of GBP0.59 million, the 2018 EPS is adjusted to 11.0 pence per share (2017: 11.43 pence per share) and the 2018 diluted EPS to 10.81 pence per share (2017: 11.03 pence per share).
Year ended Year ended
31 July 31 July
2018 2017
Earnings per share (EPS) GBP'000 GBP'000
-------------------------- ------------------------------------------- -----------
Profit for the year 3,757 3,061
Exceptional (income) /
costs (591) 113
-------------------------- ------------------------------------------- -----------
Adjusted earnings 3,166 3,174
-------------------------- ------------------------------------------- -----------
No. of shares No. of shares
----------------------------------- ---------------- ----------------
Weighted average number of shares
For basic earnings per share 28,792,029 27,780,676
Dilutive effect of share options 490,064 999,657
----------------------------------- ---------------- ----------------
For diluted earnings per share 29,282,093 27,780,333
----------------------------------- ---------------- ----------------
Basic EPS (pence) 13.05 p 11.02 p
----------------------------------- ---------------- ----------------
Diluted EPS (pence) 12.83 p 10.64 p
----------------------------------- ---------------- ----------------
Purchase of treasury shares: The Group did not buy or sell any Treasury shares during the year. We are proposing to renew our ongoing authority to buy back shares at this year's AGM to ensure the Group continues to have flexibility to make purchases should it be considered to be in the best interests of shareholders to do so.
Operating costs
ü Cost ratio(11) reduced to 57% (2017: 59%)
We have a strong record of reducing our Group operating costs each year. We cautioned in our 2017 year end results that although we maintain a disciplined approach to costs, continuing to reduce them is increasingly challenging while delivering an acceleration of our store opening programme.
Group operating costs amounted to GBP10.1 million for the period, a 2.7% increase year on year (2017: GBP9.84 million) which derived from higher aggregate costs as we opened new landmark stores. We are also spending more on internet marketing. Nevertheless our tight discipline on costs has enabled us to reduce our cost ratio by 2.0% points to 57%.
In respect of property costs which mainly constitute rent and rates we had in the previous year felt the effects of higher rates bills as we opened our new landmark stores and had incurred rates on a development site. We have now negotiated rate reductions on these stores resulting in an overall cost reduction this year in property costs. Rents have remained broadly static but overall are lower in this period as the closure of a store has eliminated rent costs (2017: GBP70,944). Utility costs are lower as a result of a renegotiation of our energy tariffs. Overall property costs are down 3.2%.
Staff costs increased by 6.6% as we staffed the new stores and paid performance bonuses to all our store staff for exceptional sales growth. We also incurred additional national insurance costs arising on the exercise of employee share options.
The principal increase in overhead costs have been driven by a higher level of legal and professional costs due to work on rent reviews, business rate reductions and abortive costs arising on prospective store acquisitions that did not proceed.
Overall the cost increases are driven by the expansion of the business and we are seeing little other cost pressures. Significantly, if we exclude the costs of the new stores overall costs increased by a modest 1.4% compared to last year.
Group Increase/
(Decrease)
in costs 2018 2017
% GBP'000 GBP'000
-------------------- ------------ --------- ---------
Property costs (3.2) 4,043 4,179
Staff costs 6.6 4,681 4,389
Overheads 10.6 1,214 1,098
Distribution costs (2.9) 166 171
-------------------- ------------ --------- ---------
Total 2.7% 10,104 9,837
-------------------- ------------ --------- ---------
Strong balance sheet, efficient use of capital, conservative level of debt
ü Increase in GBP40 million Bank facility to GBP50 million on same terms
ü GBP21.7 million invested in new store pipeline
ü Net debt GBP32.3 million (2017: GBP17.4 million)
ü Loan to value ratio (LTV) 19.7% (2017: 14.0%)
ü Cost of debt averaged 1.85% in the year on GBP32.3 million drawn (2017: 1.66%)
Lok'nStore is a robust business with an excellent credit model, low debt and gearing and which is strongly cash generative from an increasing asset base. Its increased bank facilities at low rates of interest position the business for new store development.
Increase in GBP40 million Banking Facility to GBP50 million
Following the agreement of a two year extension on its existing banking facility with Royal Bank of Scotland last year, the Group has now agreed an increase in its GBP40 million facility to GBP50 million which will provide continued funding for site acquisitions as well as working capital for the development of the business over the medium term.
The Group is not obliged to make any repayments prior to the facilities expiration in January 2023 and bank covenants and interest margin on existing facilities are unaffected by this increase in the facility size.
Management of interest rate risk
Under the current bank facility the Group is not committed to enter into hedging instruments but rather to keep such matters under review. Given our relatively low level of indebtedness, low Loan to Value ratio and high interest cover, combined with the wider uncertainties within the economy, it is not the intention of the Group to enter into an interest rate hedging arrangement at this time.
Cash flow and financing
At 31 July 2018 the Group had cash balances of GBP5.0 million (2017: GBP11.4 million). Cash inflow from operating activities before investing and financing activities was GBP7.0 million (2017: GBP5.5 million). As well as using cash generated from operations to fund some capital expenditure, the Group has a revolving credit facility which runs to 2023. This provides sufficient liquidity for the Group's current needs. Undrawn committed facilities at the year-end amounted to GBP12.7 million (2017: GBP11.2 million).
Gearing
At year end there was GBP37.3 million of gross borrowings (2017: GBP28.8 million) representing gearing of 31.3 % (2017: 19.6%) on net debt of GBP32.3 million (2017: GBP17.4 million) Refer note 16 - Capital management. The leaseholds are stated at depreciated historic cost in the statement of financial position. If these leaseholds are adjusted for the uplift in value to their Jones Lang LaSalle (JLL) valuation, gearing drops to 27.2% (2017: 16.9%). If the deferred tax liability carried at year-end of GBP19.7 million (2017: GBP16.4 million) is excluded gearing drops further to 23.4% (2016: 14.6%).
Strong cash flow supports 10.0% dividend increase
ü Annual dividend 11 pence per share up 10.0% (2017: 10 pence per share)
ü Cash available for Distribution (CAD) from operations GBP5.60 million up 8.3% (2017: GBP5.17 million)
ü Cash available for Distribution (CAD) of 19.4 pence per share (2017: 18.1 pence per share)
Cash available for Distribution (CAD)
Cash available for Distribution (CAD) provides a clear picture of ongoing cash flow available for dividends. To illustrate this fully the table below shows the calculation of CAD.
Analysis of Cash Available for Distribution
(CAD)
Year ended Year ended
31 July 2018 31 July 2017
GBP'000 GBP'000
Group Adjusted EBITDA (per Statement
of Comprehensive Income) 7,295 6,493
Less: Net finance costs(1) (537) (297)
Capitalised maintenance expenses (80) (90)
New Works Team (149) (138)
Current tax (note 7) (924) (792)
-------------- --------------
Total deductions (1,690) (1,317)
-------------- --------------
Cash Available for Distribution 5,605 5,176
-------------- --------------
Increase in CAD over last year 8.3%
Number Number
Closing shares in issue (less shares
held in EBT) 28,875,403 28,679,711
CAD per share 19.4p 18.1p
---------------------------------------------- -------------- --------------
(1) Net finance costs represent finance costs paid per the cash flow statement of GBP0.42 million less bank interest received of GBP0.08 million adjusted for capitalised interest of GBP0.2 million to give the true cash flow effect.
Total CAD has increased by 8.3% as a result of higher EBITDA profit and despite a higher net finance charge due to the repayment of the development loan in November 2017. Interest received in the year relating to this loan was GBP62,500 (2017: GBP250,000).
Capital expenditure and capital commitments
The Group has grown through a combination of new site acquisition, existing store improvements and relocations. Capital expenditure during the year totalled GBP21.74 million (2017: GBP6.63 million). This was primarily the completion of construction works at our development sites in Gillingham and Wellingborough which are now open and trading as well as completing the acquisition of our Bournemouth, Bedford, Cardiff, Cheshunt, Gloucester and Ipswich sites. GBP0.2 million (2017: nil) of interest was capitalised against development assets.
The Group has capital expenditure contracted but not provided for in the financial statements of GBP3.4 million (2017: GBP2.6 million).
Statement of Financial Position
Net assets at the year-end were GBP103.3 million up 15.9% (2017: GBP89.1 million). Freehold and long leasehold properties were independently valued at 31 July 2018 at GBP128.0 million up 24.4% (2017: GBP102.9 million). Refer to the table of property values below.
Review of distributable reserves and rectification of prior dividends (the Relevant Dividends)
The Board has become aware of certain technical issues relating to the levels of distributable reserves within the Lok'nStore Group and the payment of interim and final dividends by Lok'nStore Group plc to our shareholders during the period from 2013 to 2016 ('the Relevant Dividends').
Lok'nStore's Group structure is that almost all of the self-storage operations and assets and cash sit within the principal operating subsidiary Lok'nStore Limited. Lok'nStore Group plc is of itself a non-trading holding company. Throughout this period at all relevant times, the Group had adequate distributable reserves in subsidiary companies to enable payment of the Relevant Dividends, and each year payment of the final dividends was approved by the Company's shareholders at its annual general meeting.
However, a review of historical intra-group transactions revealed that internal dividends were not paid up from Lok'nStore Limited through the Group structure to Lok'nStore Group plc in the period from 2013 to 2016 and thereby did not create distributable reserves in Lok'nStore Group plc in the manner that had been intended. As a consequence, the Relevant Dividends paid by Lok'nStore Group plc were not paid out of distributable reserves and were therefore not paid in accordance with the Companies Act 2006.
We are undertaking a series of procedural steps in order to rectify this issue and put the Company and its subsidiaries, in the position that was originally intended with respect to the creation of distributable reserves in Lok'nStore Group plc.
We will put a resolution to shareholders at the forthcoming Annual General meeting to be held on 11 December 2018 which, if passed, would put all potentially affected parties, in so far as possible, in the position they would be had the Relevant Dividends been paid in accordance with the requirements of the Companies Act 2006. Full details will be included in the circular and notice of general meeting to be sent to shareholders.
Taxation
The Group will pay tax on its earnings and has made a tax provision of GBP0.92 million (2017: GBP0.79 million), an effective tax rate of 17.4% (2017: 20%). The deferred tax provision is calculated at forward corporation tax rates of 17% and is substantially a tax provision against the potential crystallisation (sales) of revalued properties and past 'rolled over' gains and amounts to GBP19.7 million (2017: GBP16.4 million) See note 18.
Market Valuation of Freehold and Operating Leasehold Land and Buildings
It is the Group's policy to commission an independent external valuation of its properties at each financial year-end.
Our thirteen freehold properties and one long leasehold are held in the statement of financial position at fair value and have been valued by JLL. Refer to note 10(b) - property, plant and equipment and also to the accounting policies for details of the fair value of trading properties.
The valuations of the leasehold stores held as 'operating leases' are not taken onto the statement of financial position. However these have also been valued and these valuations have been used to calculate the adjusted net asset value position of the Group. The value of our operating leases in the valuation totals GBP18.2 million (2017: GBP16.7 million) and we have reported by way of a note the underlying value of these leasehold stores in our revaluations and adjusted our Net Asset Value (NAV) calculation accordingly to include their value. This ensures comparable NAV calculations.
A deferred tax liability arises on the revaluation of the properties and on the rolled-over gain arising from the disposal of some trading stores. It is not envisaged that any tax will become payable in the foreseeable future on these disposals due to the availability of rollover relief. It is not the intention of the Directors to make any significant disposals of operational stores, although individual disposals may be considered where it is clear that added value can be created by recycling the capital into other store opportunities.
The Board will continue to commission independent valuations on its trading stores annually to coincide with its year-end reporting.
Analysis of Total Property Value
No of 31 July No of 31 July
stores/sites 2018 Valuation stores/sites 2017 Valuation
GBP GBP
------------------- ---------------- ---------------- ----------------
Freehold & Long Leasehold valued
by JLL(1) 14 128,000,000 12 102,900,000
Short Leasehold valued by JLL(2) 7 18,200,000 7 16,725,000
Freehold land and buildings at
Director valuation (3) 1 3,603,013 1 4,195,479
------------------- ---------------- ---------------- ----------------
Subtotal 22 149,803,013 20 123,820,479
Sites in development at cost(4) 7 16,568,961 2 5,124,567
------------------- ---------------- ---------------- ----------------
Total 29 166,371,974 22 128,945,046
------------------- ---------------- ---------------- ----------------
(1) Includes related fixtures and fittings (refer to note 10b)
(2) The seven leaseholds valued by JLL 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 11 years and 1 month at the date of the 2018 valuation (2017 valuation: 10 years and 8 months).
(3) For more details refer note 10b - Directors valuation (4) Includes GBP114,507 of capitalised interest
Total freeholds and long leasehold account for 89.1% of property valuations (2017: 87.0%).
Significant increase in Adjusted Net Asset Value per Share
ü Adjusted Net Asset Value per share up 15.3% to GBP4.80 (2017: GBP4.16)
Adjusted net assets per share are the net assets of the Group 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 (zero) are excluded from the number of shares.
At July 2018 the adjusted net asset value per share (before deferred tax) increased 15.3% to GBP4.80 from GBP4.16 last year. This increase is a result of higher existing property values as well as the maiden valuations of our new stores as the strength of our landmark stores is recognised, and cash generated from operations, offset in part by an increase in the shares in issue due to the exercise of share options during the year.
Group Group
31 July 31 July
Analysis of net asset value (NAV) 2018 2017
GBP'000 GBP'000
------------------------------------------------ ---------- ----------
Net assets 103,251 89,119
Adjustment to include operating/short
leasehold stores at valuation
Add: JLL operating leasehold valuation 18,200 16,725
Deduct: leasehold properties and their
fixtures and fittings at NBV (2,691) (2,878)
------------------------------------------------ ---------- ----------
118,760 102,966
Deferred tax arising on revaluation
of leasehold properties(1) (2,636) (2,354)
------------------------------------------------ ---------- ----------
Adjusted net assets 116,124 100,612
------------------------------------------------ ---------- ----------
Shares in issue Number Number
('000s) ('000s)
------------------------------------------------ ---------- ----------
Opening shares in issue 29,303 29,109
Shares issued for the exercise of options 196 194
------------------------------------------------ ---------- ----------
Closing shares in issue 29,499 29,303
Shares held in EBT (623) (623)
------------------------------------------------ ---------- --------------
Closing shares for NAV purposes 28,876 28,680
------------------------------------------------ ---------- ----------
Adjusted net asset value per share GBP4.02 GBP3.51
after deferred tax provision
------------------------------------------------ ---------- ----------
Adjusted net asset value per share before
deferred tax provision
Adjusted net assets 116,124 100,612
Deferred tax liabilities and assets recognised
by the Group 19,735 16,363
Deferred tax arising on revaluation of
leasehold properties(1) 2,636 2,354
------------------------------------------------ ---------- ----------
Adjusted net assets before deferred tax 138,495 119,329
------------------------------------------------ ---------- ----------
Closing shares for NAV purposes 28,876 28,680
------------------------------------------------ ---------- ----------
Adjusted net asset value per share before GBP4.80 GBP4.16
deferred tax provision
------------------------------------------------ ---------- ----------
(1) A deferred tax adjustment in respect of the uplift in the value of the leasehold properties has been included, calculated by applying a tax rate of 17% (2017: 17%). 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
The business operates within the UK self-storage sector which is still relatively immature. With a low loan to value and flexible bank facilities through to 2023 this market presents an excellent opportunity for further growth of the business. Recently opened landmark stores in Gillingham and Wellingborough and our strong pipeline of more landmark stores demonstrate the Group's ability to use those strengths to exploit the opportunities available.
IFRS update:
IFRS 16 Leases
Although not relevant for the year under review (or the next) when applied IFRS 16 will represent a significant change to the way that the Group will prepare its financial statements. The effective date of adoption is for accounting periods commencing after 1 January 2019 and will therefore apply to Lok'nStore's financial statements for the year ended 31 July 2020.
Nevertheless it is important now to give the users of our financial statements sufficient overview of the effects of IFRS 16 on the profit and loss, balance sheet, financial performance and cash flows of the Group as a significant lessee in respect of our leased stores.
IFRS 16 will primarily affect the accounting by lessees and will result in the recognition of almost all leases on the balance sheet. The standard removes the current distinction between operating and financing leases and requires recognition of an asset (the right to use the leased item) and a financial liability to pay rentals for virtually all lease contracts.
The Statement of Profit or Loss: will also be affected because the total expense is typically higher in the earlier years of a lease and lower in later years. Additionally, the rent operating expense currently reported in these financial statements at GBP1.44 million (2017: GBP1.49 million) will be replaced with interest and depreciation as a consequence of the 'capitalisation effect' of the leases, so the Group's key metric of Adjusted EBITDA will increase significantly by the removal of the rent expense from the operating profit and loss. Other performance measures including Operating Profit will also increase although reported interest and depreciation will be higher.
The Consolidated Statement of Cash Flows: While overall underlying cash flow is unaffected by the changes the presentation within the Consolidated Statement of Cash Flows will change. Reported operating cash flows will be higher as cash payments for the principal portion of the lease liability are classified within financing activities. Only the part of the payments that reflects interest can continue to be presented as operating cash flows.
The Statement of Financial Position: The Group's operating leases on its leased stores will be recognised as a 'right of use asset' and as a corresponding liability at the year-end. Each lease payment is allocated between the liability and finance cost. The finance costs are charged to profit and loss over the lease period so as to produce a constant periodic rate of interest on the remaining liability for the period. The right-of-use asset is depreciated over the lease term on a straight line basis. Assets and liabilities arising from a lease will initially be measured on a present value basis which will include the fixed rental payments less any lease incentives receivable. If the interest rate implicit in the lease cannot be readily determined the lease payments will be discounted by the Group's incremental borrowing rate (cost of debt) to obtain an asset of similar value over a similar term with similar security. Right of use assets will be measured at cost comprising the initial measurement of the lease liability plus any initial direct costs (if any). The Groups current operating lease commitments are reported in note 25.
The effect on financial ratios such as gearing or leverage will be to cause them to rise as the lease liability now forms part of net debt.
Principal Risks and Uncertainties:
Principal Risks and Uncertainties in operating our Business
Risk management has been a fundamental part of the successful development of Lok'nStore. The process is designed to improve the probability of achieving our strategic objectives, keeping our employees safe, protecting the interests of our shareholders and key stakeholders, and enhancing the quality of our decision-making through understanding the risks inherent in both the day-to-day operations and the strategic direction of the Group as well as their likely impact.
Management of our risks helps us protect our reputation which is very important to the ability of the Group to attract customers, particularly with the growth of social media. We always try to communicate clearly with our customers, suppliers, local authorities and communities, employees and shareholders and to listen and take account of their views. We operate strict Health and Safety policies and procedures and more information on these can be found in our annual report.
Our Risk Management Governance
The Board has overall responsibility for the management of the Group's risks. As the Group's strategic direction is reviewed and agreed the Board identifies the associated risks and works to reduce or mitigate them using an established risk management framework in conjunction with the executive management team. This is a continuing and evolving process as we review and monitor the underlying risk elements relevant to the business.
Risk Management Framework
The risk register covers all areas of the business including property, finance, employees, insurance, customers, strategy, governance and disaster recovery. The risks are categorised by risk area and rated based on a combination of 'likelihood' and 'consequences and impact' on the business. The combination of these two becomes the 'risk factor' and any factor with a rating over 15 is reported to the Board.
Risk Management Team
Ray Davies, Group Finance Director, is the Board member responsible for ensuring that the risk management and related control systems are effective and that the communication channels between the Board and the Executive Management team are open and working correctly. The Executive Management Team is responsible for the day to day management of the risk factors. Responsibility for identifying, managing and controlling the risk is assigned to an individual as shown on the risk register depending on the business area. Reporting against the risks forms part of the monthly executive management meeting and the risk factor may be amended if applicable. There are also sub-committees for particular risk areas which meet regularly. The Risk Management and Reporting Structure is shown below.
Our Risk Management and Reporting Structure
The Board
Reviews Risk Register in full twice a year
Considers specific risk areas as raised by the Executive Board
Executive Board Committee
Reviews risks at monthly executive management meetings and
if material requests for the Board to consider risk at next
scheduled Board Meeting (or earlier if necessary)
Capex Committee Property Risk Committee
----------------------------------
Meets Monthly Meets Quarterly
Manages proposed capital expenditure, Considers:
actual spend, rolling capex Risks associated with properties
requirements including Health & Safety
Environmental Impact
----------------------------------
Principal Risks
The principal risks our business faces and our key mitigations are outlined in the table below.
Risk Description Key mitigation
Interest Rate The main risks arising
and Liquidity from * Regular review by the Board (full details are set out
Risk the Group's financial in the Financial Review, page 12).
instruments
are interest rate risk and
liquidity risk (for
details
please see note 16, page
40).
--------------------------- -----------------------------------------------------------------
Tax Risk Changes to tax legislation
may impact the level of * Regular monitoring of changes in legislation.
corporation
tax, capital gains tax,
VAT * Use of appointed professional advisers and trade
and stamp duty land tax bodies.
which
would in turn affect the
profits of the company.
--------------------------- -----------------------------------------------------------------
Property Acquisition Acquiring new sites is a
key strategic objective of * We hold weekly property meetings to manage the search
the business but we face process and property purchases.
significant competition
from
other uses such as hotels, * Use of property acquisition consultants.
car showrooms and offices
as well as from other
self-storage * Regular communication with agents.
operators.
* Attendance at industry relevant property events.
--------------------------- -----------------------------------------------------------------
Planning Permission The process of gaining
planning * Where we can we acquire sites subject to planning.
permissions remains
challenging.
* We work with an established external planning
consultant.
* Our property team has over 20 years' experience.
--------------------------- -----------------------------------------------------------------
Construction Poor construction may
affect * We use a design and build contract with a variety of
the value of the property established contractors.
and/ or the efficient
operation
of the centre. * We use external project managers.
* All projects are overseen by our property team which
has over 20 years' experience.
--------------------------- -----------------------------------------------------------------
Maintenance/Damage Damage to properties
through * Regular site checks by staff.
poor maintenance or flood
or fire could render a
centre * Rolling maintenance plan for all stores.
inoperable.
* Comprehensive disaster recovery plan.
* Appropriate Insurance cover.
--------------------------- -----------------------------------------------------------------
Increased Competition An increasing number of
competitors * Established criteria for site selection including:
in the industry may
negatively
impact Lok'nStore's o Prominent locations
existing o High visibility
operations. (e.g. pricing o Distinctive designs and bright
/ available sites) orange elevations and strong
signage to attract customers
* Continued investment in internet marketing.
* Ensure high levels of customer service through
training & monitoring.
--------------------------- -----------------------------------------------------------------
Employee Retention Loss of employees may
affect * Agreed aim to offer a good work/life balance and
our ability to operate our career development.
stores and provide the
high
levels of customer service * Regular reviews of remuneration levels against
expected. market.
* Achievable bonus systems.
* Generous Employee Share Schemes.
* High quality training via Lok'nStore Academy.
* New Intranet for improved communications.
* Established Employee rewards program.
--------------------------- -----------------------------------------------------------------
IT System Breach A breach of our IT systems
might adversely affect the * Strong and regularly reviewed IT security systems.
operations of the business
and our reputation.
* Well communicated policies and procedures for
handling and managing a systems breach.
--------------------------- -----------------------------------------------------------------
Consolidated Statement of Comprehensive Income
For the year ended 31 July 2018
Group Group
Year ended Year ended
31 July 2018 31 July 2017
Notes GBP'000 GBP'000
------------------ ----------- ------------------------------------------------- ----------------------------------
Revenue 1(a) 17,754 16,654
Total property,
staff,
distribution
and general
costs 2(a) (10,459) (10,161)
------------------ ----------- ------------------------------------------------- ----------------------------------
Adjusted
EBITDA(1) 7,295 6,493
------------------ ----------- ------------------------------------------------- ----------------------------------
Amortisation of
intangible
assets 10(a) (165) (165)
Depreciation 10(b) (1,980) (1,856)
Equity settled
share based
payments 21 (33) (97)
Carried interest
- fees
receivable 2(c) 361 -
Receivables from
warranty claims 2(c) 230 -
Property disposal
costs 2(c) - (15)
Store relocation
costs 2(c) - (29)
Director
retirement costs 2(c) - (69)
(1,587) (2,231)
Operating
profit(1) 5,708 4,262
Finance income 3 80 309
Finance cost 4 (463) (606)
------------------ ----------- ------------------------------------------------- ----------------------------------
Profit before
taxation 5 5,325 3,965
Income tax
expense 7 (1,568) (904)
------------------ ----------- ------------------------------------------------- ----------------------------------
Profit for the
year 3,757 3,061
------------------ ----------- ------------------------------------------------- ----------------------------------
Profit
attributable to:
Owners of the
parent 22 3,757 3,061
Other
Comprehensive
Income
Items that will
not be
reclassified
to profit and
loss;
Increase in
property
valuation 15,723 7,772
Deferred tax
relating to
change in
property
valuation (2,698) (932)
------------------ ----------- ------------------------------------------------- ----------------------------------
13,025 6,840
Items that may be
subsequently
reclassified
to profit and
loss;
Increase in fair
value of cash
flow
hedges - 37
------------------ ----------- ------------------------------------------------- ----------------------------------
- 37
------------------ ----------- ------------------------------------------------- ----------------------------------
Other
comprehensive
income 13,025 6,877
------------------ ----------- ------------------------------------------------- ----------------------------------
Total
comprehensive
income for the
year 16,782 9,938
------------------ ----------- ------------------------------------------------- ----------------------------------
Attributable to
owners of the
parent 16,782 9,938
------------------ ----------- ------------------------------------------------- ----------------------------------
Earnings per
share
Basic 9 13.05p 11.02p
Diluted 9 12.83p 10.64p
------------------ ----------- ------------------------------------------------- ----------------------------------
(1) 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 2018
Attributable to owners of the Parent
Share Share Other Revaluation Retained Total
capital premium reserves reserve earnings equity
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- ---------- ---------------- ---------- ---------
1 August 2016 291 3,567 8,432 45,602 13,583 71,475
-------------------------- --------- --------- ---------- ---------------- ---------- ---------
Profit for the year - - - - 3,061 3,061
Other comprehensive
income:
Increase in property
valuation net of
deferred tax - - - 6,840 - 6,840
Decrease in fair
value of cash flow
hedges net of deferred
tax - - 37 - - 37
-------------------------- --------- --------- ---------- ---------------- ---------- ---------
Total comprehensive
income for the year - - 37 6,840 3,061 9,938
-------------------------- --------- --------- ---------- ---------------- ---------- ---------
Transactions with
owners:
Dividend paid - - - - (2,637) (2,637)
Share based payments - - 97 - - 97
Transfers in relation
to share based payments - - (139) - 139 -
Deferred tax relating
to share options - - 42 - - 42
Sale of shares from
treasury (net of
costs) - 6,150 - - 3,741 9,891
Exercise of share
options 2 311 - - - 313
-------------------------- --------- --------- ---------- ---------------- ---------- ---------
Total transactions
with owners 2 6,461 - - 1,243 7,706
-------------------------- --------- --------- ---------- ---------------- ---------- ---------
Transfer additional
dep'n on revaluation
net of deferred
tax - - - (277) 277 -
31 July 2017 293 10,028 8,469 52,165 18,164 89,119
-------------------------- --------- --------- ---------- ---------------- ---------- ---------
Profit for the year - - - - 3,757 3,757
Other comprehensive
income:
Increase in property
valuation net of
deferred tax - - - 13,025 - 13,025
-------------------------- --------- --------- ---------- ---------------- ---------- ---------
Total comprehensive
income for the year - - - 13,025 3,757 16,782
-------------------------- --------- --------- ---------- ---------------- ---------- ---------
Transactions with
owners:
Dividend paid - - - - (2,977) (2,977)
Share based payments - - 33 - - 33
Transfers in relation
to share based payments - - (109) - 109 -
Deferred tax relating
to share options - - (30) - - (30)
Exercise of share
options 2 322 - - - 324
-------------------------- --------- --------- ---------- ---------------- ---------- ---------
Total transactions
with owners 2 322 (106) - (2,868) (2,650)
-------------------------- --------- --------- ---------- ---------------- ---------- ---------
Transfer additional
dep'n on revaluation
net of deferred
tax - - - (291) 291 -
-------------------------- --------- --------- ---------- ---------------- ---------- ---------
31 July 2018 295 10,350 8,363 64,899 19,344 103,251
-------------------------- --------- --------- ---------- ---------------- ---------- ---------
Company Statement of Changes in Equity
For the year ended 31 July 2018
Retained
Share Share reserves Other
capital premium (deficit) reserves Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------- --------- --------- ----------- ---------- ---------
1 August 2016 291 3,567 117 1,961 5,936
-------------------------- --------- --------- ----------- ---------- ---------
1 August 2016 - restated 291 3,567 (3,624) 1,961 2,195
-------------------------- --------- --------- ----------- ---------- ---------
Profit for the year - - 5,547 - 5,547
Share based payments - - - 97 97
Transfer in relation to
share based payments - - 139 (139) -
Disposal of treasury shares
- restated - - 3,741 - 3,741
Sale of shares from treasury
(net of costs) - 6,150 - - 6,150
Exercise of share options 2 311 - - 313
Dividends paid - - (2,637) - (2,637)
------------------------------ ---- ----------------------- --------------------------------------------- ------ --------
31 July 2017 293 10,028 3,166 1,919 15,406
------------------------------ ---- ----------------------- --------------------------------------------- ------ --------
Profit for the year - - 3,572 - 3,572
Equity settled share based
payments - - - 33 33
Transfer in relation to
share based payments - - 109 (109) -
Exercise of share options 2 322 - - 324
Dividends paid - - (2,977) - (2,977)
------------------------------ ---- ----------------------- --------------------------------------------- ------ --------
31 July 2018 295 10,350 3,870 1,843 16,358
------------------------------ ---- ----------------------- --------------------------------------------- ------ --------
Consolidated and Company Statements of Financial Position
31 July 2018 Company Registration No. 04007169
Group Group Company Company
2018 2017 2018 2017
Notes GBP'000 GBP'000 GBP'000 GBP'000
--------------------------------- -------- ------------------- --------- ---------- ---------
Assets
Non-current assets
Intangible assets 10(a) 3,263 3,428 - -
Property, plant and equipment 10(b) 152,580 116,901 - -
Investments 11 - - 2,418 2,385
Development loan capital 12 - 3,463 - -
Financial assets 2(c)(1) 361 - - -
156,204 123,792 2,418 2,385
--------------------------------- -------- ------------------- --------- ---------- ---------
Current assets
Inventories 13 257 203 - -
Trade and other receivables 14 4,476 4,266 13,940 13,021
Cash and cash equivalents 16 4,990 11,386 - -
--------------------------------- -------- ------------------- --------- ---------- ---------
Total current assets 9,723 15,855 13,940 13,021
--------------------------------- -------- ------------------- --------- ---------- ---------
Total assets 165,927 139,647 16,358 15,406
--------------------------------- -------- ------------------- --------- ---------- ---------
Liabilities
Current liabilities
Trade and other payables 15 (5,159) (5,032) - -
Current tax liabilities (612) (463) - -
(5,771) (5,495) - -
--------------------------------- -------- ------------------- --------- ---------- ---------
Non-current liabilities
Borrowings 17 (37,170) (28,670) - -
Deferred tax 18 (19,735) (16,363) - -
--------------------------------- -------- ------------------- --------- ---------- ---------
(56,905) (45,033) - -
--------------------------------- -------- ------------------- --------- ---------- ---------
Total liabilities (62,676) (50,528) -
--------------------------------- -------- ------------------- --------- ---------- ---------
Net assets 103,251 89,119 16,358 15,406
--------------------------------- -------- ------------------- --------- ---------- ---------
Equity attributable to owners
of the parent
Called up share capital 19 295 293 295 293
Share premium 10,350 10,028 10,350 10,028
Other reserves 21(a) 8,363 8,469 1,843 1,919
Retained earnings 22 19,344 18,164 3,870 3,166
Revaluation reserve 64,899 52,165 - -
--------------------------------- -------- ------------------- --------- ---------- ---------
Total equity attributable to
owners of the parent 103,251 89,119 16,358 15,406
--------------------------------- -------- ------------------- --------- ---------- ---------
As permitted by section 408 Companies Act 2006, the parent company's statement of comprehensive income has not been included in these financial statements. The profit and comprehensive income for the year ended 31 July 2018 was GBP3.6 million (2017: GBP5.5 million).
Approved by the Board of Directors and authorised for issue on 26 October 2018 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 2018
Group Group
2018 2017
Notes GBP'000 GBP'000
--------------------------------------------- ------ ---------- ------------
Operating activities
Cash generated from operations 24(a) 6,982 5,523
Income tax paid (775) (502)
--------------------------------------------- ------ ---------- ------------
Net cash generated from operations 6,207 5,021
Investing activities
Development loan capital repaid / invested 3,463 (304)
Purchase of property, plant and equipment (21,935) (6,628)
Proceeds from warranty claims 342 -
Interest received 80 25
--------------------------------------------- ------ ---------- ------------
Net cash outflow from investing activities (18,050) (6,907)
--------------------------------------------- ------ ---------- ------------
Financing activities
Proceeds from new borrowings 8,519 -
Loans repaid from projects under management
contracts - 944
Finance costs paid (419) (574)
Equity dividends paid (2,977) (2,637)
Proceeds from issue of ordinary shares
(net) 324 313
Proceeds from sale of shares from treasury
(net of expenses) - 9,891
Net cash inflow from financing activities 5,447 7,937
Net (decrease) / increase in cash and cash
equivalents in the year (6,396) 6,051
Cash and cash equivalents at beginning
of the year 11,386 5,335
--------------------------------------------- ------ ---------- ------------
Cash and cash equivalents at end of the
year 4,990 11,386
--------------------------------------------- ------ ---------- ------------
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 Fleet Place, London, EC4M 7WS, 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. The principal activities of the Group are described in the Strategic Report.
Basis of accounting
The preliminary financial information does not constitute full statutory accounts within the meaning of section 434 of the Companies Act 2006 but is derived from statutory accounts for the years ended 31 July 2018 and 31 July 2017, both of which are audited. The preliminary announcement is prepared on the same basis as set out in the statutory accounts for the year ended 31 July 2018. While the financial information included in this preliminary announcement has been prepared in accordance with the recognition and measurement criteria of International Financial Reporting Standards (IFRS), as adopted by the European Union (EU), this announcement does not in itself contain sufficient information to comply with IFRSs.
The statutory accounts for the year ended 31 July 2018 will be delivered to the Registrar of Companies following the Company's Annual General Meeting and can be obtained from the investor section of the Company's website at http://www.loknstore.co.uk.
Statutory accounts for the year ended 31 July 2017 have been filed with the Registrar of Companies. The auditor's report for the year ended 31 July 2018 was unqualified, did not include a reference to any matter to which the auditor drew attention by way of emphasis without qualifying their report and did not contain any statement under section 498(2) or (3) of the Companies Act 2006.
Standards adopted in the year
Amendments to IAS 7 Disclosure Initiative (issued in January 2016 requires entities to provide information that enables users of financial statements to evaluate changes in liabilities arising from the entity's financing activities. The effect of the amendments on the Group's consolidated financial statements has been the inclusion of additional disclosures where appropriate.
Standards in issue but not yet effective
At the date of approval of these financial statements, the following principal standards and interpretations were in issue but not yet effective:
Standards, interpretations and amendments Effective date:
Endorsed Periods commencing
on or after
IFRS 9 Financial Instruments 1 Jan 2018
------------------------------------ ---------------------
IFRS15 Revenue from contracts with 1 Jan 2018
customers
------------------------------------ ---------------------
IFRS 2 Amendments, classification and 1 Jan 2018
measurement of share based payment
transactions
------------------------------------ ---------------------
IFRS 16 Leases 1 Jan 2019
------------------------------------ ---------------------
Standards, interpretations and amendments Effective date:
Not Yet Endorsed Periods commencing
on or after
IFRIC 23 Uncertainty over income tax 1 Jan 2019
treatments
-------------------------------- ---------------------
Subject to the adoption in due course of IFRS 16, the directors do not anticipate that the adoption of these Standards will have a significant impact on the financial statements of the Group. With regard to IFRS 16, although the Group will not be adopting the Standard until its year ended 31 July 2020 the Directors consider that this will have a significant impact on the financial statements of the Group at that time and have provided an initial overview of the impact on the 2020 financial statements which is set out on in this report.
There were no other Standards or Interpretations issued 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.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (and its subsidiaries) made up to 31 July each year. Control is achieved where the Company has power over the investee, exposure or rights to variable returns from the investee and the ability to use its power to vary those returns.
Intra-group transactions, balances, and unrealised gains and losses on transactions between Group companies are eliminated on consolidation, except to the extent that intra-group losses indicate an impairment.
Going concern
The Directors can report that, based on the Group's budgets and financial projections, they have satisfied themselves that the business is a going concern. The Board has a reasonable expectation that the Company and the Group have adequate resources and facilities to continue in operational existence for the foreseeable future based on Group cash balances and cash equivalents of GBP5.0 million (2017: GBP11.4 million), undrawn committed bank facilities at 31 July 2018 of GBP12.7 million (2017: GBP11.2 million), and cash generated from operations in the year ended 31 July 2018 of GBP7.0 million (2017: GBP5.5 million).
Following the agreement last year of a two-year extension to its facilities with Royal Bank of Scotland on equivalent terms, the Group can continue to operate its GBP50 million revolving credit facility with RBS plc for a further 5 years. The facility has been in place since 15 January 2016 and will run until 14 January 2023. The Group is fully compliant with all bank covenants and undertakings and is not obliged to make any repayments prior to expiration. The financial statements are therefore prepared on a going concern basis.
Critical accounting estimates and judgements
The preparation of 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 commissions an external valuation of its self-storage stores. This valuation uses 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 GBP108.5 million (2017: GBP87.5 million) as shown in the table in note 10(b).
b) Assets in the course of construction and land held for store development ('Development property assets')
The Group's development property assets are held in the statement of financial position at historic cost and are not valued externally. In acquiring sites for redevelopment into self-storage facilities, the Group estimates and makes judgements on the potential net lettable storage space that it can achieve in its planning negotiations, together with the time it will take to achieve maturity occupancy level. In addition, assumptions are made on the storage rent that can be achieved at the store by comparison with other stores within the portfolio and within the local area. These judgements, taken together with estimates of operating costs and the projected construction cost, allow the Group to calculate the potential net operating income at maturity, projected returns on capital invested and hence to support the purchase price of the site at acquisition. Following the acquisition, regular reviews are carried out taking into account the status of the planning negotiations, and revised construction costs or capacity of the new facility, for example, to make an assessment of the recoverable amount of the development property. The Group reviews all development property assets for impairment at each reporting date in the light of the results of these reviews. Once a store is opened it is valued as a trading store.
The carrying value of development property assets at the reporting date was GBP16.6 million (2017: GBP5.1 million). Please see note 10b for more details.
c) Estimate of useful lives of intangible assets acquired in business combination
The relative size of the Group's intangible assets excluding goodwill make the estimates of useful lives important to the Group's financial position and performance. At 31 July 2018 intangible assets, excluding goodwill, amounted to GBP2.15 million (2017: GBP2.32 million). 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 charges should they do so. An increase in churn rates may lead to a reduction in the estimated useful life and an increase in the amortisation charge.
d) Classification of self-storage facilities as owner occupied properties rather than investment properties.
The Directors consider that Lok'nStore Group Plc is the parent company of a "Trading business" and is not wholly or mainly engaged in making investments. The holding of land is not a core activity.
The Group is an integrated storage solutions business offering a range of services to its customers. We provide services to our customers under contracts for the provision of storage services which do not give them any property or tenancy rights and a large number of the stores we operate are from properties where we do not own the land or the buildings. The assets we do own are valued on the basis of the trading cash flows that the operating businesses generate.
The range of services provided to customers has increased progressively with significant revenue earned from records management and serviced archive activities. Additionally, the Group has developed its managed stores business where it uses its operational and logistic expertise to manage stores for third party owners. In recent years the Group has developed new managed stores in Aldershot, Broadstairs, Chichester, Crawley and Hemel Hempstead all of which are owned by third-party investors and managed by Lok'nStore. There is a further pipeline of 4 managed stores which will open next year.
Previously owned sites at Woking, Ashford and Swindon have been the subject of sale and manage-back transactions by which Lok'nStore has retained the management of the business when a third party owner acquired the business, land and buildings. All of this trading activity as well as the self-storage income earned from our leasehold stores activity demonstrate that the holding of land is not a core activity because the trading operation is not dependent on the ownership of land.
Furthermore the Group has always and continues to comply with all of the usual accounting and tax protocols consistent with a trading business. Lok'nStore operates 29 stores and 2 serviced document stores in Southern England. Of the 29 stores, Lok'nStore owns the freehold or long leasehold interest in 14 stores, 7 of the stores are held under commercial leases, with the remaining 8 managed stores operating under management contracts for third party owners. One of the features of Lok'nStore's strategy is to increase the number of stores we manage for third parties selling our expertise in storage solutions management, operating systems and marketing, through management fees rather than retaining a proprietary interest in land and buildings.
The classification of self-storage facilities as owner occupied properties rather than investment properties has resulted in the recognition of fair value gains in 2018 (net deferred of tax) of GBP13.0 million (2017: GBP6.84 million) in Other Comprehensive Income rather than the Income Statement.
Notes to the Financial Statements
For the year ended 31 July 2018
1(a) Revenue
Analysis of the Group's revenue is shown below:
Group Group
2018 2017
GBP'000 GBP'000
Self-storage
----------------------------------------------- --------- ---------
Self-storage revenue 13,094 12,343
Other storage related revenue 1,585 1,550
Total self-storage revenue 14,679 13,893
Ancillary revenue 159 14
Management fees 534 420
----------------------------------------------- --------- ---------
Sub-total 15,372 14,327
Serviced archive & records management revenue 2,382 2,327
----------------------------------------------- --------- ---------
Total revenue per statement of comprehensive income 17,754 16,654 ----------------------------------------------- --------- --------- 1(b) 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 document storage 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 document storage 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 2018 is as follows:
Serviced archive
Self-storage &
records management Total
2018 2018 2018 2018
GBP'000 GBP'000 GBP'000
----------------------------- ------------- ------------------------------------ --------------------------------------
Revenue from external
customers 15,372 2,382 17,754
----------------------------- ------------- ------------------------------------ --------------------------------------
Adjusted EBITDA 6,608 687 7,295
Management charges 25 (25) -
Segment Adjusted EBITDA 6,633 662 7,295
Depreciation (1,880) (100) (1,980)
Amortisation of intangible
assets - (165) (165)
Equity settled share based
payments (33) - (33)
Carried interest - fees
receivable 361 - 361
Receipts from warranty
claims - 230 230
Segment operating profit
per the income statement 5,081 627 5,708
----------------------------- ------------- ------------------------------------ --------------------------------------
Central costs not allocated
to segments:
Finance income 80
Finance costs (463)
----------------------------- ------------- ------------------------------------ --------------------------------------
Profit before taxation 5,325
Income tax expense (1,568)
Consolidated profit for the
financial year 3,757
----------------------------- ------------- ------------------------------------ --------------------------------------
The segment information for the year ended 31 July 2017 is as follows:
Serviced archive
Self-storage &
records management Total
2017 2017 2017 2017
GBP'000 GBP'000 GBP'000
--------------------------------- ------------- -------------------- ---------
Revenue from external customers 14,327 2,327 16,654
--------------------------------- ------------- -------------------- ---------
Adjusted EBITDA 5,933 560 6,493
Management charges 25 (25) -
Segment Adjusted EBITDA 5,958 535 6,493
Depreciation (1,760) (96) (1,856)
Amortisation of intangible
assets - (165) (165)
Equity settled share based
payments (97) - (97)
Store relocation costs (29) - (29)
Property disposal costs - (15) (15)
Director retirement costs (69) - (69)
--------------------------------- ------------- -------------------- ---------
Segment operating profit
per the income statement 4,003 259 4,262
--------------------------------- ------------- -------------------- ---------
Central costs not allocated
to segments:
Finance income 309
Finance costs (606)
--------------------------------- ------------- -------------------- ---------
Profit before taxation 3,965
Income tax expense (904)
Consolidated profit for the
financial year 3,061
--------------------------------- ------------- -------------------- ---------
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 500 customers has a greater customer concentration with its ten largest corporate customers accounting for 33.6% (2017: 34.4%) of revenue, its top 50 customers accounting for 60.0% (2017: 61.1%) and its top 100 customers accounting for 74.5 % (2017: 76.2%) of revenue. The self-storage segment with over 10,600 (2017: 9,670) 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.
Serviced archive
&
Self-storage records management Total
2018 2018 2018 2018
GBP'000 GBP'000 GBP'000
--------------------------- ------------- ------------------------- ---------
Segment assets 158,843 5,978 164,821
--------------------------- ------------- ------------------------- ---------
Segment liabilities (23,780) (620) (24,400)
Borrowings (37,170)
Total liabilities (61,570)
--------------------------- ------------- ------------------------- ---------
Capital expenditure (note
10b). 21,906 29 21,935
--------------------------- ------------- ------------------------- ---------
Serviced archive
&
Self-storage records management Total
2017 2017 2017 2017
GBP'000 GBP'000 GBP'000
--------------------------- ------------- ------------------------- ---------
Segment assets 133,457 6,190 139,647
--------------------------- ------------- ------------------------- --------- Segment liabilities (21,189) (669) (21,858) Borrowings (28,670) Total liabilities (50,528) --------------------------- ------------- ------------------------- --------- Capital expenditure (note 10b). 6,459 169 6,628 --------------------------- ------------- ------------------------- ---------
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.
2(a) Property, staff, distribution and
general costs
Group Group
2018 2017
GBP'000 GBP'000
----------------------------------------- --------- ---------
Property and premises costs 4,043 4,179
Staff costs 4,681 4,389
General overheads 1,214 1,098
Distribution costs 166 171
Retail products cost of sales (see note
2b) 355 324
----------------------------------------- --------- ---------
10,459 10,161
----------------------------------------- --------- ---------
2(b) Cost of sales of retail products
Cost of sales represents the direct costs associated with the sale of retail products (boxes, packaging etc.), and the ancillary sales of insurance cover for customer goods, all of which fall within the Group's ordinary activities.
Group Group
2018 2017
GBP'000 GBP'000
----------------------------------------- --------- ---------
Retail 116 128
Insurance 45 37
Other 20 2
----------------------------------------- --------- ---------
181 167
Serviced archive consumables and direct
costs 174 157
----------------------------------------- --------- ---------
355 324
----------------------------------------- --------- ---------
2(c) Other Income and costs
Group Group
2018 2017
GBP'000 GBP'000
--------------------------------------- --------- ---------
Carried interest - fees receivable(1) (361) -
Receipts from warranty claims (2) (230) -
Property disposal costs(3) - 15
Store relocation costs(4) - 29
--------------------------------------- --------- ---------
Director retirement costs(5) - 69
(591) 113
--------------------------------------- --------- ---------
(2018) (:)
(1 Carried interest Fees receivable:)
Upon the sale of one of the 'Managed stores' Lok'nStore will be entitled to receive a fee of 5% of the proceeds of the sale (less reasonable selling costs). Due to the uncertainty of the property market and the timing of the ultimate sale the directors have in previous years believed that it would not yet be appropriate to recognise this as an asset, on the basis that it could not be reliably measured. However there is a backstop date of 2022 at which time a realisation (or a payment based on an independent valuation) must be made to Lok'nStore. Accordingly, the directors have given due consideration as to the current fair value of the Carried interest - fee receivable and have recognised GBP361,460 as a non- current financial asset in the financial statements.
(2 Receipts from warranty claims relates to receipts due and payable under a mediated settlement agreement.)
(2017:)
(3 Property disposal costs relate to the closure and surrender of the lease on Unit 4 Leatherhead site and the consolidation of its warehouse capacity into Unit 6 Leatherhead.)
(4 Store relocation costs relate to the closure and surrender of the lease on the Staines store and the relocation of customers to alternative stores within the store portfolio.)
(5 Directors retirement costs relate to the retirement of CM Jacobs on 4 July 2017)
3 Finance income
Group Group
2018 2017
GBP'000 GBP'000
---------------- ------------------------ ---------------------------
Bank interest 7 25
Other interest 73 284
80 309
---------------- ------------------------ ---------------------------
Interest receivable arises on cash and cash equivalents (see note 16) and on development loan capital deployed (see note 12).
4 Finance costs
Group Group
2018 2017
GBP'000 GBP'000
------------------------------------------ --------- ---------
Bank interest 342 520
Non-utilisation fees and amortisation of
bank loan arrangement fees 116 86
Other interest 5 -
463 606
------------------------------------------ --------- ---------
5 Profit before taxation
Group Group
2018 2017
GBP'000 GBP'000
------------------------------------------------ --------- ---------
Profit before taxation is stated after
charging:
Depreciation and amounts written off property,
plant and equipment:
Owned assets 1,980 1,856
Amortisation of intangible assets 165 165
Operating lease rentals - land and buildings 1,436 1,488
Amounts payable to RSM UK Audit LLP and their associates for audit and non-audit services:
Audit services
- UK statutory audit of the Company and
consolidated accounts 52 50
Other services
-the auditing of accounts of subsidiaries
of the Company pursuant to legislation 15 14
Other services supplied pursuant to such
legislation
- interim review 11 10
- other services 7 -
Tax services
- compliance services 29 28
- advisory services 10 18
124 120
------------------------------------------- ---- ----
Comprising:
Audit services 67 64
Non-audit services 57 56
124 120
------------------------------------------- ---- ----
6 Employees
Group Group
2018 2017
No. No.
-------------------------------------------------- ------ ------
The average monthly number of persons (including
Directors) employed by the Group during
the year was:
Store management 143 131
Administration 31 31
-------------------------------------------------- ------ ------
174 162
-------------------------------------------------- ------ ------
Group Group
2018 2017
GBP'000 GBP'000
------------------------------------ --------- ---------
Costs for the above persons:
Wages and salaries 3,808 3,724
Social security costs 456 453
Pension costs 100 96
------------------------------------ --------- ---------
4,364 4,273
Share based remuneration (options) 33 97
------------------------------------ --------- ---------
4,397 4,370
------------------------------------ --------- ---------
Share based remuneration is separately disclosed in the statement of comprehensive income. Wages and salaries of GBP149,492, (2017: GBP138,137) 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 GBP13,894 (2017: GBP11,949) outstanding at the year-end.
There were no employees employed by the Company in the year (2017: nil).
Directors' remuneration
Gains on
2018 Emoluments Bonuses Pension Benefits Sub total share options Total
GBP GBP GBP GBP GBP GBP GBP
Executive:
A Jacobs 216,487 26,000 - 4,272 246,759 - 246,759
RA Davies 131,280 19,222 31,190 4,090 185,782 20,415 206,197
N Newman-Shepherd 75,172 42,477 2,255 1,933 121,837 71,317 193,154
Non-Executive:
SG Thomas 30,000 - - 4,009 34,009 - 34,009
RJ Holmes 21,648 - - - 21,648 - 21,648
ETD Luker 27,061 - - - 27,061 - 27,061
CP Peal 21,648 - - - 21,648 - 21,648
523,296 87,699 33,445 14,304 658,744 91,732 750,476
------------------- ----------- -------- -------- --------- ------------ --------------- --------
Gains on
2017 Emoluments Bonuses Pension Benefits Sub total share options Total
GBP GBP GBP GBP GBP GBP GBP
Executive:
A Jacobs 212,242 14,000 - 3,403 229,645 - 229,645
RA Davies 123,838 12,000 30,977 3,551 170,366 78,503 248,869
N
Newman-Shepherd 71,592 29,704 2,148 1,826 105,270 27,296 132,566
CM Jacobs(1) 115,284 - - 2,593 117,877 35,250 153,127
Non-Executive:
SG Thomas 53,060 - - 3,228 56,288 143,437 199,725
RJ Holmes 21,224 - - - 21,224 - 21,224
ETD Luker 26,530 - - - 26,530 - 26,530
CP Peal 21,224 - - - 21,224 - 21,224
644,994 55,704 33,125 14,601 748,424 284,486 1,032,910
----------------- ----------- -------- -------- --------- ------------ --------------- ----------
Details of the Directors remuneration is shown above. Key management personnel are defined as the Directors of the Group and the additional participants in the Long Term Partnership Performance Plan (LTPRP).
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 two (2017: two).
7 Taxation
Group Group
2018 2017
GBP'000 GBP'000
Current tax:
UK corporation tax at 17.4% (2017: 20%) 924 792
--------------------------------------------------- --------- ---------
Deferred tax:
Origination and reversal of temporary differences 311 204
Adjustments in respect of prior periods 333 173
Impact of change in tax rate on closing balance - (265)
--------------------------------------------------- --------- ---------
Total deferred tax 644 112
--------------------------------------------------- --------- ---------
Income tax expense for the year 1,568 904
--------------------------------------------------- --------- ---------
The charge for the year can be reconciled to the profit for the year as follows:
2018 2017
GBP'000 GBP'000
Profit before tax 5,325 3,965
Tax on ordinary activities at the effective standard
rate of corporation tax in the UK of 19% (2017:
20 /19%) 985 793
Expenses not deductible for tax purposes - 2
Depreciation of non-qualifying assets 322 104
Share based payment charges in excess of corresponding
tax deduction 6 19
Impact of change in tax rate on closing deferred
tax balance - (264)
Adjustments in respect of prior periods - deferred
tax 333 173
Other (48) 72
Small companies relief (30) -
Share option scheme - 5
Income tax expense for the year 1,568 904
-------------------------------------------------------- --------- ---------
Effective tax rate 29% 23%
-------------------------------------------------------- --------- ---------
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 GBP2.7 million (2017: GBP932,089) has been recognised as a debit/credit directly in other comprehensive income (see note 18 on deferred tax).
8 Dividends
2018 2017
GBP'000 GBP'000
--------------------------------------------------- --------- ---------
Amounts recognised as distributions to equity
holders in the year:
Final dividend for the year ended 31 July 2016
(6.33 pence per share) - 1,777
Interim dividend for the six months to 31 January
2017 (3 pence per share) - 860
Final dividend for the year ended 31 July 2017 2,016 -
(7.00 pence per share)
Interim dividend for the six months to 31 January 961 -
2018 (3.33 pence per share)
2,977 2,637
--------------------------------------------------- --------- ---------
In respect of the current year the Directors propose that a final dividend of 7.67 pence per share will be paid to the shareholders. The total estimated dividend to be paid is GBP2.22 million based on the number of shares in issue at 17 October 2018 as adjusted for shares held in the Employee Benefits Trust. 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 29 November 2018; the record date 30 November 2018; with an intended payment date of 11 January 2019. The final deadline for Dividend Reinvestment Election (DRIP) is 14 December 2018.
9 Earnings per share
The calculations of earnings per share are based on the following profits and numbers of shares.
Group Group
2018 2017
GBP'000 GBP'000
----------------------------------------------- --------------- ---------------
Profit for the financial year attributable to
owners of the parent 3,757 3,061
----------------------------------------------- --------------- ---------------
2018 2017
No. of shares No. of shares
----------------------------------------------- --------------- ---------------
Weighted average number of shares
For basic earnings per share 28,792,029 27,780,676
Dilutive effect of share options(1) 490,064 999,657
----------------------------------------------- --------------- ---------------
For diluted earnings per share 29,282,093 28,780,333
----------------------------------------------- --------------- ---------------
(1) Further options that could potentially dilute EPS in the future are excluded from the above because they are not dilutive in the period presented. Full details of share options are included in note 20
623,212 (2017: 623,212) shares are held in the Employee Benefit Trust (see note 23).
Group Group
2018 2017
-------------------- ------- -------
Earnings per share
Basic 13.05p 11.02p
-------------------- ------- -------
Diluted 12.83p 10.64p
-------------------- ------- -------
10(a) Intangible assets
Contractual
customer
Goodwill relationships Total
Group GBP'000 GBP'000 GBP'000
---------------------------------- ----------- --------------- ---------
Cost at 1 August 2016 1,110 3,309 4,419
Amortisation at 1 August 2016 - (826) (826)
Amortisation charge - (165) (165)
---------------------------------- ----------- --------------- ---------
Amortisation at 31 July 2017 - (991) (991)
---------------------------------- ----------- --------------- ---------
Net book value at 31 July 2017 1,110 2,318 3,428
---------------------------------- ----------- --------------- ---------
Cost at 1 August 2017 1,110 3,309 4,419
Amortisation at 1 August 2017 - (991) (991)
Amortisation charge - (165) (165)
---------------------------------- ----------- --------------- ---------
Amortisation at 31 July 2018 - (1,156) (1,156)
---------------------------------- ----------- --------------- ---------
Net book value at 31 July 2018 1,110 2,153 3,263
---------------------------------- ----------- --------------- ---------
All goodwill and customer relationships are allocated to the serviced document storage cash-generating unit (CGU) identified as a separate business segment.
The remaining amortisation period of the contractual customer relationships at 31 July 2018 is 12 years and 11 months (2017: 13 years 11 months).
The values for impairment testing purposes are based on past and current experience of trading, recognising the long term stability and retention of the customer base, estimated future cash flows and external information where relevant and derived from the following key assumptions:
-- a discount rate of 11% (2017: 11%) -- estimated useful lives of customer relationships (20 years) (2017: 20 years) -- medium term sustainable growth rates of 3% (next 10 years) (2017: 3%) -- thereafter long term sustainable growth rates of 2.0% (2017: 2%) -- cost increases of 2.75% - 3.0% pa. (2017: 2.75% - 3.0% pa)
The Group has conducted a sensitivity analysis on the impairment test of each CGU's carrying value. A cut in projected sales growth by around 13.5% (2017: 7%) would result in the carrying value of goodwill being reduced to its recoverable amount.
On the basis of the assumptions and corresponding calculations made it is estimated that the recoverable amount exceeds the carrying amount of the CGU by over GBP3 million.
10(b) Property, plant and equipment
Long
leasehold Fixtures,
Development Land and land and Short fittings
property buildings buildings leasehold and Motor
assets at at improvements equipment vehicles
at cost valuation valuation at cost at cost at cost Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ------------ ------------ ----------- ------------- ----------- ---------- ---------
Cost or valuation
1 August 2016 458 80,953 9,263 2,563 22,758 17 116,012
Additions 4,666 685 - 36 1,241 - 6,628
Disposals - - - - (15) - (15)
Reclassification - - - - - - -
Revaluations - 5,910 1,030 - - - 6,940
------------------ ------------ ------------ ----------- ------------- ----------- ---------- ---------
31 July 2017 5,124 87,548 10,293 2,599 23,984 17 129,565
------------------ ------------ ------------ ----------- ------------- ----------- ---------- ---------
Depreciation
1 August 2016 - - - 1,781 9,856 12 11,649
Depreciation - 705 125 99 926 1 1,856
Disposals - - - - (11) - (11)
Reclassification - - - - - - -
Revaluations - (705) (125) - - - (830)
------------------ ------------ ------------ ----------- ------------- ----------- ---------- ---------
31 July 2017 - - - 1,880 10,771 13 12,664
------------------ ------------ ------------ ----------- ------------- ----------- ---------- ---------
Net book value
at 31 July 2017 5,124 87,548 10,293 719 13,213 4 116,901
------------------ ------------ ------------ ----------- ------------- ----------- ---------- ---------
Cost or valuation
1 August 2017 5,124 87,548 10,293 2,599 23,984 17 129,565
Additions 18,513 183 - 49 3,190 - 21,935
Reclassification (7,067) 7,055 - - 12 - -
Revaluations - 13,700 1,145 - - - 14,845
------------------- -------- -------- ------- ------ ------- ---- --------
31 July 2018 16,570 108,486 11,438 2,648 27,186 17 166,345
------------------- -------- -------- ------- ------ ------- ---- --------
Depreciation
1 August 2017 - - - 1,880 10,771 13 12,664
Depreciation - 753 126 99 1,001 1 1,980
Revaluations - (753) (126) - - - (879)
------------------- -------- -------- ------- ------ ------- ---- --------
31 July 2018 - - - 1,979 11,772 14 13,765
------------------- -------- -------- ------- ------ ------- ---- --------
Net book value
at 31 July 2018 16,570 108,486 11,438 669 15,414 3 152,580
------------------- -------- -------- ------- ------ ------- ---- --------
The Group has an active store development programme and in accordance with IAS 23 has material qualifying assets that take a substantial period of time to develop from acquisition to ultimate store opening. Accordingly borrowing costs of GBP197,209 (2017: nil) have been capitalised in the current year that are directly attributable to the acquisition, construction and fit-out of these qualifying store assets. GBP114,507 of the total amount is carried in development property assets and GBP82,702 is carried in land and buildings following the opening of the Gillingham and Wellingborough stores.
If all property, plant and equipment were stated at historic cost the carrying value would be GBP74.1 million (2017: GBP53.9 million).
Capital expenditure during the year totalled GBP21.9 million (2017: GBP6.6 million). This was primarily the completion of construction works at our development sites in Gillingham and Wellingborough which are now open and trading as well as completing the acquisition of our Bournemouth, Bedford, Cardiff and Cheshunt sites.
Property, plant and equipment (non-current assets) with a carrying value of GBP152.6 million (2017: GBP116.9 million) are pledged as security for bank loans.
Market Valuation of Freehold, Long Leasehold and Operating Leasehold Land and Buildings
On 31 July 2018 a professional valuation was prepared by Jones Lang LaSalle Limited (JLL) in respect of eleven freehold, one long leasehold and seven operating leasehold properties. The valuation was prepared in accordance with the RICS Valuation - Global Standards 2017, published by The Royal Institution of Chartered Surveyors ("the RICS Red Book") and the valuation methodology is explained in more detail below. The valuations were prepared on the basis of Fair Value as a fully equipped operational entity having regard to trading potential. 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 RICS Red Book JLL have confirmed that:
-- This is the third year that JLL has been appointed to value the properties -- The valuers who prepared the valuation have the necessary skills and experience having been significantly involved in the sector -- JLL do not provide other significant professional or agency services to the Company
-- In relation to the preceding financial year of JLL the proportion of the total fees payable by the Company to the total fee income of the firm is less than 5% and is minimal.
The valuation report indicates a total valuation for all properties valued of GBP146.2 million (2017: GBP119.6 million) of which GBP128.0 million (2017: GBP102.9 million) relates to freehold and long leasehold properties, and GBP18.2 million (2017: GBP16.7 million) relates to properties held under operating leases.
Freehold and long leasehold 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. Of the GBP128.0 million valuation of the freehold and long leasehold properties GBP11.7 million (2017: GBP9.3 million) relates to the net book value of fixtures, fittings and equipment, and the remaining GBP116.3 million (2017: GBP 93.6 million) relates to freehold and long leasehold properties.
The 2018 valuation includes and reflects movements in value which have resulted from the operational performance of the stores and movements in the investment environment.
Valuation Methodology
Jones Lang LaSalle Limited (JLL) have adopted the profits method of valuation, and cross checked with the direct comparison method based on recent transactions in the sector, which is the main method of pricing adopted by purchasers of self-storage properties.
JLL have valued the assets on an individual basis and have disregarded any portfolio effect.
The profits method of valuation considers the cash flow generated by the trading potential of the self-storage facility. Due to the specialised design and use of the buildings, the value is typically based on their ability to generate a net income from operating as self-storage facilities.
JLL have constructed a discounted cash flow model. This sets out their explicit assumptions on the underlying cash flow that they believe could be generated by a Reasonably Efficient Operator at each of the properties, both at the valuation date and in the near future as the properties increase their occupancy and rates charged to customers. Judgements are made as to the trading potential and likely long term sustainable occupancy.
Stable occupancy depends upon the nature of demand, size of property and nearby competition, and allows for a reasonable vacancy rate to enable the operator to sell units to new customers. In the valuation the assumed stabilised occupancy level for the 21 trading stores (both freeholds and leaseholds) averages 84.1% (2017: 81.2%).
Expenditure is deducted (such as business rates, staff costs, repair and maintenance, utilities, marketing and bad debts) as well as an operator's charge which takes account of central costs. JLL also make an allowance for long term capex requirements where applicable.
-- The cash flow for freeholds runs for an explicit period of 10 years, after which it is capitalised at an all risks yield which reflects the implicit future growth of the business, or a hypothetical sale.
-- The cash flow for leaseholds continues for the unexpired term of the lease.
-- The discount rate applied has had regard to recent transactions, weighted average costs of capital and target return in other asset types with adjustments made to reflect differences in the risk and liquidity profile.
-- The weighted average annual discount rate adopted (for both freeholds and leaseholds) is 10.58% (2017: 11.09%). The yield arising from the first year of the projected cash flow is 6.35% (2017: 7.19%), rising to 9.39% (2017: 10.49%) in year five.
-- JLL have assumed purchasers costs of 6.8% (2017: 6.8%). -- The average stabilised occupancy is 84.1% (2017: 81.2%). -- The average exit yield assumed is 7.42% (2017: 7.67%).
The comparison method considers recent transactions where self-storage properties have sold, and then adjusts them based on a multiple of current earnings, and a capital value per square foot. They are adjusted to reflect differences in location, physical characteristics, local supply and demand, tenure and trading levels.
JLL reported that The Lok'nStore portfolio has generally performed very well in terms of increasing occupancy over the course of the year which has driven the assumed stabilised occupancy higher.
For leaseholds 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 11 years and 1 month as at 31 July 2018 (10 years and 8 months: 31 July 2017). 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 leases 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 JLL 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 previous years.
On 22 February 2018, the Group completed the Deed of Variation, Reversionary Lease and Rent Review Memorandum extending the lease term of the Fareham Store by ten years to 2036.
The fair value hierarchy within which the Fair Value measurements are categorised is level 3, in accordance with IFRS 13 fair value measurements.
Directors' valuation of land and property
The old Southampton store: Following the opening of the new Southampton store with the corresponding transfer of all customers from the old Southampton store, the vacant building was redeveloped for cruise parking. Market evidence suggested that there is a substantial market in Southampton for car parking for cruise liner passengers and that this property was appropriate to this use. The Directors have placed a valuation on the site at the 2018 year-end at GBP2.0 million. The building was converted to this use costing GBP1.195 million (GBP1.103 million net of depreciation) and started trading as "ParknCruise" in May 2017. Accordingly the Directors placed their valuation on the current developed site at the 2018 year-end at GBP3.103 million.
The new Southampton store: Following the development and opening of the new Southampton store there remains surplus land to the rear of the building which may be ultimately utilised for an expansion of the store or could be sold or used for alternative use. The Directors have considered the advice given and recommendations of value obtained by local agents and in weighing this with their own view are satisfied to continue to place a value at year-end on this land of GBP0.5 million.
The total value of land and property carried at Director Valuation at 31 July 2018 is GBP3.603 million (2017: GBP4.195 million).
11 Investments Company Investments in subsidiary undertakings GBP'000 --------------------------------------------------------- -------- 31 July 2013 1,776 Capital contributions arising from share-based payments 119 --------------------------------------------------------- -------- 31 July 2014 1,895 Capital contributions arising from share-based payments 211 --------------------------------------------------------- -------- 31 July 2015 2,106 Capital contributions arising from share-based payments 182 --------------------------------------------------------- -------- 31 July 2016 2,288 Capital contributions arising from share-based payments 97 --------------------------------------------------------- -------- 31 July 2017 2,385 Capital contributions arising from share-based payments 33 --------------------------------------------------------- -------- 31 July 2018 2,418 --------------------------------------------------------- --------
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 Directly Indirectly Nature
shareholding of entity
Lok'nStore Limited * # Ordinary 100 - Self-storage
Lok'nStore Trustee Limited(1 Ordinary - 100 Trustee
*)
Southern Engineering and Machinery Ordinary - 100 Self-storage
Company Limited(1 *) #
Semco Machine Tools Limited(2 Ordinary - 100 Dormant
*) #
Semco Engineering Limited(2 *) Ordinary - 100 Dormant
#
Saracen Datastore Limited(1) Ordinary - 100 Serviced
# Document
Storage
ParknCruise Limited(1) Ordinary - 100 Dormant
(1) These companies are subsidiaries of Lok'nStore Limited.
(2) These companies are subsidiaries of Southern Engineering and Machinery Company Limited and did not trade during the year.
(*) These companies have taken the exemption from audit under Section 479A of the Companies Act 2006.
The address of these companies is 112, Hawley Lane, Farnborough, Hants. GU14 8JE.
# The address of these companies is 1, Fleet Place London EC4M 7WS.
12 Development loan capital
In May 2015 Lok'nStore opened a new store in Aldershot, Hampshire on behalf of outside investors, to which it provided development loan capital. The store is managed under the Lok'nStore brand. The Group has managed the building and subsequent operation of the store and has generated a return on GBP2.5 million of the total development capital committed to the project, as well as management fees for the construction, operation and branding of the store. On 31 October 2017 the entire development loan was repaid to Lok'nStore together with all accrued interest. Lok'nStore continues to manage the operation of the store.
Group Group
2018 2017
GBP'000 GBP'000
-------------------------- ---------- ---------
Development loan capital - 3,463
-------------------------- ---------- ---------
13 Inventories
Group Group
2018 2017
GBP'000 GBP'000
---------------------------------- --------- ---------
Consumables and goods for resale 257 203
---------------------------------- --------- ---------
The amount of inventories recognised in cost of sales as an expense during the year was GBP160,177 (2017: GBP164,225). (See Note 2(b)).
14 Trade and other receivables
Group Group
2018 2017
GBP'000 GBP'000
-------------------------------- --------- ---------
Trade receivables 1,969 1,693
Other receivables 1,927 1,822
Prepayments and accrued income 580 751
4,476 4,266
-------------------------------- --------- ---------
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
The following balances existed between the Company and its subsidiaries at 31 July:
Company Company
2018 2017
GBP'000 GBP'000
-------------------------------- -------------- --------------
Net amount due from Lok'nStore
Limited 13,940 13,021
----------------------------------- -------------- --------------
The amount due from Lok'nStore Limited is interest free. The balance is repayable on demand.
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 document storage business, customers are invoiced typically monthly in advance for the storage of their boxes, tapes and files. The provision of additional services, such as document boxes or tape collection and retrieval from archive, typically are invoiced monthly in arrears. The serviced archive segment with over 450 customers has a greater customer concentration - refer note 1(b) segmental analysis.
Included in the Group's trade receivables balance are receivables with a carrying amount of GBP223,092 (2017: GBP268,252) 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 (2017: 43 days past due).
Ageing of past due but not impaired receivables
Group Group
2018 2017
GBP'000 GBP'000
------------------------------------------- --------- ---------
0-30 days 100 97
30-60 days 85 121
60+ days 38 50
------------------------------------------- --------- ---------
Total 223 268
------------------------------------------- --------- ---------
Movement in the allowance for bad debts
Group Group
2018 2017
GBP'000 GBP'000
------------------------------------------- --------- ---------
Balance at the beginning of the year 188 186
Impairment losses recognised 40 34
Amounts written off as uncollectible (36) (32)
------------------------------------------- --------- ---------
Balance at the end of the year 192 188
------------------------------------------- --------- ---------
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 Group
2018 2017
GBP'000 GBP'000
-------------------------------------- --------- ---------
0-30 days - -
30-60 days - -
60+ days 192 188
-------------------------------------- --------- ---------
Total 192 188
-------------------------------------- --------- ---------
15 Trade and other payables
Group Group
2018 2017
GBP'000 GBP'000
------------------------------------ --------- ---------
Trade payables 1,102 818
Taxation and social security costs 313 288
Other payables 1,340 1,692
Accruals and deferred income 2,404 2,234
------------------------------------ --------- ---------
5,159 5,032
------------------------------------ --------- ---------
The Directors consider that the carrying amount of trade and other payables approximates fair value.
16 Financial instruments
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debts, which include the borrowings disclosed in note 17, cash and cash equivalents and equity attributable to the owners of the parent, comprising issued capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in Equity. The Group's banking facilities require that management give regular consideration to interest rate hedging strategy. The Group has complied with this during the year.
The Group's Board reviews the capital structure on an on-going basis. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital. The Group seeks to have a relatively conservative gearing ratio (the proportion of net debt to equity) balancing the overall level with the opportunities for the growth of the business. 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 Group
2018 2017
GBP'000 GBP'000
--------------------------- --------- ---------
Gross borrowings (37,335) (28,816)
Cash and cash equivalents 4,990 11,386
--------------------------- --------- ---------
Net debt (32,345) (17,430)
Total equity 103,251 89,119
--------------------------- --------- ---------
Net debt to equity ratio 31.3 % 19.6 %
--------------------------- --------- ---------
The increase in the Group's gearing ratio arises principally through the acquisition of our Bournemouth, Bedford, Cardiff Cheshunt and Leicester sites funded by bank borrowings, mitigated by the combined effect of an increase in the value of its properties, and the cash generated from operations.
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. Historically the Group has hedged through the deployment of interest rate swaps although the Group had no such instruments in place at 31 July 2017 or 31 July 2018. The Board continues to keep its hedging policy under periodic review.
B Debt management
Debt is defined as non-current and current borrowings, as detailed in note 17. Equity includes all capital and reserves of the Group. The Group is not subject to externally imposed capital requirements.
The Group borrows through a revolving credit facility with Royal Bank of Scotland plc secured on its store portfolio and other Group assets, excluding intangibles, with a net book value of GBP161.6 million (2017: GBP136.2 million). Borrowings are arranged to ensure the Group fulfils its strategy of growth and development of its stores and to maintain short-term liquidity. As at the reporting date the Group has a committed revolving credit facility of GBP50 million (2017: GBP40 million). This facility expires on 15 January 2023. Undrawn committed facilities at the year-end amounted to GBP12.7 million (2017: GBP11.2 million).
C Interest rate risk management
The Group's policy on interest rate management is agreed at Board level and is reviewed on an on-going basis. All borrowings are denominated in Sterling and are detailed in note 17. The Group has a number of revolving loans within its overall revolving credit facility and as such is exposed to interest rate risks at the time of renewal arising from any upward movement in the LIBOR rate.
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(1) . All amounts are denominated in Sterling. The balances at 31 July 2018 are as follows:
Group Group
2018 2017
GBP'000 GBP'000
-------------------------------------- --------- ---------
Variable rate treasury deposits(1) 4,337 11,048
SIP trustee deposits 40 5
Cash in operating current accounts 582 285
Other cash and cash equivalents 31 48
-------------------------------------- --------- ---------
Total cash and cash equivalents 4,990 11,386
-------------------------------------- --------- ---------
(1) Money market rates for the Group's variable rate treasury deposit track Royal Bank of Scotland plc base rate. The rate attributable to the variable rate deposits at 31 July 2018 was 0.1%. (2017: 0.1%)
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
Over the longer term, significant changes in interest rates may have an impact on consolidated earnings.
At 31 July 2018, it is estimated that an increase of one percentage point in interest rates would have reduced the Group's annual profit before tax by GBP373,345 (2017: GBP288,156) and conversely a decrease of one percentage point in interest rates would have increased the Group's annual profit before tax by GBP373,345 (2017: GBP288,156). 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 of 1.85% applying to the variable rate borrowings of GBP37.3 million in the year (2017: GBP28.8 million / 1.66%).
E Cash management and liquidity
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note B above is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.
Short-term money market deposits are used to manage liquidity whilst maximising the rate of return on cash resources, giving due consideration to risk.
F Foreign currency management
The Group operates solely in the United Kingdom and as such all of the Group's financial assets and liabilities are denominated in Sterling and there is no exposure to exchange risk.
G Credit risk
The credit risk management policies of the Group with respect to trade receivables are discussed in note 14. The 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 2018 was GBP3.06 million (2017: GBP2.34 million) on receivables and GBP4.99 million (2017: GBP11.39 million) on cash and cash equivalents.
H Maturity analysis of financial liabilities
The undiscounted contractual cash flow maturities are as follows:
2018 - Group Trade Interest
and other on
payables Borrowings borrowings
GBP'000 GBP'000 GBP'000
------------------------------------- ----------- ----------- ------------
Over five years - - -
From two to five years - 37,335 1,307
From one to two years - - 532
------------------------------------- ----------- ----------- ------------
Due after more than one year - 37,335 1,839
Due within one year 2,728 - 532
------------------------------------- ----------- ----------- ------------
Total contractual undiscounted cash
flows 2,728 37,335 2,371
------------------------------------- ----------- ----------- ------------
2017 - Group Trade Interest
and other on
payables Borrowings borrowings
GBP'000 GBP'000 GBP'000
------------------------------------- ----------- ----------- ------------
Over five years - 28,816 219
From two to five years - - 1,438
From one to two years - - 479
------------------------------------- ----------- ----------- ------------
Due after more than one year - 28,816 2,136
Due within one year 2,934 - 479
------------------------------------- ----------- ----------- ------------
Total contractual undiscounted cash
flows 2,934 28,816 2,615
------------------------------------- ----------- ----------- ------------
I Fair values of financial instruments
Group Group
2018 2017
GBP'000 GBP'000
----------------------------------------------------- ---------- ----------
Categories of financial assets and financial
liabilities
Financial assets - loans and receivables
Trade and other receivables (1) 4,616 3,967
Cash and cash equivalents 4,990 11,386
Development loan capital - 3,463
Financial liabilities - other financial liabilities
at amortised cost
Trade and other payables (2,728) (2,934)
Bank loans (37,170) (28,670)
----------------------------------------------------- ---------- ----------
(1) Includes GBP361,460 relating to fees receivable in 2022 from the Aldershot managed store currently classified as a non-current asset (measured at fair value).
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 financial assets are amounts owed by subsidiary undertakings amounting to GBP13.9 million (2017: GBP13.0 million) which are classified as loans and receivables, and the investment in its subsidiary undertaking of GBP0.1 million (excluding capital contributions). 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.
17 Borrowings
Group Group
2018 2017
GBP'000 GBP'000
------------------------------------------------ --------- ---------
Non-current
Bank loans repayable in more than five years
(Gross) - 28,816
Bank loans repayable in more than two years
but not more than five years (Gross) 37,335 -
Deferred financing costs (165) (146)
------------------------------------------------ --------- ---------
Net bank borrowings 37,170 28,670
Non-current borrowings 37,170 28,670
------------------------------------------------ --------- ---------
The Group has an existing banking facility with Royal Bank of Scotland plc (RBS). The facility runs until January 2023 providing funding for more site acquisitions and working capital. The Group is not obliged to make any repayments prior to its expiration in January 2023.
In February 2018 the Group executed its GBP10 million accordion increasing its GBP40 million Banking Facility to GBP50 million. The increased facility will provide funding for site acquisitions and working capital to support the Group's ambitious growth plans for more landmark site acquisitions and working capital.
Bank covenants and margin are unaffected following the increased facility with the interest rate margin at the London Inter-Bank Offer Rate (LIBOR) plus 1.40%-1.65% based on a loan to value covenant test. This rate is 1.40% currently and the all in debt cost on GBP37.3 million drawn averaged 1.85% in the year.
The Group currently has GBP37.3 million drawn against its existing GBP50 million facility. The GBP50 million revolving credit facility with RBS is secured by legal charges and debentures over the freehold and leasehold properties and other tangible assets of the business with a net book value of GBP152.6 million (2017: GBP120.4) million together with cross-company guarantees from Group companies.
18 Deferred tax
Group Group
2018 2017
Deferred tax liability GBP'000 GBP'000
------------------------------------------------- --------- ---------
Liability at start of year 16,363 15,361
Credited to income for the year 644 112
Tax credited directly to other comprehensive
income 2,698 932
Debit / (credit) to share based payment reserve 30 (42)
Liability at end of year 19,735 16,363
------------------------------------------------- --------- ---------
The following are the major deferred tax liabilities and assets recognised by the Group and the movements during the year:
Accelerated Other Rolled
Capital Intangible temporary Revaluation of over gain Share
Allowances assets differences properties on disposal options Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- ------------ ----------- ------------- --------------- ------------- ---------- ---------
At 1 August 2016 1,855 447 24 10,961 2,323 (249) 15,361
--------------------- ------------ ----------- ------------- --------------- ------------- ---------- ---------
Charge/ (credit) to
income for the year 341 (53) (7) - (189) 20 112
--------------------- ------------ ----------- ------------- --------------- ------------- ---------- ---------
Charge to other
comprehensive
income - - - 920 12 - 932
--------------------- ------------ ----------- ------------- --------------- ------------- ---------- ---------
Charge to share
based payment
reserve - - - - - (42) (42)
--------------------- ------------ ----------- ------------- --------------- ------------- ---------- ---------
At 31 July 2017 2,196 394 17 11,881 2,146 (271) 16,363
--------------------- ------------ ----------- ------------- --------------- ------------- ---------- ---------
Charge/ (credit) to
income for the year 683 (28) - - (11) - 644
--------------------- ------------ ----------- ------------- --------------- ------------- ---------- ---------
Charge to other
comprehensive
income - - - 2,687 11 - 2,698
--------------------- ------------ ----------- ------------- --------------- ------------- ---------- ---------
Charge to share
based payment
reserve - - - - - 30 30
--------------------- ------------ ----------- ------------- --------------- ------------- ---------- ---------
At 31 July 2018 2,879 366 17 14,568 2,146 (241) 19,735
--------------------- ------------ ----------- ------------- --------------- ------------- ---------- ---------
19 Share capital
2018 2017
Authorised: GBP'000 GBP'000
------------------------------------------- ------------- -------------
35,000,000 ordinary shares of 1 pence
each (2017: 35,000,000) 350 350
-------------------------------------------- ------------- -------------
Allotted, issued and fully paid ordinary GBP'000 GBP'000
shares
------------------------------------------- ------------- -------------
Balance 1 August 293 291
Options exercised 193,692 (2017: 193,601) 2 2
-------------------------------------------- ------------- -------------
Balance 31 July 295 293
-------------------------------------------- ------------- -------------
Called up, Called up,
allotted allotted and
and
fully paid fully paid
Number Number
------------------------------------------- ------------- -------------
Number of shares at 31 July 29,498,615 29,302,923
-------------------------------------------- ------------- -------------
The Company has one class of ordinary shares which carry no right to fixed income.
20 Equity settled share-based payment plans
The Group operates two equity-settled share-based payment plans, an approved and an unapproved share option scheme, the rules of which are similar in all material respects.
The Company has the following share options:
As at As at
2018
Summary 31 July Lapsed/ 31 July
2017 2018
No of options Granted Exercised surrendered No of options
----------------------------- -------------- -------- ---------- ------------ --------------
Unapproved Share Options 964,108 4,343 (145,095) (5,805) 817,551
Unapproved Share Options - 140,000 - - 140,000
Approved CSOP Share Options 135,378 21,493 (55,814) (8,858) 92,199
------------------------------ -------------- -------- ---------- ------------ --------------
Total 1,099,486 165,836 (200,909) (14,663) 1,049,750
------------------------------ -------------- -------- ---------- ------------ --------------
2017 As At As at
Summary 31 July Lapsed/ 31 July
2016 2017
No of options Granted Exercised surrendered No of options
----------------------------- -------------- -------- ---------- ------------ --------------
Unapproved Share Options 1,094,482 44,031 (150,408) (23,997) 964,108
Approved CSOP Share Options 166,011 20,486 (43,193) (7,926) 135,378
------------------------------ -------------- -------- ---------- ------------ --------------
Total 1,260,493 64,517 (193,601) (31,923) 1,099,486
------------------------------ -------------- -------- ---------- ------------ --------------
The following table shows options held by Directors under all schemes.
Approved
Total CSOP Total
at 31 Options Options Unapproved share at 31
July 2017 granted Exercised/lapsed Scheme options July 2018
------------------------- ----------- --------- ------------------ ------------ --------- -----------
2018
------------------------- ----------- --------- ------------------ ------------ --------- -----------
Executive Directors
------------------------- ----------- --------- ------------------ ------------ --------- -----------
A Jacobs - Unapproved 206,087 - - 206,087 - 206,087
------------------------- ----------- --------- ------------------ ------------ --------- -----------
RA Davies - Unapproved 256,977 - (10,000) 246,977 - 246,977
RA Davies - CSOP 7,742 - - - 7,742 7,742
------------------------- ----------- --------- ------------------ ------------ --------- -----------
RA Davies total 264,719 - (10,000) 246,977 7,742 254,719
------------------------- ----------- --------- ------------------ ------------ --------- -----------
N Newman-Shepherd
- Unapproved 197,421 - (25,000) 172,421 - 172,421
N Newman-Shepherd
- CSOP 13,661 - (3,000) - 10,661 10,661
------------------------- ----------- --------- ------------------ ------------ --------- -----------
N Newman-Shepherd
total 211,082 - (28,000) 172,421 10,661 183,082
------------------------- ----------- --------- ------------------ ------------ --------- -----------
Non-Executive Directors
------------------------- ----------- --------- ------------------ ------------ --------- -----------
SG Thomas - Unapproved 25,217 - - 25,217 - 25,217
------------------------- ----------- --------- ------------------ ------------ --------- -----------
ETD Luker - Unapproved 15,000 - (15,000) - - -
All Directors total 722,105 (53,000) 650,702 18,403 669,105
------------------------- ----------- --------- ------------------ ------------ --------- -----------
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 two and a half or three years.
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. Exercise of an option is subject to continued employment or in the case of unapproved options at the discretion of the Board. The life of each option granted is six and a half to 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 (two and a half to 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 GBP33,339 (2017: GBP96,985), all of which relates to equity-settled share-based payment transactions.
21(a) Other reserves
Share-based
Cash flow Capital
hedge Merger Other redemption payment
reserve reserve reserve reserve reserve Total
Group GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
1 August 2016 (37) 6,295 1,294 34 846 8,432
-------------------------- ------------ -------- -------------------- ----------- ------------ ---------------
Share based remuneration
(options) - - - - 97 97
IFRS 2 - transfer (to)/
from retained earnings - - - - (139) (139)
Cash flow hedge reserve
net of tax 37 - - - - 37
Tax charge relating to
share options - - - - 42 42
-------------------------- ------------ -------- --------------------
31 July 2017 - 6,295 1,294 34 846 8,469
Share based remuneration
(options) - - - - 33 33
IFRS 2 - transfer (to)/
from retained earnings - - - - (109) (109)
Cash flow hedge reserve - - - - - -
net of tax
Tax charge relating to
share options - - - - (30) (30)
-------------------------- ------------ -------- --------------------
31 July 2018 - 6,295 1,294 34 740 8,363
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.
Share based payment reserve
Under IFRS2 there is the option to make transfers from the share based payment reserve to retained earnings in respect of accumulated share option charges where the options have either been exercised or have lapsed post-vesting. The total amounts calculated and accordingly transferred to retained earnings amounted to GBP109,218 (2017: GBP138,755).
21(b) Other reserves
Other Share-based
reserve payment
reserve Total
Company GBP'000 GBP'000 GBP'000
1 August 2016 1,114 847 1,961
Share based remuneration (options) - 97 97
IFRS 2 - transfer to retained earnings - (139) (139)
31 July 2017 1,114 805 1,919
Share based remuneration (options) - 33 33
IFRS 2 - transfer to/from retained
earnings - (109) (109)
31 July 2018 1,114 729 1,843
22(a) Retained earnings
Retained earnings Retained
before deduction Own shares earnings
of own shares (note 26) Total
Group GBP'000 GBP'000 GBP'000
1 August 2016 17,824 (4,241) 13,583
Profit attributable to owners
of
Parent for the financial year 3,061 - 3,061
Transfer from revaluation reserve
(Additional depreciation on revaluation) 277 - 277
Transfer from share based payment
reserve (Note 21a) 139 - 139
Transfer realised gain on asset
disposal - 3,741 3,741
Dividend paid (2,637) - (2,637)
31 July 2017 18,664 (500) 18,164
Profit attributable to owners
of
Parent for the financial year 3,757 - 3,757
Transfer from revaluation reserve
(Additional depreciation on revaluation) 291 - 291
Transfer from share based payment
reserve (Note 21a) 109 - 109
Dividend paid (2,977) - (2,977)
31 July 2018 19,844 (500) 19,344
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 were not cancelled and have been 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.
22(b) Retained earnings
Retained earnings Retained
before deduction Own shares earnings
of own shares (note 26) Total
Company GBP'000 GBP'000 GBP'000
1 August 2016 117 - 117
1 August 2016- As restated 117 (3,741) (3,624)
Profit attributable to owners
of
Company for the financial year 5,547 - 5,547
Transfer from share based payment
reserve (Note 21a) 139 - 139
Disposal of treasury shares - 3,741 3,741
Dividend paid (2,637) - (2,637)
31 July 2017 3,166 - 3,166
Profit attributable to owners
of
Company for the financial year 3,572 - 3,572
Transfer from share based payment
reserve (Note 21a) 109 - 109
Dividend paid (2,977) - (2,977)
31 July 2018 3,870 - 3,870
Restatement of 2016 Retained Earnings
At the start of the 2017 financial year a total of 2,466,869 of Lok'nStore Group plc ordinary shares of 1p each were held for treasury with an aggregate nominal value of GBP24,669 purchased for an aggregate cost of GBP3,741,036 at an average price of GBP1.503 per share (excluding broker's commission and stamp duty costs). These shares were sold in November 2016 and April 2017 to a range of institutional investors as described in the 2017 Annual Report.
The treasury shares amount of GBP3,741,000 that was previously reported as an investment by Lok'nStore Limited (the subsidiary) should have been recognised in Lok'nStore Group Plc's accounts since they were registered in the name of the parent company.
The impact of the prior period adjustment in plc is to change the amounts shown as the intercompany balance with Lok'nStore Limited and the amount shown as own shares at 1 August 2016, which is included within Retained Earnings on the Statement of Financial Position and disclosed separately in the notes to the accounts.
Accordingly, the comparative 2016 amounts have been restated in the parent company's accounts. The directors do not believe that this adjustment would cause the reader of the financial statements to form a different view of the statement of financial position of the parent company and therefore have not presented a restated balance sheet at 31 July 2016 as they do not believe it is material in the context of the financial statements as a whole.
Review of distributable reserves and rectification of prior dividends (the Relevant Dividends)
The Board has become aware of certain technical issues relating to the levels of distributable reserves within the Lok'nStore Group and the payment of interim and final dividends by Lok'nStore Group plc to our shareholders during the period from 2013 to 2016 ('the Relevant Dividends').
Lok'nStore's Group structure is that almost all of the self-storage operations and assets and cash sit within the principal operating subsidiary Lok'nStore Limited. Lok'nStore Group plc is of itself a non-trading holding company. Throughout this period at all relevant times, the Group had adequate distributable reserves in subsidiary companies to enable payment of the Relevant Dividends, and each year payment of the final dividends was approved by the Company's shareholders at its annual general meeting.
However, a review of historical intra-group transactions revealed that dividends were not paid up from Lok'nStore Limited to Lok'nStore Group plc in the period from 2013 to 2016 and thereby did not create distributable reserves in Lok'nStore Group plc in the manner that had been intended. As a consequence, the Relevant Dividends paid by Lok'nStore Group plc were not paid out of distributable reserves and were therefore not paid in accordance with the Companies Act 2006.
We are undertaking a series of procedural steps in order to rectify this issue and put the Company and its subsidiaries, in the position that was originally intended with respect to the creation of distributable reserves in Lok'nStore Group plc.
We will put a resolution to shareholders at the forthcoming Annual General meeting to be held on 11 December 2018 which, if passed, would put all potentially affected parties, in so far as possible, in the position they would be had the Relevant Dividends been paid in accordance with the requirements of the Companies Act 2006.
Full details will be included in the circular and notice of general meeting to be sent to shareholders.
23 Own shares
EBT EBT Treasury Treasury Own shares
shares shares shares shares total
Number GBP Number GBP GBP
31 July 2017
and 31 July 2018 623,212 499,910 - - 499,910
Employee Benefit Trust (EBT): 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 2018, the Trust held 623,212 (2017: 623,212) ordinary shares of 1 pence each with a market value of GBP2,508,428 (2017: GBP2,414,947). No shares were transferred out of the scheme during the year (2017: nil).
No options have been granted under the EBT. The EBT waived its dividends in full. No other dividends were waived during the year.
24 Cash flows
(a) Reconciliation of profit before tax to cash generated from operations
Group Group
2018 2017
GBP'000 GBP'000
Profit before tax 5,325 3,965
Depreciation 1,980 1,856
Amortisation of intangible
assets 165 165
Equity settled share based
payments 33 97
Warranty Claims (230) -
Carried interest - fees receivable (361) -
Property disposal costs - 15
Store relocation costs - 29
Director retirement costs - 69
Finance income (80) (309)
Finance cost 463 606
Increase in inventories (54) (38)
Increase in receivables (571) (284)
Increase / decrease in payables 312 (648)
Cash generated from operations 6,982 5,523
(b) Reconciliation of net cash flow to movement in net debt
Net debt is defined as non-current and current borrowings, as detailed in note 17 less cash and cash equivalents.
Group Group
2018 2017
GBP'000 GBP'000
(Decrease) / increase in cash
in the year (6,396) 6,051
Change in net debt resulting
from cash flows (8,519) -
Movement in net debt in year (14,915) 6,051
Net debt brought forward (17,430) (23,481)
Net debt carried forward (32,345) (17,430)
25 Commitments under operating leases
At 31 July 2018 the total future minimum lease payments as a lessee under non-cancellable operating leases were as follows:
Group Group
2018 2017
GBP'000 GBP'000
--------
Land and buildings
Amounts due:
Within one year 1,467 1,469
Between two and
five years 5,868 5,868
After five years 7,036 6,600
--------
14,371 13,937
--------
Operating lease payments represent rentals payable by the Group for certain of its properties. Typically leases are negotiated for a term of 20 years and rentals are fixed for an average of five years.
26 Related party transactions
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, and the other key management personnel of the Group, is set out below. Further information on the remuneration of individual Directors is found in note 6.
Group Group
2018 2017
GBP'000 GBP'000
--------
Short term employee benefits - Directors 717 1,000
Short term employee benefits - Other
key management 320 312
Post-employment benefits - Directors 33 33
Post-employment benefits - Other
key management 6 6
Share-based payments 33 97
--------
Total 1,109 1,448
--------
As part of a review of its management personnel the group recognised a number of management personnel that it felt were important to retain within the business in order for it to achieve its strategic plan. Accordingly these were recognised as key personnel and are participants in the new Long Term Performance Plan (see note 22(b)). They are included in the table above. For consistency the 2017 figures include their comparative figures.
27a Capital commitments and guarantees
The Group has capital expenditure contracted but not provided for in the financial statements of GBP3.38 million (2017: GBP2.60 million) relating to building contracts on its Cardiff development site as well as building retentions outstanding on the completed Bristol, Southampton, Gillingham and Wellingborough stores.
27b Bank borrowings
The Company has guaranteed the bank borrowings of Lok'nStore Limited, a subsidiary company. As at the year-end, that company had gross bank borrowings of GBP37.3 million (2017: GBP28.8 million).
28 Events after the reporting date a) Planning permission obtained on the Leicester site
On 17 August 2018, planning permission was granted for the construction of a self-storage centre.
b) Planning permission obtained on the Cardiff site
On 22 August 2018, planning permission was granted for the change of use of the trading site to B8 self-storage use.
c) Planning permission obtained on the Gloucester site
On 5 September 2018, planning permission was granted for the construction of a self-storage centre.
d) Sale of surplus land at rear of Southampton store
Following the development and opening of the new Southampton store there remained surplus land to the rear of the building which could be sold or used for alternative use. On 25 October 2018, the surplus land was sold for GBP800,000. The Directors has placed a value at the year-end in the financial statements on this land of GBP0.5 million.
Our Stores
Head Office - Central Enquiries Lok'nStore plc 0800 587 3322 112 Hawley Lane info@loknstore.co.uk Farnborough www.loknstore.co.uk Hampshire GU14 8JE Tel 01252 521010 www.loknstore.co.uk www.loknstore.com
Owned Trading Stores
Basingstoke, Hampshire Horsham, West Sussex Poole, Dorset Bristol, Gloucestershire
Crockford Lane Blatchford Road 50 Willis Way Longwell Green Trade
Chineham Redkiln Estate Fleetsbridge Park
Basingstoke Horsham Poole Aldermoor Way
Hampshire RG24 West Sussex RH13 Dorset BH15 3SY Bristol
8NA 5QR Tel 01202 666160 BS30 7ET
Tel 01256 474700 Tel 01403 272001 poole@loknstore.co.uk Tel 0117 967 7055
basingstoke@loknstore.co.uk horsham@loknstore.co.uk Bristol@loknstore.co.uk
Crayford, Kent Luton, Bedfordshire Portsmouth, Hampshire Gillingham, Kent
Block B 27 Brunswick Street Rudmore Square Courtney Road
Optima Park, Thames Luton Portsmouth PO2 Gillingham
Road Bedfordshire LU2 8RT Kent ME8 0RT
Crayford Kent 0HG Tel 02392 876783 Tel 01634 366044
DA1 4QX Tel 01582 721177 portsmouth@loknstore.co.uk gillingham@loknstore.co.uk
Tel 01322 525292 luton@loknstore.co.uk
crayford@loknstore.co.uk
Eastbourne, East Maidenhead, Berkshire Reading, Berkshire Tonbridge, Kent
Sussex Stafferton Way 251 A33 Relief Unit 6 Deacon Trading
Unit 4, Hawthorn Maidenhead Road Estate
Road Berkshire Reading Vale Road, Tonbridge
Eastbourne SL6 1AY RG2 0RR Kent TN9 1SW
East Sussex BN23 Tel 01628 878870 Tel 01189 588999 Tel 01732 771007
6QA maidenhead@loknstore.co.uk reading@loknstore.co.uk tonbridge@loknstore.co.uk
Tel 01323 749222
eastbourne@loknstore.co.uk
Fareham, Hampshire Milton Keynes, Southampton, Hampshire Harlow, Essex
26 + 27 Standard Buckinghamshire Third Avenue Edinburgh Way
Way Etheridge Avenue Southampton Temple Fields
Fareham Industrial Brinklow Hampshire SO15 Harlow
Park Milton Keynes 0JX Essex CM20 2GF
Fareham Buckinghamshire Tel 02380 783388 Tel 01279 882366
Hampshire PO16 MK10 0BB southampton@loknstore.co.uk harlow@loknstore.co.uk
8XJ Tel 01908 281900
Tel 01329 283300 miltonkeynes@loknstore.co.uk
fareham@loknstore.co.uk
Farnborough, Hampshire Northampton Central Northampton Riverside Sunbury, Middlesex
112 Hawley Lane 16 Quorn Way Units 1-4, Carousel Unit C, The Sunbury
Farnborough Grafton Street Way Centre
Hampshire GU14 Industrial Estate Northampton Hanworth Road
8JE Northampton NN1 Northamptonshire Sunbury on Thames
Tel 01252 511112 2PN NN3 9HG Middlesex TW16 5DA
farnborough@loknstore.co.uk Tel 01604 629928 Tel 01604 785522 Tel 01932 808466
nncentral@loknstore.co.uk northampton@loknstore.co.uk sunbury@loknstore.co.uk
Southampton, Hampshire ParknCruise Wellingborough,
Third Avenue Manor House Avenue Northamptonshire
Southampton Millbrook, Southampton 19/21 Whitworth
Hampshire SO15 Hampshire SO15 Way
0JX 0LF Wellingborough
Tel 02380 783388 Tel 02380 789966 NN8 2EF
southampton@loknstore.co.uk southampton@parkncruise.co.uk Tel: 01634 366044
gillingham@loknstore.co.uk
Development locations - LNS Owned Stores
Cardiff Bedford Bournemouth Leicester
234, Penarth Road 69 Cardington Road, Land at Wessex Part of land forming
Cardiff Bedford. Field, Deansleigh part of Freemens
CF11 8LR NK42 0BQ Road, Bournemouth Common Road, Leicester
BH7 7DU LE2 7SL
Cheshunt
Land lying on
the South Side
of Halfhide Lane,
Turnford,
Hertfordshire
Managed stores - Trading
Aldershot, Hampshire Chichester, West Woking Broadstairs
251, Ash Road Sussex Marlborough Road Unit 2, Pyramid
Aldershot 17, Terminus Road Woking Business Park, Poorhole
GU12 4DD Chichester GU21 5JG Lane,
Tel 0845 4856415 West Sussex Tel 01483 378323 Broadstairs,
aldershot@loknstore.co.uk PO19 8TX woking@loknstore.co.uk Kent CT10 2PT
Tel 01243 771840 Tel 01843 863253
chichester@loknstore.co.uk broadstairs@loknstore.co.uk
Ashford, Kent Crawley, West Sussex Swindon Kembrey Hemel Hempstead
Wotton Road Sussex Manor Business Park, Wiltshire Fortius Point,
Ashford Park Kembrey Street 47, Maylands Avenue,
Kent TN23 6LL Gatwick Road Elgin Industrial Hemel Hempstead,
Tel 01233 645500 Crawley Estate Hertfordshire HP2
ashford@loknstore.co.uk RH10 9NH Swindon 7DE
Tel 01293 738530 Wiltshire SN2 Tel 01442 240768
crawley@loknstore.co.uk 8UY
Tel 01793 421234 hemelhempstead@loknstore.co.uk
swindoneast@loknstore.co.uk
Managed stores - Under Development
Dover, Kent Exeter Ipswich, Gloucester
Honeywood Parkway, Land on the West Part of Site 7, Land at Triangle
Whitfield, Side of Matford Futura Park, Ipswich Park,
Dover, CT16 3FJ Park Road, Marsh IP3 9QH Metz Way,
Barton, Exeter Gloucester
Devon
Head Office
Lok'nStore Plc
112 Hawley Lane
Farnborough
Hampshire
GU14 8JE
T. 01252 521010
www.loknstore.co.uk
www.loknstore.com
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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October 29, 2018 12:00 ET (16:00 GMT)
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