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RNS
Safestore Holdings plc  -  SAFE   

Full Year Results

Released 07:00 09-Jan-2017

RNS Number : 5870T
Safestore Holdings plc
09 January 2017
 

9 January 2017

 

Safestore Holdings plc

("Safestore", "the Company" or "the Group")

Results for the year ended 31 October 2016

 

                          A third consecutive year of double-digit EPS6 growth

 

Key measures

 


Year Ended 31 October 2016

Year Ended 31 October 2015

Change

 

Change-CER 1

Underlying and Operating Metrics- like-for-like 2





Revenue

£112.5m

£102.3m

10.0%

8.1%

Underlying EBITDA 3

£62.7m

£55.9m

12.2%

11.8%

Closing Occupancy (let sq ft- million) 4

3.61

3.56

1.4%

n/a

Closing Occupancy (% of MLA) 5

73.7%

72.7%

+1.0ppts

n/a

Average Occupancy (let sq ft- million) 4

3.54

3.42

3.5%

n/a

Average Storage Rate

£26.31

£24.85

5.9%

3.9%


Underlying and Operating Metrics- total





Revenue

£115.4m

£104.8m

10.1%

8.3%

Underlying EBITDA 3

£64.2m

£57.1m

12.4%

12.1%

Closing Occupancy (let sq ft- million) 4

3.97

3.58

10.9%

n/a

Closing Occupancy (% of MLA) 5

71.0%

72.6%

-1.6ppts

n/a

Average Storage Rate

£26.17

£24.85

5.3%

3.3%

Cash Tax Adjusted Earnings per Share 6

19.8p

16.6p

19.3%

n/a

Dividend per Share

11.65p

9.65p

20.7%

n/a

Free Cash flow 7

£42.4m

£37.3m

13.7%

n/a

EPRA Basic NAV per Share

£3.00

£2.56

17.0%

n/a


Statutory Metrics





Profit before tax 8

£94.9m

£118.2m

-19.7%

n/a

Basic Earnings per Share

42.0p

52.4p

-19.8%

n/a

 

Highlights

 

Strong Financial Performance

·      Group like-for-like2 revenue at CER1 up 8.1% with UK up 9.2% and Paris up 5.0%

·      Cash Tax Adjusted Earnings per Share up 19.3% at 19.8p

·      21% increase in the final dividend to 8.05p (FY2015: 6.65p)

 

Operational Focus

·      Balanced approach to revenue management

Like-for-like average occupancy for the year up 3.5%

Good like-for like pricing growth with UK rate up 4.5% and Paris rate up 2.3%

·      12 Space Maker stores acquired for £42.3m, immediately earnings enhancing

·      Enquiry growth of 7.5% after implementation of new consumer website

·      Opened five new stores (including Chiswick on 4 November 2016), completed one extension on time and on budget with a second extension completing in January 2017 and secured new freehold site in Mitcham, London

 

Strong and Flexible Balance Sheet

·      Group loan-to-value ratio ("LTV"9) at 31%, interest cover ratio ("ICR"10) at 5.5x and full year underlying finance costs reduced by £1.3m notwithstanding acquisition of Space Maker

 

Frederic Vecchioli, Safestore's Chief Executive Officer, commented:

 

"The Group has delivered another strong financial year, building on the improvements made to its operating performance over the last three years. Over this three year period, we have grown EPS6 by 78% and increased our dividend per share by over 100%.

 

"During the last twelve months we have also strengthened our market leading positions in the UK and Paris with the acquisition of Space Maker in the UK and the opening of five new stores.

 

"As we enter the new financial year, we continue to see good levels of interest in self-storage and remain focused on the significant opportunity represented by our 1.62m square feet of currently unlet space. In addition, our balance sheet capacity and flexibility allows us to continue to seek selected development and acquisition opportunities. The company is in a strong position and we look forward to the future with confidence."

 

 

 

Notes

1 - CER is Constant Exchange Rates (Euro denominated results for the current period have been retranslated at the exchange rate effective for the comparative period, and the impact of foreign exchange swaps has been reversed, in order to present the reported results on a more comparable basis).

2 - Like-for-like adjustments have been made to remove the impact of the closure of Whitechapel and New Malden in 2015, and the 2016 openings of Wandsworth, Altrincham, Birmingham (including closure of our existing Birmingham store) and Emerainville. In addition, the impact of the acquisition of Space Maker on 29 July 2016 has been adjusted.

3 - Underlying EBITDA is defined as Operating Profit before exceptional items, corporate transaction costs, change in fair value of derivatives, gain/loss on investment properties, contingent rent and depreciation. Underlying profit before tax is defined as underlying EBITDA less leasehold rent, depreciation charged on property, plant and equipment and net finance charges relating to bank loans and cash.

4 - Occupancy excludes offices but includes bulk tenancy. As at 31 October 2016, closing occupancy includes 37,000 sq ft of bulk tenancy (31 October 2015: 64,000 sq ft).

5 - MLA is Maximum Lettable Area. Group MLA has been adjusted to 5.59m sq ft (2015: 4.93m) following the acquisition of Space Maker and the openings of Wandsworth, Altrincham, Birmingham and Emerainville.

6 - Cash tax adjusted earnings per share is defined as profit or loss for the year before exceptional items, corporate transaction costs, change in fair value of derivatives, gain/loss on investment properties and the associated tax impacts as well as exceptional tax items and deferred tax charges, divided by the weighted average number of shares in issue (excluding shares held by the Safestore Employee Benefit Trust).

7 - Free cash flow is defined as cash flow before investing and financing activities but after leasehold rent payments.

8 - Profit before tax decreased by £23.3m to £94.9m (FY2015: £118.2m) as a result of the reported valuation gain on investment properties of £41.7m being £37.2m lower than the prior year (FY2015: £78.9m). Excluding the valuation gain, profit before tax for the year would have increased by £13.9m compared to the prior year.

9 - LTV ratio is Loan-to-Value ratio, which is defined as gross debt (excluding finance leases, but adjusted for the fair value of the US dollar cross currency swap) as a proportion of the valuation of investment properties and investment properties under construction (excluding finance leases).

10 - ICR is interest cover ratio, and is calculated as the ratio of underlying EBITDA after leasehold rent to underlying finance charges.

 

 

Summary

 

Safestore has delivered another strong financial performance through a combination of organic and acquisitive growth. Group revenue increased 8.1%1 on a like-for-like2 basis with a strong performance across the UK (+9.2%) and continued strength in Paris (+5.0%). The Group's like-for-like average occupancy increased by 2.3 percentage points ("ppts") to 72.3% with the average storage rate up 3.9%1.

 

Our operational performance across the UK has again been very strong this year. Our new consumer website was successfully launched resulting in good enquiry growth, which, combined with consistent conversion, has resulted in like-for-like new lets growth of 7.6% in the year. As a result, like-for-like occupancy in the UK was up 1.4ppts to 71.8%, driven by growth in both London & South East (+0.7ppts) and the rest of the UK (+2.3ppts).

 

In the UK, we successfully acquired and integrated the Space Maker portfolio during the year which was immediately accretive to earnings. In addition, four new stores in London-Chiswick, London-Wandsworth, Birmingham and Altrincham were opened on time and on budget.

 

In Paris, our performance has also been robust with revenue growing by 5.0%. Our balanced approach to revenue management resulted in rate growth of 2.3% and average occupancy growth of 2.5%. Like-for-like closing occupancy ended the year at 80.7% (2015: 81.8%), but like-for like average occupancy during the year was ahead of the prior year at 80.3% (2015: 78.0%). This is the eighteenth consecutive year of revenue growth in Paris with average growth over the last five years of c.5%. Our new store at Emerainville to the east of Paris opened on time and on budget in September 2016.

 

Group underlying EBITDA of £64.2m increased 12.1% at CER1 on the prior year and 12.4% on a reported basis reflecting the impact of the strengthening Euro on the profit earned on our Paris business. The Group's strong EBITDA performance combined with reduced finance costs arising from the annualisation of the amendment and extension of the bank facilities completed in August 2015, resulted in a 19.3% increase in cash tax adjusted EPS6 in the period to 19.8p (FY2015: 16.6p).

 

Our property portfolio valuation, including investment properties under construction, increased in the year by 15.7% on a constant currency basis. After exchange rate movements the portfolio valuation increased by 22.1% to £954.2m with the UK portfolio up £107.0m, including £48.0m relating to the acquisition of the Space Maker portfolio, to a total UK value of £710.6m and the French portfolio increased €21.6m to €270.9m.

 

Reflecting the Group's strong trading performance, the Board is pleased to recommend a 21% increase in the final dividend to 8.05p per share (FY2015: 6.65p) resulting in a full year dividend up 20.7% to 11.65p per share (FY2015: 9.65p).

 

Outlook

 

Safestore has strengthened its leading market positions in both the UK and Paris during the year with the opening of five new stores (including Chiswick which opened on 4 November 2016) and the acquisition of Space Maker which has increased the Group's MLA5 by 14%. Early trading in all of our new stores is encouraging. We continue to see good levels of interest in self-storage and, with 1.62m square feet of unlet space available at 31 October 2016 (the equivalent of 40 stores), we have significant, low-cost growth potential ahead.

 

We remain focused on the continual improvement of the operational performance of the business and leveraging our leading market positions. Our balance sheet flexibility and strong cash generation also provide us with the opportunity to take advantage of further selective development and acquisition opportunities in our key markets subject to our rigorous investment criteria, as is evidenced by our recent acquisition of a development site in Mitcham, South West London

 

Self-storage continues to be a relatively immature industry, with significant potential for further growth. Safestore has a resilient business model and we believe that our scale and marketing expertise combined with our improved operational capability and strong balance sheet leaves us well placed to trade robustly through any macro-economic uncertainty that may lie ahead.

 

For further information, please contact:

 

Safestore Holdings PLC


Frederic Vecchioli, Chief Executive Officer

0207 457 2020

Andy Jones, Chief Financial Officer


www.safestore.com




Instinctif Partners


Mark Reed/ Guy Scarborough

020 7457 2020

 

 

A presentation for analysts will be held at 9.30am today at:

 

Instinctif Partners, 65 Gresham Street, London, EC2V 7NQ

 

For dial-in details of the presentation please contact:

 

Jessica Bennett (Jessica.bennett@instinctif.com or telephone on 020 7457 2020).

 

Notes to Editors

 

·    

Safestore is the UK's largest self-storage group with 134 stores (including Chiswick which opened on 4 November 2016), comprising 109 wholly owned stores in the UK (including 63 in London and the South East with the remainder in key metropolitan areas such as Manchester, Birmingham, Glasgow, Edinburgh, Liverpool and Bristol) and 25 wholly owned stores in the Paris region.

·    

Safestore operates more self-storage sites inside the M25 and in central Paris than any competitor providing more proximity to customers in the wealthiest and densest UK and Parisian markets.

·    

Safestore was founded in the UK in 1998. It acquired the French business "Une Pièce en Plus" ("UPP") in 2004 which was founded in 1998 by the current Safestore Group CEO Frederic Vecchioli.

·    

Safestore has been listed on the London Stock Exchange since 2007. It entered the FTSE 250 in October 2015.

·    

The Group provides storage to around 55,000 personal and business customers.

·    

Safestore has a maximum lettable area ("MLA") of 5.64 million sq ft (including Chiswick which opened on 4 November 2016). At 31 October 2016, 3.97 million sq ft was occupied.

·    

Safestore employs around 600 people in the UK and France.

 

Chairman's Statement

 

I am pleased to announce, on behalf of the Board of Safestore, another strong set of results for the year ended 31 October 2016.

 

This has been another year of good progress across the business with management building further on the operational improvements made over the previous two years as well as implementing a number of growth initiatives. The opening of five new stores and the acquisition of Space Maker have strengthened our market leading store portfolio.

 

We have the balance sheet flexibility and capacity to continue to take advantage of carefully selected development and acquisition opportunities. I am confident that the business is well positioned for growth and to deliver additional value for shareholders.

 

Financial Results

 

Revenue for the year was £115.4m, 10.1% ahead of last year (FY2015: £104.8m) and up 8.1% on a like-for-like and constant currency basis respectively. This result was driven by a strong performance in the UK which grew like-for-like revenue by 9.2%, combined with another good performance by Une Pièce en Plus, our Parisian business, which grew like-for-like revenue by 5.0%.

 

Underlying EBITDA increased by 12.4% to £64.2m (FY2015: £57.1m) and 12.1% on a constant currency basis. Underlying EBITDA after rental costs increased by 15.2% to £55.4m (FY2015: £48.1m).

 

The annualisation of the August 2015 amendment and extension of our bank facilities resulted in a reduction in the year in the underlying finance charge of £1.3m or 11.4% to £10.1m (FY2015: £11.4m). Over the last three years we have reduced our finance charges by 45% or £8.3m.

 

As a result of the above factors, cash tax adjusted earnings per share grew by 19.3% to 19.8p (FY2015: 16.6p). EPS has grown by 8.7p or 78% over the last three years.

 

Capital Structure

 

The Group's balance sheet remains robust with a Group LTV9 ratio of 31% and an interest cover ratio of 5.5x. This represents a level of gearing we consider appropriate for the business to enable the Group to increase returns on equity, maintain financial flexibility and to achieve our medium-term strategic objectives.

 

Dividend

 

Reflecting the Group's strong trading performance, the Board is pleased to recommend a 21.1% increase in the final dividend to 8.05 pence per share (FY2015: 6.65 pence per share) resulting in an increase of 20.7% in the total dividend to 11.65 pence per share for the year (FY2015: 9.65 pence per share). The total dividend for the year is covered 1.70 times by cash tax earnings (1.72 times in 2015). The Group's dividend has increased by 103% in the last three years. Shareholders will be asked to approve the dividend at the Company's Annual General Meeting on 22 March 2017 and, if approved, the final dividend will be payable on 7 April 2017 to Shareholders on the register at close of business on 10 March 2017.

 

The Board remains confident in the prospects for the Group and will continue its progressive dividend policy in 2017 and beyond. In the medium term it is anticipated that the Group's dividend will grow at least in line with cash tax earnings6. 

 

People

 

In another year of progress, our people continue to be the key to the success of the business. I would like to take this opportunity to thank all my colleagues throughout the business for their hard work and dedication this year.

 

I would also like to take the opportunity to thank Keith Edelman for his seven years of service to the Board. He has been an invaluable member of the team and I appreciate his contribution over this period. I also welcome Claire Balmforth and Bill Oliver to the Board and look forward to working with them over the coming years.

 

Alan Lewis

6 January 2017

 

Our Strategy

 

The Group's strategy remains the same as stated in our last annual report. We believe that the Group has a well located asset base, management expertise, infrastructure, scale and balance sheet strength to exploit the current healthy industry dynamics. As we look forward, we consider that the Group has the potential to significantly further increase its earnings per share by:

 

·      Optimising the trading performance of the existing portfolio;

·      Maintaining a strong and flexible capital structure; and

·      Taking advantage of selective portfolio management and expansion opportunities.

 

Optimisation of Existing Portfolio

 

With the opening of five new stores in the last few months (including Chiswick which opened on 4 November 2016), and the acquisition of Space Maker, we have strengthened our market leading portfolio. We have a high quality, fully invested estate in both the UK and Paris. Of our 134 stores, 88 are in London and the South East of England or in Paris with 46 in the other major UK cities. We now operate 44 stores within the M25 which represents a higher number of stores than any other competitor.

 

In the last year, with the aforementioned new store openings and acquisition our MLA has increased by 13% to 5.59m sq ft at 31 October 2016, excluding Chiswick. At the current occupancy level of 71.0% we have 1.62m sq ft of unoccupied space, of which 1.37m sq ft is in our UK stores and 0.25m sq ft in Paris. This is the equivalent of 40 empty stores located across the estate. The available space is fully invested and the related operating costs are essentially fixed and already included in the Group cost base. Our continued focus will be on ensuring that we drive occupancy to utilise this capacity at carefully managed rates.

 

There are three elements that are critical to the optimisation of our existing portfolio.

 

·      Enquiry generation through an effective and efficient marketing operation;

·      Strong conversion of enquiries into new lets; and

·      Disciplined central revenue management and cost control.

 

In-house digital marketing expertise

 

Awareness of self-storage is increasing each year but remains relatively low. In the UK over 70% of our new customers are using self-storage for the first time. It is essentially a brand-blind product with only 12% of respondents in the 2016 Self Storage Association Annual Survey stating that a brand would influence their purchase decision. Typically customers requiring storage start their journey by conducting detailed online research using generic keywords in their locality.

 

We believe there is a clear benefit of scale in the generation of customer enquiries. The Group has continued to invest in its consumer website as well as in-house expertise which, combined with the employment of carefully selected external partners, has resulted in the development of a leading digital marketing platform that has generated 35% enquiry growth over the last four years.

 

A key objective of our marketing team has been to improve the volume of organic enquiries generated by the business and we will continue to invest in our Search Engine Optimisation ("SEO") capabilities. In November 2015 we launched a new dynamic customer website designed to further improve our industry leading web offering with enhanced search engine performance, optimisation for mobile devices and to allow for improved bespoke management of our rich website content. The website features a more responsive design and a social hub featuring a new blog and, since its launch, enquiry capture has improved by 14%. The Group's efforts in this area were acknowledged by its winning the 'Best Consumer Products/ Services Campaign 2016' at the Drum Search Awards.

 

Whilst enquiry growth, as envisaged, was initially slower in the first quarter as we transitioned to the new website, enquiries for the full year were up 7.5% on the prior year. The restructured 'back-end' of the website has resulted in increased efficiency which has contributed to a reduction in the cost per enquiry.

 

The Group has recently launched a new trading website for the Paris business, building on the success of the new UK site.

 

Online enquiries now represent 81% of our enquiries in the UK and 63% in France. 54% of our online enquiries in the UK originate from mobiles or tablets, compared to 47% last year. It is, therefore, critically important to appear at the top of the rankings of customer searches made through the internet. The ranking in the search pages is a result of a complex function that combines the budget invested directly into the paid search and the capacity to allocate it efficiently on a real time basis, with the budget invested indirectly into the numerous actions that optimise the website, which, together with its size and traffic, determines its relevance and quality score for the search engines. Our in-house expertise and skills and an annual budget of c. £5.3m (£4.3m in the UK and £1m in Paris) (FY2015: c. £5m) enable us to achieve the above results. Approximately 95% of our budget in the UK is spent on digital marketing.

 

Feefo, the independent merchant review system, which allows customers to leave their feedback on the quality of our customer service, has been integrated into our website since 2013. Over this period, our customer satisfaction score has averaged above 95%.

 

Motivated and effective store teams benefiting from improved training and coaching

 

In what is still a relatively immature and poorly understood product, customer service and selling skills at the point of sale remain essential in earning the trust of the customer and in driving the appropriate balance of volumes and unit price in order to optimise revenue growth in each store.

 

Over the last three years we have established an enthusiastic, dynamic and effective store team. Our Director of Operations, Head of HR, 60% of our UK Regional Managers and 50% of our UK Store Managers have joined the business in that period. In addition, in order to make the store team management structure more efficient, we decided to merge the Sales Assistant and Assistant Manager roles into a new Sales Consultant role. We have now completed 85% of this transition and since 2014 we have recruited 170 sales consultants.

 

The employees of Space Maker, which was acquired during the year, are now fully integrated into the Safestore training and incentive framework and the twelve stores have each been geographically integrated into one of our eleven regions. Two new Divisional Managers, reporting to our Director of Operations, have been internally recruited to further support our experienced team of Regional Managers.

 

In the last twelve months we have also invested further resources to manage our building maintenance and facilities management program in a more efficient and cost effective manner.

 

New recruits to the business benefit from enhanced induction and training tools which have been developed in-house, enabling us to quickly identify high potential individuals. All new recruits receive individual performance targets within four weeks of joining the business and certain new recruits are placed on the 'pay-for-skills' programme which allows accelerated basic pay increases dependent on success in demonstrating specific and defined skills. A key target of our program is to ensure that close to 100% of our store managers are promoted internally and our Management Development programme was launched in the period with 15% of our sales consultants participating.

 

All store staff continue to benefit from on-going training and development. In 2016, we delivered 27,500 hours of training to sales staff through face-to-face sessions and via our internally developed online learning tool. This Learning Management System also provides the opportunity for team members to receive rigorously enforced Health and Safety and compliance training, ensuring that our staff are up to date in relation to their technical knowledge in these areas.

 

Over the last two years we have developed a customised coaching programme for Store Managers. The training is delivered by Regional Managers and is focused on continual improvement in sales performance.

 

The performance of all team members is monitored closely via a series of daily, weekly and monthly Key Performance Indicators. A new dashboard was introduced in the year which has enabled increased focus at store and regional level on the key operating metrics of the business. Bonuses of up to 50% of basic salary can be earned monthly based on performance against new lets, occupancy, ancillary sales and pricing targets. In addition, a Values and Behaviours framework is overlaid on individuals' financial performance in order to assess team members' performance and development needs on a quarterly basis.

 

The benefit of these initiatives is reflected in an improved performance by the stores in converting enquiries into new lets. Conversion of enquiries is now consistently strong and has improved by c.19% since 2013.

 

As an "Investors in People" organisation since 2003 our aim is to be an employer of choice in our sector and we passionately believe that our continual success is dependent on our highly motivated and well trained colleagues.

 

Central Revenue Management and Cost Control

 

We continue to pursue a balanced approach to revenue management. We aim to optimise revenue by improving the utilisation of the available space in our portfolio at carefully managed rates. Our central pricing team is responsible for the management of our dynamic pricing policy, the implementation of promotional offers and the identification of additional ancillary revenue opportunities. Whilst price lists are managed centrally and can be adjusted on a real time basis when needed, the store sales teams have the ability to offer a Lowest Price Guarantee in the event that a local competitor is offering a lower price. The reduction in the level of discount offered over the last three years is linked to store team variable incentives and is monitored closely by the central pricing team.

 

During the last year, we have continued to enhance the Business Intelligence software which we implemented in 2015. This has improved the team's ability to identify pricing opportunities, monitor competitive pricing in local markets and to establish optimal unit mix in individual stores.

 

Our strategy to optimise revenue is implemented by continually reviewing the appropriate mix of occupancy and rate growth targets, store by store.  The work of the central pricing team has contributed to like-for-like average rate increases of 4.5% in the UK and 2.3% in Paris over the financial year, while maintaining an average occupancy that was 3.8% up in the UK and 2.5% up in Paris over the previous year on a like-for-like basis.

 

Rate growth is predominantly influenced by:

 

·      The store location and catchment area;

·      The volume of enquiries generated online;

·      The store team skills at converting these enquiries into new lets at the expected price; and

·      The pricing policy and the confidence provided by analytical capabilities that smaller players may lack.

 

We believe that Safestore has a very strong proposition in each of these areas.

 

Costs are managed centrally with a lean structure maintained at the Head Office. Enhancements to cost control are continually considered and the cost base is challenged on an ongoing basis.

 

Strong and Flexible Capital Structure

 

Since 2014 we have refinanced the business on two occasions and believe we now have a capital structure that is appropriate for our business and which provides us with the flexibility to take advantage of carefully evaluated development and acquisition opportunities. We will continue to seek opportunities to optimise our capital structure.

 

Our current LTV9 of 31% and our Interest Cover Ratio10 of 5.5x provides us with significant headroom compared to our banking covenants. We drew down a net £39m in 2016, primarily to finance the acquisition of Space Maker but, at October 2016, have £104m (including the remaining £15m uncommitted accordion facility) of available bank facilities. The weighted average maturity of our debt is 47 months at October 2016.

 

Taking into account the improvements we have made in the performance of the business and the reduction in interest costs of over £8m per annum over the last three years, the Group is now capable of generating free cash after dividends sufficient to fund the building of 1-3 new stores per annum depending on location and availability of land.

 

The Group evaluates development and acquisition opportunities in a careful and disciplined manner against rigorous investment criteria. Our investment policy requires certain Board approved hurdle rates to be considered achievable prior to progressing an investment opportunity. In addition, the Group aims to maintain LTV9 of between 30% and 40% for the foreseeable future.

 

Portfolio Management

 

As ever, our approach to store development and acquisition in the UK and Paris will continue to be pragmatic, flexible and focused on the return on capital.

 

Our property teams in both the UK and Paris have recently been strengthened and are continually seeking investment opportunities in new sites to add to the store pipeline. However, investments will only be made if they comply with our disciplined and strict investment criteria.

 

Five new stores opened on time and on budget

 

Between August and November 2016, the Group opened five new stores and completed the extension and refurbishment of our Acton store. An extension of our store in Longpont in Paris is in progress and is due to be completed in January 2017. All the completed projects were opened on time and on budget. Overall, the five new sites provide gross new MLA of 226,000 sq ft (190,000 sq ft net of existing space in Wandsworth and the conditional disposal of our Birmingham Central site).

 

The Chiswick site, which is located on the A4 in West London, opened on 4 November 2016 and provides a new flagship freehold store of 42,500 sq ft.

 

In Wandsworth, we had an existing 10,000 sq ft store on Garratt Lane in South West London as well as an additional adjoining 0.25 acre parcel of land. We closed our existing store at the end of 2015 and opened a new purpose-built 33,200 sq ft freehold store in August 2016.

 

In Birmingham, we opened a new flagship store on the A34 North of the centre of Birmingham in September 2016. The long leasehold store provides 51,000 sq ft of space.

 

We exchanged contracts in May 2016 on the sale of our Birmingham Central store for £3.6m to Unite Group plc, subject to the purchaser receiving satisfactory planning permission. Birmingham Central was a highly occupied 26,000 sq ft store and we successfully transferred the majority of our Birmingham Central customers to our new Birmingham store on completion of the build.

 

In June 2016, we completed the freehold purchase of a building located on an easily accessible site opposite Altrincham Retail Park. Altrincham and Sale is an affluent area with a population of 206,000 and significant inward investment. The 39,000 square foot store opened in September 2016 and we are confident that it will be a valuable addition to our portfolio.

 

In Paris, where regulatory barriers are likely to continue to restrict new development inside the city, we will continue our policy of segmenting our demand and encouraging the customers who wish to reduce their storage costs to utilise the second belt stores. We will also manage occupancy and rates upwards in the more central stores and ensure that pricing recognises the value customers place on the convenience of physical proximity. The strong selling organisation and store network established by Une Pièce en Plus in Paris uniquely enables it to implement this commercial policy.

 

We announced in February 2016 the acquisition of a freehold site in eastern Paris adjacent to the A4 motorway at Marnes-la-Vallée in the town of Emerainville. The site contains an existing warehouse which has been converted into a c.60,000 sq ft self-storage facility and c.8,000 sq ft of serviced offices. The new store opened in September 2016.

 

The Altrincham and Emerainville stores demonstrate that, with a skilled property development team, it is possible to convert existing buildings into storage facilities in an expeditious and cost effective manner. In both cases, the time between exchanging contracts and opening the stores was less than twelve months.

 

We also completed the refurbishment and extension of our Acton store in the period. The Acton store was 89% occupied prior to the extension and we have added a further 4,900 square feet of space.

 

Early trading on all completed sites is encouraging and at least in line with our forecasts.

 

The capital spend on the above completed projects (excluding the historical cost of acquiring the Chiswick, Wandsworth and Birmingham sites) was £25.2m and was funded from the cash flow and existing debt facilities of the Group.

 

The Paris Longpont extension, which is due to be completed in January 2017, will add 22,600 square feet of new space. The store was 83% occupied prior to the commencement of works.

 

During the period we also extended the lease on our Burnley store. We have now extended the leases on 18 stores or c.47% of our leased store portfolio (including Space Maker) in the UK since FY2012 and our average lease length remaining now stands at 13.7 years as compared to 13.9 years at FY2015.

 

In December, we acquired the freehold of a site in Mitcham, in South West London. Subject to planning permission, we plan to build a c.54,000 sq ft store on this site, scheduled to open in 2018.

 

Acquisition of Space Maker

At the end of July 2016 we announced the completion of the acquisition of Space Maker Stores Ltd ("SMS") from Allodial Capital Ltd and James Elton. The initial consideration, after certain downward adjustments, was £40.9m and £1.4m of deferred consideration has subsequently been paid resulting in a total consideration of £42.3m.

 

SMS was the ninth largest self-storage portfolio in the UK with 12 stores, located in Bournemouth (two stores), Colchester, Redhill, Romford, Brentford, Chelmsford, Exeter, Leeds, Plymouth, Portsmouth and Poole, and has a fully invested built out lettable area of c.496,000 sq ft. Six of the SMS stores are freehold or long leasehold and six are leasehold stores with an average remaining lease length of 15.9 years at 31 October 2016.

 

Safestore has a strong operational knowledge of the SMS portfolio, having managed the business since 2010 under a management services agreement ("MSA") until completion of the acquisition. The MSA, for which Safestore received £0.6m per annum, had been due to expire at the end of April 2016.

 

In the year to 30 April 2016, SMS delivered EBITDA (before management fees) of £3.9m (unaudited) on turnover of £8.7m. Based on the total consideration net of cash acquired with the business and SMS's unaudited EBITDA, the SMS portfolio has an implied first year net operating income yield of c.9.3%, before the impact of management charges, which would rise to c.12% if the SMS stores achieve 80% occupancy at the rental rate levels at acquisition.

 

The SMS portfolio was operating at 66% occupancy (of built out lettable area) at acquisition, which Safestore believes it can improve now that it is fully integrated into its own operational platform. The rebranding of the business is progressing to plan.

 

The SMS business, which had net assets with a fair value of £47.9m at acquisition, was acquired on a debt free basis and was funded from the Group's existing debt facilities, with £45m of the Group's £60m accordion facility converted into a committed revolving credit facility.

 

This acquisition was immediately accretive to Group earnings per share from completion and supports the Group's future dividend capacity.

 

Portfolio Summary

 

The self-storage market has been growing in the last 15 years across many European countries but few regions offer the unique characteristic of London and Paris, both of which consist of large, wealthy and densely populated markets. In the London region, the population is 13 million inhabitants with a density of 5,200 inhabitants per square mile in the region, 11,000 per square mile in the city of London and up to 32,000 in the densest boroughs. 

 

The population of the Paris urban area is 10.7 million inhabitants with a density of 9,300 inhabitants per square mile in the urban area but 54,000 per square mile in the City of Paris and first belt, where 72% of our French stores are located and which has one of the highest densities in the western world. 85% of the Paris region population live in central parts of the city versus the rest of the urban area which compares with 60% in the London region. There are currently c.234 storage centres within the M25 as compared to only c.87 in the Paris urban area.

 

In addition, barriers to entry in these two important city markets are high, due to land values and limited availability of sites as well as planning regulation. This is the case for Paris and its first belt in particular, which inhibits new development possibilities.

 

Our combined operations in London and Paris, with 68 stores, contribute £73.1m of revenue and £49.6m of store EBITDA and offer a unique exposure to the two most attractive European self-storage markets.

 

Owned Store Portfolio by Region

London &

Rest of

UK

Paris

Group


South East

UK

Total


Total

Number of Stores

62

46

108

25

133







Let Square Feet (m sq ft)

1.76

1.39

3.15

0.82

3.97

Maximum Lettable Area (m sq ft)

2.41

2.11

4.52

1.07

5.59







Average Let Square Feet per store (k sq ft)

28

30

29

33

30

Average Store Capacity (k sq ft)

39

46

42

43

42







Closing Occupancy %

73.2%

65.7%

69.7%

76.3%

71.0%







Average Rate (£ per sq ft)

29.03

18.72

24.60

31.56

26.17

Revenue (£'m)

58.5

28.9

87.4

28.0

115.4

Average Revenue per Store (£'m)

0.94

0.63

0.81

1.12

0.87







The above table represents the 31 October 2016 position and excludes Chiswick, which opened on 4 November 2016

The reported totals have not been adjusted for the impact of rounding







 

We have a strong position in both the UK and Paris markets operating 109 stores (including Chiswick) in the UK, 63 of which are in London and the South East, and 25 stores in Paris.

 

In the UK, 67% of our revenue is generated by our stores in London and the South East. On average, our stores in London and the South East are smaller than in the rest of the UK but the rental rates achieved are materially higher enabling these stores to typically achieve similar or better margins than the larger stores. In London we operate 44 stores (including Chiswick) within the M25, more than any other competitor.

 

In France, we have a leading position in the heart of the affluent City of Paris market with eight stores branded as Une Pièce en Plus ("UPP") ("A spare room") with more than twice the number of stores of our two major competitors combined. 72% of the UPP stores are located in a cluster within a five-mile radius of the city centre, which facilitates strong operational and marketing synergies as well as options to differentiate and channel customers to the right store subject to their preference for convenience or price affordability. The Parisian market has attractive socio-demographic characteristics for self-storage and we believe that UPP enjoys unique strategic strength in such an attractive market.

 

Together, as at 31 October 2016 London, the South-East and Paris represent 65% of our owned stores, 75% of our revenues, as well as 56% of our available capacity.

 

In addition, Safestore has the benefit of a leading national presence in the UK regions where the stores are predominantly located in the centre of key metropolitan areas such as Birmingham, Manchester, Liverpool, Bristol, Glasgow and Edinburgh.

 

Market

 

The self-storage market in the UK and France remains relatively immature compared to geographies such as the USA and Australia. The Self-Storage Association ("SSA") Annual Survey (May 2016) confirmed that self-storage capacity stands at 0.59 square feet per head of population in the UK and 0.15 square feet per capita in France. Whilst the Paris market density is greater than France, we estimate it to be significantly lower than the UK at around 0.36 square feet per inhabitant. This compared with 7.75 square feet per inhabitant in the USA and 1.8 square feet in Australia.

 

While capacity increased significantly between 2007 and 2010 with respondents to the survey opening an average of 32 stores per annum, new additions have been limited to an average of 18 stores per annum between 2011 and 2015.

 

New supply in London and Paris is likely to be limited in the short and medium term as a result of planning restrictions and the availability of suitable land.

 

Respondents to the survey indicated aspirations to develop an average of 31 stores per annum from 2016 to 2018. However, history has shown that actual developments have averaged less than 50% of respondents' aspirations over the last three years. This suggests that around 15 new stores are likely to be added in the coming year.

 

The supply in the UK market, according to the SSA survey, remains relatively fragmented. Safestore is the leader by number of stores with 109 wholly owned sites, followed by Big Yellow with 73 wholly owned stores, Access with 58 stores, Lok'n Store with 26 stores, Shurgard with 25 stores and Storage King with 24 stores. In aggregate, the top ten leading operators account for 33% of the UK store portfolio. The remaining c.700 self-storage outlets (including 195 container based operations) are independently owned in small chains or single units. In total there are 490 storage businesses operating in the UK.

 

Our French Business, UPP, is mainly present in the core wealthier and more densely populated inner Paris and first belt areas, whereas our two main competitors, Shurgard and Homebox, have a greater presence in the outskirts and second belt of Paris.

 

Consumer awareness of self-storage is increasing but remains low, providing an opportunity for future industry growth. The SSA survey indicated that 58% (55% in 2015) of consumers either knew nothing about the service offered by self-storage operators or had not heard of self-storage at all. The opportunity to grow awareness, combined with limited new industry supply makes for an attractive industry backdrop.

 

Self-storage is a brand-blind product. In a new question in the 2016 SSA survey, only 12% of people responded positively that a brand would influence their purchase decision. In addition, 59% of respondents were unable to name a self-storage business in their local area. The lack of relevance of brand in the process of purchasing a self-storage product emphasises the need for operators to have a strong online presence. This requirement for a strong online presence was also reiterated by the SSA survey where 68% of those surveyed (69% in 2015) confirmed that an internet search would be their chosen means of finding a self-storage unit to contact, whilst knowledge of a physical location of a store as reason for enquiry was c.28% of respondents (c.24% in 2015).

 

There are numerous drivers of self-storage growth. Most private and business customers need storage either temporarily or permanently for different reasons at any point in the economic cycle, resulting in a market depth that is in our view the reason for its exceptional resilience. The growth of the market is driven both by the fluctuation of economic conditions, which has an impact on the mix of demand, and by growing awareness of the product.

 

Our domestic customers' need for storage is often driven by lifestyle events such as births, marriages, bereavements, divorces or by the housing market including house moves and developments and moves between rental properties. It is estimated that UK owner-occupied housing transactions drive around 10-15% of new lets.

 

Our business customer base includes a range of businesses from start-up online retailers through to multi-national corporates utilising our national coverage to store in multiple locations while maintaining flexibility in their cost base. 

 












Business and Personal Customers



UK

Paris













Personal Customers










Numbers (% of total)




72%

81%




Square feet occupied (% of total)


51%

65%




Average Length of Stay (months)



20.4

27.1













Business Customers










Numbers (% of total)




28%

19%




Square feet occupied (% of total)


49%

35%




Average Length of Stay (months)



30.1

31.3












 

Safestore's customer base is resilient and diverse and consists of around 55,000 domestic, business and National Accounts customers across London, Paris and the UK regions. 

 

Business Model

 

Safestore's business model remains unchanged in the last year.

 

The Group operates in a market with relatively low consumer awareness. It is anticipated that this will increase over time as the industry matures. To date, despite the financial crisis and the implementation of VAT on self-storage in 2012, the industry has been exceptionally resilient. In the context of uncertain economic conditions as the UK approaches Brexit, the industry remains well positioned with limited new supply coming into the self-storage market.

 

With more stores inside London's M25 than any other operator and a strong position in central Paris, Safestore has leading positions in the two most important and demographically favourable markets in Europe. In addition, our regional presence in the UK is unsurpassed and contributes to the success of our industry leading National Accounts business. In the UK, Safestore is the leading operator by number of wholly owned stores.

 

Our capital-efficient portfolio of 134 wholly owned stores in the UK and Paris consists of a mix of freehold and leasehold stores. In order to grow our business and secure the best locations for our facilities we have maintained a flexible approach to leasehold and freehold developments. 

 

Currently, one-third of our stores in the UK are leaseholds with an average remaining lease length at 31 October 2016 of 13.7 years (FY2015: 13.9). Although our property valuation for leaseholds is conservatively based on future cash flows until the next contractual lease renewal date, Safestore has a demonstrable track record of successfully re-gearing leases several years before renewal whilst at the same time achieving concessions from landlords.

 

In England, we benefit from the Landlord and Tenant Act that protects our rights for renewal except in case of redevelopment. The vast majority of our leasehold stores have building characteristics or locations in retail parks that make current usage either the optimal and best use of the property or the only one authorised by planning. We observe that our Landlords, who are property investors, value the quality of Safestore as a tenant and typically prefer to extend the length of the leases that they have in their portfolio, enabling Safestore to maintain favourable terms. 

 

In Paris, where 44% of stores are leaseholds, our leases typically benefit from the well enshrined Commercial Lease statute that provides that tenants own the commercial property of the premises and that they are entitled to renew their lease at a rent that is indexed to the National Construction Index published by the state. Taking into account this context, the valuer values the French leaseholds based on an indefinite property tenure, similar to freeholds.

 

Our experience is that being flexible in its approach has enabled Safestore to operate from properties that would have been otherwise unavailable and to generate strong returns on capital invested.

 

Safestore excels in the generation of customer enquiries which are received through a variety of channels including the internet, telephone and 'walk-ins'. In the early days of the industry, local directories and store visibility were key drivers of enquiries. 

 

The Internet is now by far the dominant channel, accounting for 81% of our enquiries in the UK and 63% in France. Telephone enquiries comprise 12% of the total (27% in France) and 'Walk-ins' amount to only 7% (10% in France).  This key change is a clear benefit to the leading national operators that possess the budget and the management skills necessary to generate a commanding presence in the major search engines. Safestore has developed a leading digital marketing platform that has generated 54% enquiry growth over the last four years. Towards the end of 2015 the Group launched a new dynamic and mobile-friendly UK website, which has achieved its aim of providing the customer with an even clearer, more efficient experience. In the last month, a similar website has been launched in our Paris business.

 

Although mostly generated online, our enquiries are predominantly handled directly by the stores and, in the UK, we have a Customer Support Centre ("CSC") which now handles 16% of all enquiries, in particular when the store staff are busy handling calls or outside of normal store opening hours.

 

Our pricing platform provides the store and CSC staff with system-generated real time prices managed by our centrally based yield management team. Local staff have certain levels of discretion to flex the system-generated prices but this is continually monitored.

 

Customer service standards are high and customer satisfaction feedback is consistently very positive. Over the last 12 months we have achieved over 95% customer satisfaction, based on 'excellent' or 'good' ratings as collected by Feefo via our customer website.

 

The key drivers of sales success are the capacity to generate enquiries in a digital world, the capacity to provide storage locations that are conveniently located close to the customers' requirements and the ability to maintain a consistently high quality, motivated retail team that is able to secure customer sales at an appropriate storage rate, all of which can be better provided by larger, more efficient organisations.

 

We remain focused on business as well as domestic customers. Our national network means that we are uniquely placed to further grow the business customer market and in particular National Accounts. Business customers in the UK now constitute 49% of our total space let and have an average length of stay of 30 months. Within our business customer category, our National Accounts business continues to grow with storage revenue increasing by 71% compared with 2013. The space let to National Accounts customers has increased by 16% compared with 2015 and, at 385,000 sq ft, constitutes 12% of our total occupied space in the UK business. Approximately two-thirds of the space occupied by National Accounts customers is outside London, demonstrating the importance and quality of our well invested national estate.

 

The business now has in excess of 55,000 business and domestic customers with an average length of stay of 30 months and 22 months respectively.

 

The cost base of the business is relatively fixed. Each store typically employs three staff. Our Group Head Office comprises business support functions such as Yield Management, Property, Marketing, HR, IT and Finance.

 

Since the completion of the rebalancing of our capital structure in early 2014 and the subsequent amendment and extension of our banking facilities in Summer 2015, Safestore has secure financing, a strong balance sheet and significant covenant headroom. This provides the Group with financial flexibility and the ability to grow organically and via carefully selected new development or acquisition opportunities.

 

At 31 October 2016 we had 1.4m sq ft of unoccupied space in the UK and 0.2m sq ft in France, equivalent to over 40 full new stores. Our main focus is on filling the spare capacity in our stores at optimally yield-managed rates. The operational leverage of our business model will ensure that the bulk of the incremental revenue converts to profit given the relatively fixed nature of our cost base.

 

Trading Performance

UK- balanced approach to revenue management results in strong growth

UK Operating Performance- like-for-like 2

2016

2015

Change

Revenue (£'m)

84.5

77.4

9.2%

EBITDA (£'m) 3

45.0

39.3

14.5%

Closing Occupancy (let sq ft- million) 4

2.79

2.73

2.2%

Closing Occupancy (% of MLA)

71.8%

70.4%

+1.4ppts

Average Occupancy (let sq ft- million) 4

2.73

2.63

3.8%

Average Storage Rate (£)

24.73

23.66

4.5%


UK Operating Performance- total

2016

2015

Change

Revenue (£'m)

87.4

79.9

9.4%

EBITDA (£'m) 3

46.5

40.6

14.5%

EBITDA (after leasehold costs) (£'m)

41.6

35.5

17.2%

Closing Occupancy (let sq ft- million) 4

3.15

2.76

14.1%

Maximum Lettable Area (MLA) 5

4.52

3.92

15.3%

Closing Occupancy (% of MLA)

69.7%

70.2%

-0.5ppts

Average Storage Rate (£)

24.60

23.70

3.8%

 

The UK has delivered another strong year growing revenue by 9.4%. The acquisition of Space Maker on 29 July 2016 has contributed to this growth but is offset by the closures of Whitechapel and New Malden in the previous year so, on a like-for-like basis, revenue grew by 9.2% in the year. Our first quarter's ownership of the Space Maker portfolio has gone to plan with the business fully integrated into the Group from an operational perspective and the rebranding of the stores well advanced.

 

Like-for-like new lets increased by 7.6% for the full year reflecting good customer enquiry growth, helped by our new website, and consistent conversion performance in our stores.

 

Total occupancy grew by 397,000 sq ft (2015: 76,000 sq ft) over the year reflecting the acquisition of Space Maker and a net like-for-like occupancy growth of 57,000 sq ft which comprised an 84,000 sq ft underlying increase in occupancy partially offset by a planned 27,000 sq ft reduction in the lower yielding discounted bulk occupancy. The addition of three new stores in the last two months of the year (Wandsworth, Birmingham and Altrincham) diluted total closing occupancy which ended the year at 69.7% (2015: 70.2%) but like-for-like closing occupancy grew by 1.4ppts to 71.8% (2015: 70.4%). Like-for-like average occupancy for the year grew by 3.8%.

 

We take a balanced approach to revenue management and our occupancy growth was accompanied by a 4.5% increase in the like-for-like average storage rate for the year. Sequentially, our Q4 like-for-like average rate was 2.2% higher than the rate achieved in Q3 2016.

 

We opened three new stores towards the end of the financial year in Wandsworth, Altrincham and Birmingham (and closed our existing Birmingham Central store) and our Chiswick store opened on 4 November 2016. In addition, we completed the extension of our Acton store. These developments were completed on time and on budget and added c. 135,000 sq ft of net new space to our portfolio. Early trading at these sites has been encouraging and in line with management's expectations. The Group now operates 109 wholly owned stores in the UK.

 

We remain focused on our cost base. During the year, our cost base increased by around 4.1% or £1.6m driven by the variable costs related to incremental revenue, the acquisition of Space Maker and an increase in business rates, offset by reductions arising from the closures of Whitechapel and New Malden in 2015.

 

As a result EBITDA after leasehold rent costs for the UK business was £41.6m (FY2015: £35.5m), an increase of £6.1m or 17.2%.

 

Paris - another year of solid revenue growth

Paris Operating Performance- like-for-like 2

2016

2015

Change

Revenue (€'m)

35.4

33.7

5.0%

EBITDA (€'m) 3

22.4

21.2

5.7%

Closing Occupancy (let sq ft- million) 4

0.82

0.83

-1.2%

Closing Occupancy (% of MLA)

80.7%

81.8%

-1.1ppts

Average Occupancy (let sq ft- million) 4

0.81

0.79

2.5%

Average Storage Rate (€)

39.85

38.94

2.3%


Paris Operating Performance- total

2016

2015

Change

Revenue (€'m)

35.4

33.7

5.0%

EBITDA (€'m) 3

22.4

21.2

5.7%

EBITDA (after leasehold costs) (€'m)

17.5

15.9

10.1%

Closing Occupancy (let sq ft- million) 4

0.82

0.83

-1.2%

Maximum Lettable Area (MLA) 5

1.07

1.01

5.9%

Closing Occupancy (% of MLA)

76.3%

81.8%

-5.5ppts

Average Occupancy (let sq ft- million) 4

0.81

0.79

2.5%

Average Storage Rate (€)

39.85

38.94

2.3%

Revenue (£'m)

28.0

24.9

12.4%

 

Our Paris business had a solid year growing like-for-like revenue by 5.0%. The impact of the significant weakening of Sterling in the period resulted in the Sterling equivalent like-for-like revenue growing by 12.4% for the full year.

 

Pricing was robust and our like-for-like average rate was up 2.3% for the full year. Like-for-like closing occupancy ended the year at 80.7% (2015: 81.8%). Our average occupancy for the year was up 2.5% on 2015.

 

Our new store at Emerainville in the east of Paris opened on time and on budget at the end of the financial year adding 60,000 sq ft of MLA to our portfolio. Given that the store has only recently started to trade, its opening has a dilutive effect on total closing occupancy. The extension of our Longpont store, which will add 22,600 sq ft of new space, is due to complete in January 2017.

 

We continue to pursue our proven strategy of growing the revenue of our market leading Parisian portfolio by achieving an appropriate balance of rate and occupancy growth and we are now in the eighteenth year of uninterrupted revenue growth in local currency.

 

The impact of a 7% strengthening in the average Euro exchange rate resulted in a 12.4% increase in revenue in sterling. In the previous year, the Group had hedging arrangements in place which resulted in a £0.9m benefit which is reflected in the prior year EBITDA for Paris when reported in sterling, but not in the revenue line.

 

The cost base in Paris remained well controlled during the year and, as a result, EBITDA in France grew to €22.4m (FY2015: €21.2m prior to the benefit of the Euro hedging arrangements), an improvement of €1.2m or 5.7% on 2015.

 

 

Frederic Vecchioli

6 January 2017

 

 

Financial Review

 

Underlying Income Statement

 

The table below sets out the Group's underlying results of operations for the year ended 31 October 2016 and the year ended 31 October 2015.

 

















2016

2015

Mvmt








£'m

£'m

%













Revenue





115.4

104.8

10.1%



Underlying costs




(51.2)

(47.7)

7.3%



Underlying EBITDA




64.2

57.1

12.4%



Leasehold rent




(8.8)

(9.0)

(2.2%)



Underlying EBITDA after leasehold rent


55.4

48.1

15.2%



Depreciation




(0.4)

(0.4)

0.0%



Finance charges




(10.1)

(11.4)

(11.4%)



Underlying profit before tax



44.9

36.3

23.7%



Current tax




(3.7)

(1.8)

105.6%



Cash tax earnings




41.2

34.5

19.4%



Underlying deferred tax



-

(1.2)

(100.0%)



EPRA Earnings




41.2

33.3

23.7%













Average shares in issue (m)



208.2

207.5














Underlying (cash tax adjusted) EPS (p)


19.8

16.6

19.3%



EPRA EPS (p)




19.8

16.0

23.8%












 

Management considers the above presentation of earnings to be representative of the underlying performance of the business.

 

Underlying EBITDA increased by 12.4% to £64.2m (FY2015: £57.1m), reflecting a 10.1% increase in revenue, and only a 7.3% increase to the underlying cost base. The contribution of the Space Maker business since acquisition to the Group's income statement largely compensates for the 2015 closures of New Malden and Whitechapel.

 

Leasehold rent reduced by 2.2% from £9.0m to £8.8m. Despite an additional six leases in respect of the Space Maker business for the last quarter, savings in rent principally reflect a full year of two fewer leases (at New Malden and High Wycombe), a full year of benefit from lease re-gears agreed during the prior period and the favourable settlement of outstanding rent reviews.

 

Finance charges reduced by 11.4% from £11.4m to £10.1m. This reflects the benefit of the Group's August 2015 refinancing, as well as reduced interest rates in the latter part of the year, and offsets an increase in borrowings during the year required to finance the Space Maker acquisition and our new store developments.

 

As a result, we achieved a 23.7% increase in underlying profit before tax to £44.9m (FY2015: £36.3m).

 

Given the Group's REIT status in the UK, tax is principally payable in France. The underlying tax charge for the year was £3.7m, which compares to the total of underlying current tax and underlying deferred tax of £3.0m in the prior year. The year-on-year increase is attributable to the increased underlying pre-tax profit in Paris and the translational impact of the strengthening of the Euro. The underlying deferred tax in the prior year has not been repeated in 2016.

 

Management considers that the most representative earnings per share ("EPS") measure is cash tax adjusted EPS which has increased by 19.3% to 19.8p (FY2015: 16.6p). EPRA EPS also reflects the deferred tax on underlying trading and increased by 23.8% to 19.8p from 16.0p in 2015.

 

Reconciliation of Underlying EBITDA

 

The table below reconciles the operating profit included in the income statement to underlying EBITDA.

 


















2016

2015









£'m

£'m













Operating profit





109.3

134.2













Adjusted for










 - gain on investment properties



(41.7)

(78.9)




 - depreciation




0.4

0.4




 - contingent rent




0.5

1.1




 - change in fair value of derivatives


-

0.3













Exceptional items










 - costs incurred relating to corporate transactions

1.3

-




 - negative goodwill on acquisition of subsidiary

(5.6)

-













Underlying EBITDA





64.2

57.1












 

The main reconciling items between operating profit and underlying EBITDA are the gain on investment properties and exceptional items, as well as adjustments for depreciation, contingent rent and changes in the fair value of derivatives.

 

The gain on investment properties was £41.7m, as compared to £78.9m in 2015. The Group has recognised a net exceptional credit of £4.3m in the year (FY2015: £nil), comprising a £5.6m credit relating to negative goodwill arising on the acquisition of Space Maker, less corporate transactions costs of £1.3m.

 

Underlying Profit by geographical region

 

The Group is organised and managed in two operating segments based on geographical region. The table below details the underlying profitability of each region.

 















2016


2015





UK

Paris

Total (CER)


UK

Paris

Total (CER)





£'m

€'m

£'m


£'m

€'m

£'m














Revenue


87.4

35.4

113.5


79.9

33.7

104.8



Underlying cost of sales


(32.4)

(9.7)

(39.5)


(30.9)

(9.3)

(37.7)



Store EBITDA


55.0

25.7

74.0


49.0

24.4

67.1



Store EBITDA margin


63%

73%

65%


61%

72%

64%



Underlying administrative expenses


(8.5)

(3.3)

(11.0)


(8.4)

(3.2)

(10.9)



Underlying EBITDA


46.5

22.4

63.0


40.6

21.2

56.2



EBITDA margin


53%

63%

56%


51%

63%

54%



Leasehold rent


(4.9)

(4.9)

(8.5)


(5.1)

(5.3)

(9.0)



Underlying EBITDA after leasehold rent


41.6

17.5

54.5


35.5

15.9

47.2



EBITDA after leasehold rent margin


48%

49%

48%


44%

47%

45%
















UK

Paris

Total


UK

Paris

Total





£'m

£'m

£'m


£'m

£'m

£'m














Underlying EBITDA after leasehold rent (CER)

41.6

12.9

54.5


35.5

11.7

47.2



Adjustment to actual exchange rate


-

0.9

0.9


-

-

-



Adjustment for swap income


-

-

-


-

0.9

0.9



Reported underlying EBITDA after leasehold rent

41.6

13.8

55.4


35.5

12.6

48.1













 

Note: CER is Constant Exchange Rates (Euro denominated results for the current period have been retranslated at the exchange rate effective for the comparative period, and the impact of foreign exchange swaps has been reversed, in order to present the reported results on a more comparable basis).

 

Underlying EBITDA in the UK increased by £5.9m, or 14.5%, to £46.5m (FY2015: £40.6m), underpinned by a 9.4% or £7.5m increase in revenue, which was driven primarily by a 3.8% increase in the average storage rate plus a 4.5% increase in average occupancy. Underlying UK EBITDA after leasehold rent increased by 17.2% to £41.6m (FY2015: £35.5m).

 

In Paris, underlying EBITDA increased by €1.2m, or 5.7%, to €22.4m (FY2015: €21.2m), reflecting a €1.7m increase in revenue, arising from a 2.3% increase in the average storage rate and a 2.5% increase in average occupancy. Underlying EBITDA after leasehold rent in Paris increased by 10.1% to €17.5m (FY2015: €15.9m)

 

The combined results of the UK and Paris delivered a 15.5% increase in underlying EBITDA after leasehold rent at constant exchange rates at Group level. Adjusting for a favourable exchange impact of £0.9m in the current year and the £0.9m of swap income from Euro hedges recognised in the prior year, Group reported underlying EBITDA after leasehold rent has increased by 15.2% or £7.3m to £55.4m (FY2015: £48.1m).

 

Revenue

 

Revenue for the Group is primarily derived from the rental of self-storage space and the sale of ancillary products such as insurance and merchandise (e.g. packing materials and padlocks) in both the UK and Paris.

 

The split of the Group's revenues by geographical segment is set out below for 2016 and 2015.

 






















2016

% of total

2015

% of total


% change

















UK





£'m

87.4

76%

79.9

76%


9.4%



Paris














Local currency




€'m

35.4


33.7



5.0%



Average exchange rate



€:£

1.262


1.356






Paris in sterling




£'m

28.0

24%

24.9

24%


12.4%

















Total revenue





115.4

100%

104.8

100%


10.1%
















 

The Group's revenue increased by 10.1% or £10.6m in the year. The Group's occupied space was 388,000 sq ft higher at 31 October 2016 (3.97 million sq ft) than at 31 October 2015 (3.58 million sq ft), and the average rental rate per square foot for the Group was 3.3% higher in 2016 at £26.17 than in 2015 (£24.85).

 

Adjusting the Group's revenue to a like-for-like basis (to reflect the closures of Whitechapel and New Malden in 2015, the 2016 openings of Wandsworth, Altrincham, Birmingham and Emerainville and the Space Maker acquisition), revenue has increased by 10.0%. Adjusting further for the strengthening of the Euro during the year, Group like-for-like revenue at constant exchange rates has increased by 8.1%.

 

In the UK, revenue grew by £7.5m or 9.4%, and on a like-for-like basis it was up by 9.2%. Occupancy was 397,000 sq ft higher at 31 October 2016 than at 31 October 2015, at 3.15 million sq ft (2.76 million sq ft). Like-for-like UK occupancy also grew, by 57,000 sq ft to 2.79 million sq ft at 31 October 2016. The average rental rate for the year was up 3.8% from £23.70 in 2015 to £24.60 in 2016.

 

In Paris, revenue increased by 5.0% to €35.4m (FY2015: €33.7m). However, the strengthening of the Euro during the financial year had a favourable currency impact of approximately £1.9m on translation, which resulted in a 12.4% increase when reported in Sterling. Average occupancy grew to 0.81 million sq ft (FY2015: 0.79 million sq ft), and the average rental rate grew by 2.3% to €39.85 for the year (FY2015: €38.94).

 

Analysis of Cost Base

 

Cost of sales

 

The table below details the key movements in cost of sales between 2015 and 2016.

 












Cost of sales





2016

2015









£'m

£'m



Reported cost of sales





(40.9)

(38.3)













Adjusted for:










Depreciation




0.4

0.4




Contingent rent




0.5

1.1













Underlying cost of sales




(40.0)

(36.8)













Underlying cost of sales for 2015 (reported)




(36.8)














Swap income in 2015





(0.9)













Underlying cost of sales for 2015 (CER)




(37.7)














Business rates





(0.5)




Customer insurance, merchandise and other volume related costs

(0.6)




Marketing






(0.3)




Premises insurance





(0.2)




Other






(0.2)













Underlying cost of sales for 2016 (CER)




(39.5)














Foreign exchange





(0.5)













Underlying cost of sales for 2016 (reported)




(40.0)












 

Note: Certain costs previously reported as administrative expenses, primarily relating to marketing and the customer service centre, are now reported within cost of sales.

 

In order to arrive at underlying cost of sales, adjustments are made to remove the impact of depreciation and contingent rent.

 

In constant currency and adjusting for the impact of the Euro swap income in 2015, underlying cost of sales grew by £1.8m, arising from sales volume related increases totalling c.£0.9m, including merchandise and insurance, store maintenance and enquiry generation, as well as increases in business rates (£0.5m, due to inflationary increases and non-recurring rebates received in the prior year) and premises insurance (£0.2m, as a result of higher premiums, partly driven by a higher rate of insurance premium tax).

 

Administrative Expenses

 

The table below reconciles reported administrative expenses to underlying administrative expenses and details the key movements in underlying administrative expenses between 2015 and 2016.

 












Administrative expenses




2016

2015









£'m

£'m













Reported administrative expenses




(12.5)

(11.2)













Adjusted for:










Exceptionals and non-underlying items


1.3

-




Changes in fair value of derivatives



-

0.3













Underlying administrative expenses



(11.2)

(10.9)













Underlying administrative expenses for 2015




(10.9)














Employee remuneration




(0.1)













Underlying administrative expenses for 2016 (CER)



(11.0)














Foreign exchange





(0.2)













Underlying administrative expenses for 2016 (reported)



(11.2)












 

Note: Certain costs previously reported as administrative expenses, primarily relating to marketing and the customer service centre, are now reported within cost of sales.

 

In order to arrive at underlying administrative expenses, adjustments are made to remove the impact of exceptional items and changes in the fair value of derivatives.

 

Exceptional costs reported within administrative expenses include net costs relating to corporate transactions of £1.3m.

 

Underlying administrative expenses increased by £0.3m to £11.2m (FY2015: £10.9m), principally as a result of the translational impact of the strengthening of the Euro on the results reported for Paris.

 

Space Maker Acquisition

 

On 29 July 2016, the Group completed the acquisition of Space Maker Stores Limited for initial consideration of £40.9m plus £1.4m of deferred consideration, which has subsequently been paid, resulting in a total consideration of £42.3m. The consideration paid was less than the fair value of the identifiable net assets and, as a result, £5.6 million of negative goodwill has been recognised within operating profit in the income statement. In addition, £1.3 million of transaction related costs are included within administrative expenses. The net gain arising on business combinations of £4.3 million, recognised in the income statement, is considered to be exceptional.

 

Gain on Investment Properties

 

The gain on investment properties consists of the revaluation gains and losses with respect to investment properties under IAS 40 and finance lease depreciation for the interests in leaseholds and other items as detailed below.

 
















2016

2015








£'m

£'m












Revaluation of investment properties


45.8

83.1



Revaluation of investment properties under construction

0.5

(0.1)



Depreciation on leasehold properties


(4.6)

(4.1)












Gain on investment properties



41.7

78.9











 

In the current financial year the UK business contributed £37.1m to the positive valuation movement and the Paris business contributed £9.2m. The gain on investment properties principally reflects the continuing improvements in both average rental rate and occupancy, which drive positive changes in the cash flow metrics that are used to assess the value of the store portfolio.

 

Operating Profit

Operating profit decreased by £24.9m from £134.2m in 2015 to £109.3m in 2016, as a result of the £37.2m lower gain on investment properties, partially mitigated by the £7.1m improvement in underlying EBITDA and the net £4.3m exceptional gain arising on the Space Maker acquisition.

 

Net finance costs

 

Net finance costs includes interest payable, interest on obligations under finance leases, fair value movements on derivatives and exchange gains or losses. Net finance costs reduced by £1.6m in 2016, to £14.4m from £16.0m in 2015.

 


















2016

2015









£'m

£'m













Net bank interest payable




(10.1)

(11.4)



Interest on obligations under finance leases



(3.7)

(3.8)



Fair value movement on derivatives



18.4

1.9



Net exchange losses





(19.1)

(2.8)



Unwinding of discount on Capital Goods Scheme receivable

0.1

0.1













Net finance costs





(14.4)

(16.0)












 

Underlying finance charge

 

The underlying finance charge (net bank interest payable) reduced by £1.3m to £10.1m, principally reflecting the annualisation of the interest savings from the amendment and extension of our loan facilities undertaken in August 2015, despite an increase in borrowings to finance the Space Maker acquisition. Net bank interest payable also includes the amortisation of debt issue costs, which has increased to £0.4m (FY2015: £0.2m), mainly due to additional debt issue costs incurred as a result of the August 2015 re-financing, which are being amortised over five years.

 

Based on the year-end drawn debt position the effective interest rate is analysed as follows:

 















Facility

Drawn

Hedged

Hedged


Bank

Hedged

Floating

Total




£/€/$'m

£'m

£'m

%


Margin

Rate

Rate

Rate















UK Term Loan

£126.0

£126.0

£100.0

79%


1.50%

1.34%

0.39%

2.64%



UK Revolver

£125.0

£61.0

-

-


1.50%

-

0.38%

1.88%



UK Revolver- non-utilisation

£64.0

-

-

-


0.60%

-

-

0.60%



Euro Revolver

€70.0

£37.8

£27.0

71%


1.50%

0.31%

(0.30%)

1.63%



Euro Revolver- non-utilisation

€28.0

-

-

-


0.60%

-

-

0.60%



US Private Placement 2019

$65.6

£53.9

£53.9

100%


5.52%

-

-

5.83%



US Private Placement 2024

$47.3

£38.8

£38.8

100%


6.29%

-

-

6.74%



Unamortised finance costs

-

(£1.8)

-

-


-

-

-

-















Total

£406.7

£315.7

£219.7

70%





3.58%














 

The UK term loan of £126m is fully drawn as at 31 October 2016 and attracts a bank margin of 1.50%. The Group has interest rate hedge agreements in place to June 2020 swapping LIBOR on £100m at an effective weighted average rate of 1.34%.

 

As at 31 October 2016, £61m of the £125m UK revolver and €42m (£37.8m) of the €70m Euro revolver were drawn. The drawn amounts also attract a bank margin of 1.50%, and the Group pays a non-utilisation fee of 0.60% on the remaining undrawn balances.

 

The Group has interest rate hedges in place to June 2020 swapping EURIBOR on €30m at an effective rate of 0.309%.

 

The US Private Placement Notes are fully hedged at 5.83% for the 2019 notes and 6.74% for the 2024 notes.

 

The hedge arrangements provide cover for 70% of the Group's drawn debt. Overall, the Group has an effective interest rate on its borrowings of 3.58% at 31 October 2016, compared to 3.90% at the previous year end.

 

Non-underlying finance charge

 

Interest on finance leases was £3.7m (FY2015: £3.8m) and reflects part of the leasehold rental charge. The balance of the leasehold rental charge is expensed through the gain/loss on investment properties line and contingent rent in the income statement. Overall, our leasehold rental charge continued to reduce in 2016 to £8.8m, £0.2m lower than the charge of £9.0m in 2015. This decrease reflects the annualisation of lease re-gears negotiated over the last few years, two fewer leasehold stores (at New Malden and High Wycombe) and the favourable settlement of outstanding rent reviews, despite an additional £0.3m rent charge arising on the leased Space Maker stores, following the acquisition in July 2016.

 

The strengthening of the US dollar during the year had a significant impact on both the retransition of our US dollar borrowings and the fair value of our cross currency swaps which provide an economic hedge against them. The fair value movement on derivatives was an £18.4m net gain (FY2015: £1.9m), including gains totalling £20.8m arising on the US dollar cross currency swaps, partly offset by net losses arising on the interest rate swaps. Net exchange losses, arising mainly on our US dollar denominated borrowings, totalled £19.1m (FY2015: £2.8m).

 

Tax

 

The tax charge for the year is analysed below:

 












Tax charge





2016

2015









£'m

£'m













Underlying current tax




(3.7)

(1.8)



Tax relief on settlement of derivatives



-

0.2



Current tax





(3.7)

(1.6)













Underlying deferred tax




-

(1.2)



Tax on investment properties movement



(4.0)

(6.3)



Tax on revaluation of interest rate swaps



0.1

(0.2)



Other






0.1

(0.2)



Deferred tax





(3.8)

(7.9)













Tax charge





(7.5)

(9.5)












 

The income tax charge for the year is £7.5m (FY2015: £9.5m).

 

In the UK, the Group is a REIT. As a result, the Group continues to benefit from a zero tax rate on its UK self-storage income. The Group is normally only liable to UK tax on the profits attributable to the residual business, consisting of the sale of ancillary products such as insurance and packaging products, which incurred a UK tax charge of £nil (FY2015: £0.2m).

 

The underlying tax charge relating to Paris amounted to £3.7m, which compares to the total of underlying current tax and underlying deferred tax of £3.0m in the prior year, with the year-on-year increase attributable to the increased underlying pre-tax profit in Paris and the translational impact of the strengthening of the Euro. The underlying deferred tax in the prior year has not been repeated in 2016.

 

All other deferred tax movements are non-underlying, and relate to Paris. The deferred tax impact of the revaluation gain on investment properties was a charge of £4.0m (FY2015: £6.3m).

 

Profit after tax

 

As a result of the movements explained above, profit after tax for 2016 was £87.4m as compared with £108.7m in 2015. Basic EPS was 42.0 pence (FY2015: 52.4 pence) and diluted EPS was 41.7 pence (FY2015: 52.0 pence). Management considers cash tax adjusted EPS to be more representative of the underlying EPS performance of the business and this is discussed above.

 

Dividends

 

The Directors are recommending a final dividend of 8.05 pence (FY2015: 6.65 pence) which Shareholders will be asked to approve at the Company's Annual General Meeting on 22 March 2017. If approved by Shareholders, the final dividend will be payable on 7 April 2017 to Shareholders on the register at close of business on 10 March 2017.

 

Reflective of the Group's improved performance, the Group's full year dividend of 11.65 pence is 20.7% up on the prior year dividend of 9.65 pence. The Property Income Dividend ("PID") element of the full year dividend is 9.85 pence (FY2015: 9.65 pence).

 

Property Valuation

 

Cushman & Wakefield LLP has valued the Group's property portfolio. As at 31 October 2016, the total value of the Group's property portfolio was £943.3m (excluding investment properties under construction of £10.9m). This represents an increase of £167.8m compared with the £775.5m valuation as at 31 October 2015. A reconciliation of the movement is set out below:

 
















UK

Paris

Total

Paris







£'m

£'m

£'m

€'m













Value as at 1 November 2015


597.6

177.9

775.5

249.3













Currency translation movement


-

48.7

48.7

-



Additions




9.4

2.2

11.6

2.8



Acquisition of subsidiary


48.0

-

48.0

-



Reclassifications



8.1

5.6

13.7

7.1



Revaluation



36.6

9.2

45.8

11.7













Value at 31 October 2016


699.7

243.6

943.3

270.9












 

The exchange rate at 31 October 2016 was €1.11:£1 compared with €1.40:£1 at 31 October 2015. This movement in the foreign exchange rate has resulted in a £48.7m favourable currency translation movement in the year. This has benefitted Group net asset value ("NAV") but had no impact on the loan to value ("LTV") covenant as the assets in Paris are tested in Euros.

 

The value of the UK property portfolio has increased by £102.1m compared with 31 October 2015, comprising a £36.6m valuation gain, £48.0m arising on the Space Maker acquisition and capital additions (including reclassifications from investment properties under construction) of £17.5m.

 

Our Chiswick store opened after our year-end on 4 November 2016, so remained classified as an investment property under construction as at 31 October 2016 and is valued at £10.9m.

 

In Paris, the value of the property portfolio increased by €21.6m, of which €11.7m was valuation gain and capital additions (including reclassifications) were €9.9m.  However, the net increase in Sterling amounted to £65.7m, due to the foreign exchange benefit described above.

 

The Group's freehold exit yield for the valuation at 31 October 2016 was 7.19%, consistent with 7.18% at 31 October 2015, and the weighted average annual discount rate for the whole portfolio has reduced slightly from 10.79% at 31 October 2015 to 10.75% at 31 October 2016.

 

The adjusted EPRA NAV per share was 300.0 pence at 31 October 2016, up 17.0% on 31 October 2015, reflecting a £96.8m increase in reported net assets during the year.

 

Gearing and Capital Structure

 

The Group's borrowings comprise bank borrowing facilities, made up of a UK Term Loan and revolving facilities in the UK and France, as well as a US Private Placement.

 

Net debt (including finance leases and cash) stood at £369.2m at 31 October 2016, an increase of £86.4m from the 2015 position of £282.8m. Total capital (net debt plus equity) increased from £773.4m at 31 October 2015 to £956.6m at 31 October 2016. The net impact is that the gearing ratio has increased from 37% to 39% in the year.

 

Management also measures gearing with reference to its loan to value ("LTV") ratio defined as gross debt (excluding finance leases, but adjusted for the fair value of the US dollar cross currency swaps) as a proportion of the valuation of investment properties and investment properties under construction (excluding finance leases). At 31 October 2016 the Group LTV ratio was 31% as compared to 32% at 31 October 2015. This reduction in LTV has arisen principally due to the £172.7m increase in value of the Group's investment property portfolio, which included £48.0m arising on the Space Maker acquisition, despite a £45.4m increase in gross debt, due to net loan drawdowns of £38.6m, mainly to acquire Space Maker, and adverse currency movements. The Board considers this level of gearing is appropriate for the business to enable the Group to increase returns on equity, maintain financial flexibility and to achieve our medium-term strategic objectives.

 

The Group's £126m UK term loan facility and £125m UK revolver both run to June 2020 and currently attract a margin of 1.50%. The UK revolver facility was increased by £45m during the year, from £80m, in anticipation of the acquisition of Space Maker. The amount drawn under the UK revolver has increased by a net £41m during the period, from £20m at 31 October 2015 to £61m at 31 October 2016.

 

The Group's Euro revolver is €70m, of which €42m had been drawn as at 31 October 2016 following the net repayment of €3m during the year. It also runs to June 2020 and currently attracts a margin of 1.50%.

 

Of the US Private Placement debt which totals $113m issued in 2012, $66m was issued at 5.52% (swapped to 5.83%) with 2019 maturity and $47m was issued at 6.29% (swapped to 6.74%) with 2024 maturity. It is worth noting that although the value of the US Private Placement debt when reported in Sterling has increased by £19.5m during the year, to £92.7m, due to adverse movements on the US dollar exchange rate, this is compensated by a £20.8m fair valuation gain arising on the US dollar cross currency swaps which we hold as an economic hedge against these borrowings.

 

As at 31 October 2016, the weighted average remaining term for the Group's committed borrowings facilities is 3.9 years.

 

Borrowings under the existing loan facilities are subject to certain financial covenants. The UK bank facilities and the US Private Placement share interest cover and LTV covenants. The interest cover requirement increased to a level of EBITDA:interest of 2.4:1 in July 2016, where it will remain until the end of the facilities' terms. Interest cover for the year ended 31 October 2016 is 5.5x.

 

The LTV covenant is 60% in both the UK and France, where it will remain until the end of the facilities' terms. As at 31 October 2016, there is significant headroom in both the UK LTV and the French LTV covenant calculations.

 

The Group is in compliance with its covenants at 31 October 2016 and, based on forecast projections, is expected to be in compliance for a period in excess of twelve months from the date of this report.

 

Cash flow

 

The table below sets out the cash flow of the business in 2016 and 2015.

 


















2016

2015









£'m

£'m













Underlying EBITDA





64.2

57.1



Working capital/exceptionals/other



(1.8)

1.8













Operating cash inflow




62.4

58.9













Interest payments





(9.5)

(12.0)



Leasehold rent payments




(8.8)

(9.0)



Tax payments





(1.7)

(0.6)













Free cash flow (before investing and financing activities)

42.4

37.3













Acquisition of subsidiary, net of cash acquired



(41.8)

-



Capital expenditure - investment properties



(28.3)

(7.5)



Capital expenditure - property, plant and equipment


(0.8)

(0.5)



Capital Goods Scheme receipt




1.5

1.6



Proceeds from disposal - investment properties


-

1.5













Net cash flow after investing activities



(27.0)

32.4













Dividends paid





(21.3)

(17.2)



Issue of share capital





0.1

-



Net drawdown/(repayment) of borrowings



38.6

(13.0)



Debt issuance costs





(0.4)

(1.4)



Hedge breakage costs




-

(2.0)













Net decrease in cash




(10.0)

(1.2)












 

Operating cash flow increased by £3.5m in the year, principally due to the £7.1m improvement in underlying EBITDA. Working capital, exceptional items and other resulted in a £1.8m outflow, compared to a £1.8m inflow in the prior year. The variance was driven by the timing of VAT recovery in the UK, the impact of currency in Paris and £1.3m of exceptional cash costs incurred in respect of corporate transactions costs.

 

Free cash flow (before investing and financing activities) grew by 13.7% to £42.4m (FY2015: £37.3m). The free cash flow benefitted from a £2.5m reduction in interest payments, reflecting the lower net finance charges incurred during the year.

 

Investing activities experienced a net outflow of £69.4m (FY2015: £4.9m), which included £41.8m for the acquisition of Space Maker (net of the cash acquired) and £28.3m of capital expenditure on our investment property portfolio, of which £22.3m was in respect of our five new stores at Chiswick, Wandsworth, Altrincham, Birmingham and Emerainville, as well as the extension at Acton.  The prior year included the purchase of the High Wycombe freehold for £1.8m less proceeds of £1.5m for the disposal of our leasehold interest at New Malden.

 

Financing activities generated a net cash inflow of £17.0m (FY2015: £33.6m outflow). The net drawdown of borrowings of £38.6m (FY2015: £13.0m repayment) was partly offset by dividend payments totalling £21.3m (FY2015: £17.2m).

 

 

Andy Jones

6 January 2017

 

Consolidated income statement

for the year ended 31 October 2016

 


 

Notes

Group

 

2016

£'m

2015

£'m

 

 

Revenue

2

115.4

104.8

 

 

Cost of sales

 

(40.9)

(38.3)

 

 

Gross profit

 

74.5

66.5

 

 

Administrative expenses

 

(12.5)

(11.2)

 

 

Negative goodwill on acquisition of subsidiary

 

5.6

-

 

 

Underlying EBITDA

 

64.2

57.1

 

 

Exceptional items

4

4.3

-

 

 

Change in fair value of derivatives

 

-

(0.3)

 

 

Depreciation and contingent rent

 

(0.9)

(1.5)

 

 

Operating profit before gains on investment properties

 

67.6

55.3

 

 

Gain on investment properties

8

41.7

78.9

 

 

Operating profit

2

109.3

134.2

 

 

Finance income

3

21.0

3.2

 

 

Finance expense

3

(35.4)

(19.2)

 

 

Profit before income tax

 

94.9

118.2

 

 

Income tax charge

5

(7.5)

(9.5)

 

 

Profit for the year

 

87.4

108.7

 

 


Earnings per share for profit attributable to the equity holders

 

 

 

 

 

- basic (pence)

7

42.0

52.4

 

 

- diluted (pence)

7

41.7

52.0

 

 

The financial results for both years relate to continuing activities.

Certain costs previously reported as administrative expenses, primarily relating to marketing and the customer service centre, are now reported within cost of sales, as the directors believe this provides a fairer presentation. Prior periods have been restated, resulting in an increase to cost of sales of £6.1m in the year to 31 October 2015, with an equal reduction to administrative expenses. This restatement has had no impact on previously reported profit.

Underlying EBITDA is defined as operating profit before exceptional items, corporate transaction costs, change in fair value of derivatives, gain/loss on investment properties, contingent rent and depreciation.

 

Consolidated statement of comprehensive income

for the year ended 31 October 2016

 

 

Group

 

2016

£'m

2015

£'m

Profit for the year

87.4

108.7

Other comprehensive income:



Items that may be reclassified subsequently to profit or loss:



Currency translation differences

29.4

(9.9)

Other comprehensive income, net of tax

29.4

(9.9)

Total comprehensive income for the year

116.8

98.8

 

Consolidated balance sheet

as at 31 October 2016

 

 

 

Group

 

Notes

2016

£'m

2015

£'m

Assets




Non-current assets




Investment properties

8

943.3

775.5

Interests in leasehold properties

8

58.9

47.1

Investment properties under construction

8

10.9

6.0

Property, plant and equipment

 

2.0

1.6

Derivative financial instruments

11

20.9

0.6

Deferred income tax assets

 

0.2

0.1

Other receivables

 

2.1

3.4



1,038.3

834.3

Current assets




Inventories

 

0.2

0.2

Trade and other receivables

 

23.0

19.4

Cash and cash equivalents

15

5.4

13.8



28.6

33.4

Total assets


1,066.9

867.7

Current liabilities




Trade and other payables

 

(41.2)

(36.5)

Current income tax liabilities


(3.2)

(0.7)

Obligations under finance leases

12

(9.4)

(7.2)



(53.8)

(44.4)

Non-current liabilities




Financial liabilities




- bank borrowings

10

(315.7)

(249.5)

- derivative financial instruments

11

(3.4)

(1.4)

Deferred income tax liabilities

 

(57.1)

(41.9)

Obligations under finance leases

12

(49.5)

(39.9)



(425.7)

(332.7)

Total liabilities


(479.5)

(377.1)

Net assets


587.4

490.6

Equity




Ordinary shares

13

2.1

2.1

Share premium


60.1

60.0

Other reserves

 

16.6

(12.8)

Retained earnings

 

508.6

441.3

Total equity


587.4

490.6

 

Consolidated statement of changes in shareholders' equity

for the year ended 31 October 2016

 

 

Group

 

 

Share

capital

£'m

Share

premium

£'m

Translation

reserve

£'m

Retained

earnings

£'m

Total

£'m

Balance at 1 November 2014

 

2.1

60.0

(2.9)

348.8

408.0

Comprehensive income







Profit for the year

 

-

-

-

108.7

108.7

Other comprehensive income







Currency translation differences

 

-

-

(9.9)

-

(9.9)

Total other comprehensive income

 

-

-

(9.9)

-

(9.9)

Total comprehensive income

 

-

-

(9.9)

108.7

98.8

Transactions with owners







Dividends (note 6)

 

-

-

-

(17.2)

(17.2)

Employee share options

 

-

-

-

1.0

1.0

Transactions with owners

 

-

-

-

(16.2)

(16.2)

Balance at 1 November 2015

 

2.1

60.0

(12.8)

441.3

490.6

Comprehensive income







Profit for the year

 

-

-

-

87.4

87.4

Other comprehensive income







Currency translation differences

 

-

-

29.4

-

29.4

Total other comprehensive income

 

-

-

29.4

-

29.4

Total comprehensive income

 

-

-

29.4

87.4

116.8

Transactions with owners







Dividends (note 6)

 

-

-

-

(21.3)

(21.3)

Increase in share capital

 

-

0.1

-

-

0.1

Employee share options

 

-

-

-

1.2

1.2

Transactions with owners

 

-

0.1

-

(20.1)

(20.0)

Balance at 31 October 2016

 

2.1

60.1

16.6

508.6

587.4

 

Consolidated cash flow statement

for the year ended 31 October 2016

 

 

Notes

Group

2016

£'m

2015

£'m

Cash flows from operating activities

 

 

 

Cash generated from operations

14

61.9

57.8

Interest paid

 

(13.2)

(15.8)

Tax paid

 

(1.7)

(0.6)

Net cash inflow from operating activities

 

47.0

41.4

Cash flows from investing activities

 

 

 

Acquisition of subsidiary, net of cash acquired

 

(41.8)

-

Expenditure on investment properties and development properties

 

(28.3)

(7.5)

Proceeds in respect of Capital Goods Scheme

 

1.5

1.6

Purchase of property, plant and equipment

 

(0.8)

(0.5)

Proceeds from disposal of investment properties

 

-

1.5

Net cash outflow from investing activities

 

(69.4)

(4.9)

Cash flows from financing activities

 

 

 

Issue of share capital

 

0.1

-

Equity dividends paid

6

(21.3)

(17.2)

Proceeds from borrowings

 

58.4

-

Repayment of borrowings

 

(19.8)

(13.0)

Debt issuance costs

 

(0.4)

(1.4)

Hedge breakage payments

 

-

(2.0)

Finance lease principal payments

 

(4.6)

(4.1)

Net cash inflow/(outflow) from financing activities

 

12.4

(37.7)

Net decrease in cash and cash equivalents

 

(10.0)

(1.2)

Exchange gain/(loss) on cash and cash equivalents

 

1.6

(0.3)

Cash and cash equivalents at 1 November

 

13.8

15.3

Cash and cash equivalents at 31 October

15

5.4

13.8

 

Notes to the financial statements

for the year ended 31 October 2016

 

1. Basis of preparation

The Board approved this preliminary announcement on 6 January 2017.

The financial information included in this preliminary announcement does not constitute the Group's statutory accounts for the years ended 31 October 2015 or 31 October 2016. Statutory accounts for the year ended 31 October 2015 have been delivered to the Registrar of Companies. The statutory accounts for the year ended 31 October 2016 will be delivered to the Registrar of Companies following the Company's annual general meeting.

The auditor has reported on the 2016 and 2015 accounts; their report was unqualified, did not include any references to any matters by way of emphasis and did not contain statements under section 498 (2) or (3) of the Companies Act 2006.

These financial statements for the year ended 31 October 2016 have been prepared under the historical cost convention except for the following assets and liabilities which are stated at their fair value: investment property, derivative financial instruments and financial interest in property assets. The accounting policies used are consistent with those contained in the Group's last annual report and accounts for the year ended 31 October 2015. All amounts are presented in Sterling and are rounded to the nearest £0.1m, unless otherwise stated.

The financial information included in this preliminary announcement has been prepared in accordance with EU endorsed International Financial Standards ("IFRS"), IFRIC interpretations and those parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The Directors of Safestore have assessed the viability of the Group over a three year period to October 2019 and are confident that, on the basis of current financial projections and facilities available, it is appropriate to prepare the preliminary results on a going concern basis.

There are no new or revised accounting standards or IFRIC interpretations which are applicable for the first time in the year ended 31 October 2016.

The following new standards, amendments to existing standards and interpretations issued by the International Accounting Standards Board have not been applied in preparing these consolidated financial statements, as their effective dates fall in periods beginning after 1 November 2016. The Group has no plan to adopt these standards earlier than the effective date:

 

Effective for the year ending 31 October 2017:

 

IFRS 14

'Regulatory Deferral Accounts';

 

IFRS 10, IFRS 12 and IAS 28

Amendments relating to investment entities: applying the consolidation exception;

 

IFRS 10 and IAS 28

Amendments relating to the sale or contribution of assets between an investor and its associate or joint venture;

 

IFRS 11

Amendments relating to acquisitions of interests in joint operations;

 

IAS 1

Amendments relating to the Disclosure Initiative

 

IAS 16 and IAS 38

Amendments relating to clarification of acceptable methods of depreciation and amortisation;

 

IAS 16 and IAS 41

Amendments relating to bearer plants;

 

IAS 27

Amendments relating to equity method in separate financial statements; and

 

Annual improvements to IFRSs 2012-2014 Cycle.

Effective for the year ending 31 October 2018:

 

IAS 12

Amendments relating to recognition of deferred tax assets for unrealised losses;

 

IFRS 2

Amendments relating to classification and measurement of share-based payment transactions; and

 

IFRS 7

Amendments to cash flows relating to the Disclosure Initiative.

Effective for the year ending 31 October 2019:

 

IFRS 4

Amendments relating to applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts;

 

IFRS 9

'Financial Instruments' - final standard, addressing the accounting for financial assets and liabilities including classification and measurement, impairment, hedge accounting and own credit; and

 

IFRS 15

'Revenue from Contracts with Customers'.

Effective for the year ending 31 October 2020:

 

IFRS 16

'Leases'.

The Directors are currently considering the potential impact arising from the future adoption of these standards and interpretations listed above.

 

Forward-looking statements

Certain statements in this preliminary announcement are forward-looking. Although the Group believes that the expectations reflected in these forward-looking statements are reasonable, we can give no assurance that these expectations will prove to have been correct.

Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward-looking statements. We undertake no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

2. Segmental analysis

The segmental information presented has been prepared in accordance with the requirements of IFRS 8. The Group's revenue, profit before income tax and net assets are attributable to one activity: the provision of self-storage accommodation and related services. Segmental information is presented in respect of the Group's geographical segments. This is based on the Group's management and internal reporting structure.

Safestore is organised and managed in two operating segments, based on geographical areas, being the United Kingdom and France.

The chief operating decision maker, being the Executive Directors, identified in accordance with the requirements of IFRS 8, assesses the performance of the operating segments on the basis of underlying EBITDA, which is defined as operating profit before exceptional items, corporate transaction costs, change in fair value of derivatives, gain/loss on investment properties, contingent rent and depreciation.

The operating profits and assets include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Year ended 31 October 2016

UK

£'m

France

£'m

Group

£'m

Continuing operations

 

 

 

Revenue

87.4

28.0

115.4

Underlying EBITDA

46.5

17.7

64.2

Exceptional items

4.3

-

4.3

Contingent rent and depreciation

(0.6)

(0.3)

(0.9)

Operating profit before gain on investment properties

50.2

17.4

67.6

Gain on investment properties

35.1

6.6

41.7

Operating profit

85.3

24.0

109.3

Net finance expense

(12.4)

(2.0)

(14.4)

Profit before tax

72.9

22.0

94.9

Total assets

800.6

266.3

1,066.9

 

Year ended 31 October 2015

UK

£'m

France

£'m

Group

£'m

Continuing operations

 

 

 

Revenue

79.9

24.9

104.8

Underlying EBITDA

40.6

16.5

57.1

Change in fair value of derivative

-

(0.3)

(0.3)

Contingent rent and depreciation

(0.9)

(0.6)

(1.5)

Operating profit before gain on investment properties

39.7

15.6

55.3

Gain on investment properties

64.9

14.0

78.9

Operating profit

104.6

29.6

134.2

Net finance expense

(13.6)

(2.4)

(16.0)

Profit before tax

91.0

27.2

118.2

Total assets

668.5

199.2

867.7

 

Inter-segment transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties. There is no material impact from inter-segment transactions on the Group's results.

 

3. Finance income and costs

 

 

2016

£'m

2015

£'m

Finance income

 

 

 

Fair value movement of derivatives

 

20.9

3.1

Unwinding of discount on Capital Goods Scheme ("CGS") receivable

 

0.1

0.1

Total finance income

 

21.0

3.2

Finance costs

 

 

 

Interest payable on bank loans and overdraft

 

(9.7)

(11.2)

Amortisation of debt issuance costs on bank loan

 

(0.4)

(0.2)

Underlying finance charges

 

(10.1)

(11.4)

Interest on obligations under finance leases

 

(3.7)

(3.8)

Fair value movement of derivatives

 

(2.5)

(1.2)

Net exchange losses

 

(19.1)

(2.8)

Total finance cost

 

(35.4)

(19.2)

Net finance costs

 

(14.4)

(16.0)

 

Included within interest payable of £9.7 million (FY2015: £11.2 million) is £0.9 million (FY2015: £1.1 million) of interest relating to derivative financial instruments that are economically hedging the Group's borrowings. The total change in fair value of derivatives reported within net finance costs for the year is a net gain of £18.4 million (FY2015: £1.9 million).

4. Exceptional items


2016

£'m

2015

£'m

Negative goodwill on acquisition of subsidiary

5.6

-

Costs relating to corporate transactions

(1.3)

-

Net exceptional income

4.3

-

 

The negative goodwill on acquisition of subsidiary arose on the acquisition of Space Maker Stores Limited on 29 July 2016 and, along with the related transactions costs, is explained in further detail in note 19.

5. Income tax charge

Analysis of tax charge in the year:

 

 

2016

£'m

2015

£'m

- UK corporation tax

 

-

0.2

- tax in respect of overseas subsidiaries

 

3.7

1.4

 

 

3.7

1.6

Deferred tax:

 

 

 

- current year

 

3.8

7.7

- adjustment in respect of prior year

 

-

0.2

 

 

3.8

7.9

Tax charge

 

7.5

9.5

 

Reconciliation of income tax charge

The tax for the period is lower (FY2015: lower) than the standard effective rate of corporation tax in the UK for the year ended 31 October 2016 of 20.0% (FY2015: 20.4%). The differences are explained below:


2016

£'m

2015

£'m

Profit before tax

94.9

118.2

Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 20.0% (FY2015: 20.4%)

19.0

24.1

Effect of:



- permanent differences

0.2

0.2

- profits from the tax exempt business

(14.6)

(18.5)

- difference from overseas tax rates

2.9

3.5

- adjustments in respect of prior years

-

0.2

Tax charge

7.5

9.5

 

The Group is a REIT. As a result the Group is exempt from UK corporation tax on the profits and gains from its qualifying rental business in the UK provided that it meets certain conditions. Non-qualifying profits and gains of the Group remain subject to corporation tax as normal. The Group monitors its compliance with the REIT conditions. There have been no breaches of the conditions to date.

The main rate of corporation tax in the UK reduced from 21% to 20% from 1 April 2015. Accordingly the Group's results for this accounting period are taxed at an effective rate of 20.0% (FY2015: 20.4%). Due to the Group's REIT status there will be no deferred taxation impact in respect of the changes in taxation rates.

6. Dividends per share

The dividend paid in 2016 was £21.3 million (10.25 pence per share) (FY2015: £17.2 million (8.30 pence per share)). A final dividend in respect of the year ended 31 October 2016 of 8.05 pence (FY2015: 6.65 pence) per share, amounting to a total final dividend of £16.8 million (FY2015: £13.8 million), is to be proposed at the AGM on 22 March 2017. The ex-dividend date will be 9 March 2017 and the record date will be 10 March 2017 with an intended payment date of 7 April 2017. The final dividend has not been included as a liability at 31 October 2016.

The PID element of the final dividend is 8.05 pence (FY2015: 6.65 pence), making the PID payable for the year 9.85 pence (FY2015: 9.65 pence) per share.

7. Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year excluding ordinary shares held as treasury shares. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares to assume conversion of all dilutive potential shares. The Company has one category of dilutive potential ordinary shares: share options. For the share options, a calculation is performed to determine the number of shares that could have been acquired at fair value (determined as the average annual market price of the Company's shares) based on the monetary value of the subscription rights attached to the outstanding share options. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the share options.

 

Year ended 31 October 2016

 

Year ended 31 October 2015

 

Earnings

£'m

Shares

million

Pence

per share

 

Earnings

£'m

Shares

million

Pence

per share

Basic

87.4

208.2

42.0

 

108.7

207.5

52.4

Dilutive securities

-

1.5

(0.3)

 

-

1.6

(0.4)

Diluted

87.4

209.7

41.7

 

108.7

209.1

52.0

 

Adjusted earnings per share

Adjusted earnings per share represents profit after tax adjusted for the valuation movement on investment properties, exceptional items, change in fair value of derivatives and the associated tax thereon. The Directors consider that these alternative measures provide useful information on the performance of the Group.

EPRA earnings and earnings per share before non-recurring items, movements on revaluations of investment properties and changes in the fair value of derivatives have been disclosed to give a clearer understanding of the Group's underlying trading performance.

 

Year ended 31 October 2016

 

Year ended 31 October 2015

 

Earnings

£'m

Shares

million

Pence

per share

 

Earnings

£'m

Shares

million

Pence

per share

Basic

87.4

208.2

42.0

 

108.7

207.5

52.4

Adjustments:








Gain on investment properties

(41.7)

-

(20.1)

 

(78.9)

-

(38.0)

Exceptional items

(4.3)

-

(2.1)

 

-

-

-

Unwinding of discount on CGS receivable

(0.1)

-

-

 

(0.1)

-

-

Net exchange losses

19.1

-

9.2

 

2.8

-

1.3

Change in fair value of derivatives

(18.4)

-

(8.8)

 

(1.6)

-

(0.8)

Tax on adjustments

2.9

-

1.4

 

5.7

-

2.7

Adjusted

44.9

208.2

21.6

 

36.6

207.5

17.6

EPRA adjusted:








Depreciation of leasehold properties

(4.6)

-

(2.2)

 

(4.1)

-

(2.0)

Tax on leasehold depreciation adjustment

0.9

-

0.4

 

0.8

-

0.4

EPRA basic

41.2

208.2

19.8

 

33.3

207.5

16.0

Adjustment for underlying deferred tax

-

-

-

 

1.2

-

0.6

Adjusted cash tax earnings1

41.2

208.2

19.8

 

34.5

207.5

16.6

1 Adjusted cash tax earnings is defined as profit or loss for the year before exceptional items, corporate transaction costs, change in fair value of derivatives, gain/loss on investment properties (adjusted for leasehold depreciation), discount unwind on the CGS receivable and the associated tax impacts, as well as exceptional tax items and deferred tax charges.

 

Gain on investment properties includes depreciation on leasehold properties of £4.6 million (FY2015: £4.1 million) and the related tax thereon of £0.9 million (FY2015: £0.8 million). As an industry standard measure, EPRA earnings is presented. EPRA earnings of £41.2 million (FY2015: £33.3 million) and EPRA earnings per share of 19.8 pence (FY2015: 16.0 pence) are calculated after further adjusting for these items.

EPRA adjusted income statement (non-statutory)

2016

£'m

2015

£'m

Movement

%

Revenue

115.4

104.8

10.1

Operating expenses (excluding depreciation and contingent rent)

(51.2)

(47.7)

(7.3)

EBITDA before contingent rent

64.2

57.1

12.4

Depreciation and contingent rent

(0.9)

(1.5)

40.0

Operating profit before depreciation on leasehold properties

63.3

55.6

13.8

Depreciation on leasehold properties

(4.6)

(4.1)

(12.2)

Operating profit

58.7

51.5

14.0

Net financing costs

(13.8)

(15.2)

9.2

Profit before income tax

44.9

36.3

23.7

Income tax

(3.7)

(3.0)

(23.3)

Profit for the year ("EPRA earnings")

41.2

33.3

23.7

Adjusted EPRA earnings per share

19.8 pence

16.0 pence

23.8

Final dividend per share

8.05 pence

6.65 pence

21.1

 

8. Investment properties, investment properties under construction and interests in leasehold properties


Investment

property

£'m

Interests in

leasehold

properties

£'m

Investment

property

under

construction

£'m

Total

investment

properties

£'m

As at 1 November 2015

775.5

47.1

6.0

828.6

Additions

11.6

3.0

18.1

32.7

Acquisition of subsidiary (note 19)

48.0

10.3

-

58.3

Reclassifications

13.7

-

(13.7)

-

Revaluations

45.8

-

0.5

46.3

Depreciation

-

(4.6)

-

(4.6)

Exchange movements

48.7

3.1

-

51.8

As at 31 October 2016

943.3

58.9

10.9

1,013.1

 


Investment

property

£'m

Interests in

leasehold

properties

£'m

Investment

property

under

construction

£'m

Total

investment

properties

£'m

As at 1 November 2014

704.0

51.0

5.3

760.3

Additions

5.5

7.1

0.8

13.4

Disposals

(1.5)

(4.9)

-

(6.4)

Purchase of freehold

1.8

(0.7)

-

1.1

Revaluations

83.1

-

(0.1)

83.0

Depreciation

-

(4.1)

-

(4.1)

Exchange movements

(17.4)

(1.3)

-

(18.7)

As at 31 October 2015

775.5

47.1

6.0

828.6

 

The gain on investment properties comprises:


2016

£'m

2015

£'m

Revaluations

46.3

83.0

Depreciation

(4.6)

(4.1)

 

41.7

78.9

 


Cost

£'m

Revaluation

on cost

£'m

Valuation

£'m

Freehold stores

 

 

 

As at 1 November 2015

364.5

264.1

628.6

Movement in year

66.9

63.0

129.9

As at 31 October 2016

431.4

327.1

758.5

Leasehold stores

 

 

 

As at 1 November 2015

74.6

72.3

146.9

Movement in year

14.2

23.7

37.9

As at 31 October 2016

88.8

96.0

184.8

All stores

 

 

 

As at 1 November 2015

439.1

336.4

775.5

Movement in year

81.1

86.7

167.8

As at 31 October 2016

520.2

423.1

943.3

 

The valuation of £943.3 million (FY2015: £775.5 million) excludes £0.6 million in respect of owner occupied property, which is included within property, plant and equipment. Rental income earned from investment properties for the year ended 31 October 2016 was £95.2 million (FY2015: £86.0 million).

The Group has classified the investment property and investment property under construction, held at fair value, within Level 3 of the fair value hierarchy. There were no transfers to or from Level 3 during the year.

The freehold and leasehold investment properties have been valued as at 31 October 2016 by external valuers, Cushman & Wakefield LLP ("C&W"). The valuation has been carried out in accordance with the current UK edition of the RICS Valuation - Professional Standards, published by The Royal Institution of Chartered Surveyors ("the Red Book"). The valuation of each of the investment properties has been prepared on the basis of fair value as a fully equipped operational entity, having regard to trading potential. One non-trading property was valued on the basis of fair value. The valuation has been provided for accounts purposes and, as such, is a Regulated Purpose Valuation as defined in the Red Book. In compliance with the disclosure requirements of the Red Book, C&W has confirmed that:

•  of the members of the RICS who have been the signatories to the valuations provided to the Group for the same purposes as this valuation, one has done so since October 2006 and the other is a signatory for the first time;

•  C&W has been carrying out regular valuations for the same purpose as this valuation on behalf of the Group since October 2006;

•  C&W does not provide other significant professional or agency services to the Group;

•  in relation to the preceding financial year of C&W, the proportion of total fees payable by the Group to the total fee income of the firm is less than 5%; and

•  the fee payable to C&W is a fixed amount per property and is not contingent on the appraised value.

Market uncertainty

C&W's valuation report comments on valuation uncertainty resulting from low liquidity in the market for self-storage property. C&W notes that in the UK since the start of 2013 there have only been six transactions involving multiple assets and 13 single asset transactions, and C&W is unaware of any comparable transactions in the Paris market. C&W states that due to the lack of comparable market information in the self-storage sector, there is greater uncertainty attached to its opinion of value than would be anticipated during more active market conditions.

Portfolio premium

C&W's valuation report confirms that the properties have been valued individually but that if the portfolio was to be sold as a single lot or in selected groups of properties, the total value could be different. C&W states that in current market conditions it is of the view that there could be a material portfolio premium.

Valuation method and assumptions

The valuation of the operational self-storage facilities has been prepared having regard to trading potential. Cash flow projections have been prepared for all of the properties reflecting estimated absorption, revenue growth and expense inflation. A discounted cash flow method of valuation based on these cash flow projections has been used by C&W to arrive at its opinion of fair value for these properties.

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

Freehold and long leasehold (UK and France)

The valuation is based on a discounted cash flow of the net operating income over a ten-year period and a notional sale of the asset at the end of the tenth year.

Assumptions:

•     Net operating income is based on projected revenue received less projected operating costs together with a central administration charge of 6% of the estimated annual revenue, subject to a cap and collar. The initial net operating income is calculated by estimating the net operating income in the first twelve months following the valuation date.

•     The net operating income in future years is calculated assuming either straight-line absorption from day one actual occupancy or variable absorption over years one to four of the cash flow period, to an estimated stabilised/mature occupancy level. In the valuation the assumed stabilised occupancy level for the trading stores (both freeholds and all leaseholds) open at 31 October 2016 averages 80.23% (31 October 2015: 77.87%). The projected revenues and costs have been adjusted for estimated cost inflation and revenue growth. The average time assumed for stores to trade at their maturity levels is 23.78 months (31 October 2015: 23.93 months).

•     The capitalisation rates applied to existing and future net cash flows have been estimated by reference to underlying yields for industrial and retail warehouse property, yields for other trading property types such as purpose built student housing and hotels, bank base rates, ten-year money rates, inflation and the available evidence of transactions in the sector. The valuation included in the accounts assumes rental growth in future periods. If an assumption of no rental growth is applied to the external valuation, the net initial yield pre-administration expenses for the 127 mature stores (i.e. excluding those stores categorised as "developing") is 7.98% (31 October 2015: 7.89%), rising to a stabilised net yield pre-administration expenses of 8.99% (31 October 2015: 9.08%).

•     The future net cash flow projections (including revenue growth and cost inflation) have been discounted at a rate that reflects the risk associated with each asset. The weighted average annual discount rate adopted (for both freeholds and all leaseholds) is 10.75% (31 October 2015: 10.79%).

•     Purchaser's costs in the range of approximately 6.0% to 6.8% for the UK and 7.5% for France have been assumed initially, reflecting the new progressive SDLT rates brought into force in March 2016 in the UK, and sales plus purchaser's costs totalling approximately 8.0% to 8.8% (UK) and 9.5% (France) are assumed on the notional sales in the tenth year in relation to freehold and long leasehold stores.

Short leaseholds (UK)

The same methodology has been used as for freeholds, except that no sale of the assets in the tenth year is assumed but the discounted cash flow is extended to the expiry of the lease. The average unexpired term of the Group's UK short-term leasehold properties is 13.7 years (31 October 2015: 12.7 years). The average unexpired term excludes the French commercial leases.

Short leaseholds (France)

In relation to the French commercial leases, C&W has valued the cash flow projections in perpetuity due to the security of tenure arrangements in that market and the potential compensation arrangements in the event of the landlord wishing to take possession. The valuation treatment is therefore the same as for the freehold properties. The capitalisation rates on these stores reflect the risk of the landlord terminating the lease arrangements.

Investment properties under construction (UK only)

C&W has valued the stores in development adopting the same methodology as set out above but on the basis of the cash flow projection expected for the store at opening and allowing for the outstanding costs to take each store from its current state to completion and full fit out. C&W has allowed for carry costs and construction contingency, as appropriate.

Immature stores: value uncertainty

C&W has assessed the value of each property individually. However, five of the stores in the portfolio are relatively immature and have low initial cash flow. C&W has endeavoured to reflect the nature of the cash flow profile for these properties in its valuation, and the higher associated risks relating to the as yet unproven future cash flow, by adjustment to the capitalisation rates and discount rates adopted. However, immature low cash flow stores of this nature are rarely, if ever, traded individually in the market, unless as part of a distressed sale or similar situation. Although, there is more evidence of immature low cash flow stores being traded as part of a group or portfolio transaction.

C&W considers there to be market uncertainty in the self-storage sector due to the lack of comparable market transactions and information. The degree of uncertainty relating to the five immature stores is greater than in relation to the balance of the properties due to there being even less market evidence that might be available for more mature properties and portfolios.

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

C&W has not adjusted its opinion of fair value to reflect such a grouping of the immature assets with other properties in the portfolio and all stores have been valued individually. However, C&W highlights the matter to alert the Group to the manner in which the properties might be grouped or lotted in order to maximise their attractiveness to the marketplace.

C&W considers this approach to be a valuation assumption but not a Special Assumption, the latter being an assumption that assumes facts that differ from the actual facts existing at the valuation date and which, if not adopted, could produce a material difference in value.

Lotting of stores with customer transfers

Where stores within the portfolio are expected to close in the short term, C&W has assumed that a proportion of the customer base from these stores will be transferred, at closure, to nearby stores also owned by the Group.

C&W has assumed that the properties that are closing would be sold together with the stores where customers will be transferred to, in the event they were offered to the market. C&W considers this approach to be a valuation assumption but not a Special Assumption, the latter being an assumption that assumes facts that differ from the actual facts existing at the valuation date and which, if not adopted, could produce a material difference in value.

Valuation assumption for purchaser's costs

The Group's investment property assets have been valued for the purposes of the financial statements after adjusting for notional purchaser's costs in the range of approximately 6.0% to 6.8% (UK) and 7.5% (France), as if they were sold directly as property assets. The valuation is an asset valuation which is strongly linked to the operating performance of the business. They would have to be sold with the benefit of operational contracts, employment contracts and customer contracts, which would be difficult to achieve except in a corporate structure.

This approach follows the logic of the valuation methodology in that the valuation is based on a capitalisation of the net operating income after allowing a deduction for operational cost and an allowance for central administration costs. A sale in a corporate structure would result in a reduction in the assumed stamp duty land tax but an increase in other transaction costs reflecting additional due diligence resulting in a reduced notional purchaser's cost of 2.75% of gross value. All the significant sized transactions that have been concluded in the UK in recent years were completed in a corporate structure. The Group therefore instructed C&W to prepare additional valuation advice on the basis of purchaser's cost of 2.75% of gross value which are used for internal management purposes.

Sensitivity of the valuation to assumptions

All other factors being equal, higher net operating income would lead to an increase in the valuation of a store and an increase in the capitalisation rate or discount rate would result in a lower valuation, and vice versa. Higher assumptions for stabilised occupancy, absorption rate, rental rate and other revenue, and a lower assumption for operating costs, would result in an increase in projected net operating income, and thus an increase in valuation.

9. Net assets per share

The European Public Real Estate Association ("EPRA") has issued recommended bases for the calculation of net assets per share information and these are shown in the table below.

 

2016

£'m

2015

£'m

Analysis of net asset value:



Net assets

587.4

490.6

Adjustments to exclude:



Fair value of derivative financial instruments (net of deferred tax)

(17.7)

0.7

Deferred tax liabilities on the revaluation of investment properties

56.3

41.2

Adjusted net asset value

626.0

532.5

Basic net assets per share (pence)

281.5

236.2

EPRA basic net assets per share (pence)

300.0

256.4

Diluted net assets per share (pence)

279.5

234.4

EPRA diluted net assets per share (pence)

297.9

254.4


 

Number

Number

Shares in issue

208,656,168

207,682,712

 

Basic net assets per share is shareholders' funds divided by the number of shares at the year end. Diluted net assets per share is shareholders' funds divided by the number of shares at the year end, adjusted for dilutive share options of 1,480,168 shares (FY2015: 1,651,532 shares). EPRA diluted net assets per share exclude deferred tax liabilities arising on the revaluation of investment properties. The EPRA NAV, which further excludes fair value adjustments for debt and related derivatives net of deferred tax, was £626.0 million (FY2015: £532.5 million), giving EPRA net assets per share of 300.0 pence (FY2015: 256.4 pence). The Directors consider that these alternative measures provide useful information on the performance of the Group.

EPRA adjusted balance sheet (non-statutory)


2016

£'m

2015

£'m

Movement

%

Assets

 

 

 

Non-current assets

1,017.2

833.6

22.0

Current assets

28.6

33.4

(14.4)

Total assets

1,045.8

867.0

20.6

Liabilities

 

 

 

Current liabilities

(53.8)

(44.4)

(21.2)

Non-current liabilities

(366.0)

(290.1)

(26.2)

Total liabilities

(419.8)

(334.5)

(25.5)

EPRA net asset value

626.0

532.5

17.6

EPRA net asset value per share

300.0 pence

256.4 pence

17.0

 

10. Financial liabilities - bank borrowings and secured notes

Non-current

2016

£'m

2015

£'m

Bank loans and secured notes:



Secured

317.5

251.3

Debt issue costs

(1.8)

(1.8)


315.7

249.5

 

The Group's borrowings consist of bank facilities of £251 million and €70 million, which run to June 2020, and a $112.9 million US private placement note issue, originally of seven and twelve years with maturities extending to 2019 and 2024. The blended cost of interest on the overall debt is 3.58% per annum.

The Group's UK bank facilities were increased by £45 million during the years, in advance of the Space Maker acquisition, by the utilisation of £45 million of an uncommitted £60 million facility. The bank facilities attract a margin over LIBOR/EURIBOR. The margin ratchets between 1.50% and 2.75%, by reference to the Group's performance against its interest cover covenant. Approximately 56% of the drawn bank facilities have been hedged at an effective weighted average rate of 1.34% (LIBOR) or 0.309% (EURIBOR).

The Company also has in issue $65.6 million (FY2015: $65.6 million) 5.52% Series A Senior Secured Notes due 2019 and $47.3 million (FY2015: $47.3 million) 6.29% Series B Senior Secured Notes due 2024. The proceeds of the US private placement have been fully hedged by cross currency swaps converting the US Dollar exchange risk into Sterling.

The bank loans and overdrafts are secured by a fixed charge over the Group's investment property portfolio. As part of the Group's interest rate management strategy, the Group entered into several interest rate swap contracts, details of which are shown in note 11.

Bank loans and secured notes are stated before unamortised issue costs of £1.8 million (FY2015: £1.8 million).

Bank loans and secured notes are repayable as follows:

 

Group

 

2016

£'m

2015

£'m

Between two and five years

278.7

220.6

After more than five years

38.8

30.7

Bank loans and secured notes

317.5

251.3

Unamortised debt issue costs

(1.8)

(1.8)

 

315.7

249.5

 

The effective interest rates at the balance sheet date were as follows:

 

2016

2015

Bank loans (UK term loan)

Quarterly or monthly LIBOR plus 1.50%

Quarterly or monthly LIBOR plus 1.50%

Bank loans (Euro term loan)

Quarterly or monthly EURIBOR plus 1.50%

Quarterly EURIBOR plus 1.50%

Private placement notes

Weighted average rate of 6.21%

Weighted average rate of 6.21%

 

The private placement secured loan notes bear interest at 5.83% on $65.6 million (FY2015: $65.6 million) and 6.7375% on $47.3 million (FY2015: $47.3 million), as a result of cross currency swap agreements.

Borrowing facilities

The Group has the following undrawn committed borrowing facilities available at 31 October in respect of which all conditions precedent had been met at that date:

 

Floating rate

 

2016

£'m

2015

£'m

Expiring beyond one year

89.2

77.8

 

The carrying amounts of the Group's borrowings are denominated in the following currencies:

 

2016

£'m

2015

£'m

Sterling

187.0

146.0

Euro

37.8

32.1

US Dollar

92.7

73.2

 

317.5

251.3

 

11. Financial instruments

Financial instruments disclosures are set out below. Additional disclosures are set out in the Financial Review.

 

2016

 

2015

 

Asset

£'m

Liability

£'m

 

Asset

£'m

Liability

£'m

Interest rate swaps

0.1

(3.4)

 

-

(0.8)

Cross currency swaps

20.8

-

 

0.6

(0.6)

 

20.9

(3.4)

 

0.6

(1.4)

 

The fair value of financial instruments that are not traded in an active market, such as over the counter derivatives, is determined using valuation techniques. The Group obtains such valuations from counterparties who use a variety of assumptions based on market conditions existing at each balance sheet date.

The fair values of all financial instruments are equal to their book value, with the exception of bank loans which are set out below. The carrying value less impairment provision of trade receivables, other receivables and the carrying value of trade payables and other payables approximate their fair value.

The fair value of bank loans is calculated as:

 

2016

 

2015

 

Book value

£'m

Fair value

£'m

 

Book value

£'m

Fair value

£'m

Bank loans

315.7

327.6

 

249.5

259.3

 

Fair value hierarchy

IFRS 13 requires fair value measurements to be recognised using a fair value hierarchy that reflects the significance of the inputs used in the measurements, according to the following levels:

Level 1 - unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2 - inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3 - inputs for the asset or liability that are not based on observable market data.

The table below shows the level in the fair value hierarchy into which fair value measurements have been categorised:

Assets per the balance sheet

2016

£'m

2015

£'m

Derivative financial instruments - Level 2

20.9

0.6

 

Liabilities per the balance sheet

2016

£'m

2015

£'m

Derivative financial instruments - Level 2

3.4

1.4

 

There were no transfers between Levels 1, 2 and 3 fair value measurements during the current or prior year.

Over the life of the Group's derivative financial instruments, the cumulative fair value gain/loss on those instruments will be £nil as it is the Group's intention to hold them to maturity.

Interest rate swaps not designated as part of a hedging arrangement

The notional principal amounts of the outstanding interest rate swap contracts at 31 October 2016 were £100 million and €30 million (FY2015: £90 million and €30 million). At 31 October 2016 the weighted average fixed interest rates were Sterling at 1.34% and Euro at 0.309% (FY2015: Sterling at 1.447% and Euro at 0.309%) and floating rates are at quarterly LIBOR and quarterly EURIBOR. The LIBOR swaps and the EURIBOR swaps expire in June 2020. The movement in fair value recognised in the income statement was a net loss of £2.4 million (FY2015: £1.2 million).

Cross currency swaps not designated as part of a hedging arrangement

The Group entered into cross currency swaps to mitigate the foreign exchange risk arising on future interest payments and the principal repayments arising from the $65.6 million and $47.3 million US Senior Secured Notes. These cross currency swaps commenced in May 2012 and terminate in 2019 and 2024 in line with the maturity of the notes. The movement in fair value during the year recognised in the income statement was a net gain of £20.8 million (FY2015: £3.1 million).

Financial instruments by category

Assets per the balance sheet

Loans and

receivables

£'m

Assets at fair

value through

profit and loss

£'m

Total

£'m

Trade receivables and other receivables excluding prepayments

17.0

-

17.0

Derivative financial instruments

-

20.9

20.9

Cash and cash equivalents

5.4

-

5.4

As at 31 October 2016

22.4

20.9

43.3

 

Liabilities per the balance sheet

Liabilities at fair

value through

profit and loss

£'m

Other financial

liabilities at

amortised cost

£'m

Total

£'m

Borrowings (excluding finance lease liabilities)

-

315.7

315.7

Finance lease liabilities

-

58.9

58.9

Derivative financial instruments

3.4

-

3.4

Payables and accruals

-

28.3

28.3

As at 31 October 2016

3.4

402.9

406.3

 

Assets per the balance sheet

Loans and

receivables

£'m

Assets at fair

value through

profit and loss

£'m

Total

£'m

Trade receivables and other receivables excluding prepayments

14.4

-

14.4

Derivative financial instruments

-

0.6

0.6

Cash and cash equivalents

13.8

-

13.8

As at 31 October 2015

28.2

0.6

28.8

 

Liabilities per the balance sheet

Liabilities at fair

value through

profit and loss

£'m

Other financial

liabilities at

amortised cost

£'m

Total

£'m

Borrowings (excluding finance lease liabilities)

-

249.5

249.5

Finance lease liabilities

-

47.1

47.1

Derivative financial instruments

1.4

-

1.4

Payables and accruals

-

25.5

25.5

As at 31 October 2015

1.4

322.1

323.5

 

The interest rate risk profile, after taking account of derivative financial instruments, was as follows:

 

2016

 

2015

 

Floating rate

£'m

Fixed rate

£'m

Total

£'m

 

Floating rate

£'m

Fixed rate

£'m

Total

£'m

Borrowings

96.0

219.7

315.7

 

64.9

184.6

249.5

 

The weighted average interest rate of the fixed rate financial borrowing was 3.91% (FY2015: 4.11%) and the weighted average remaining period for which the rate is fixed was four years for bank borrowings and three/eight years for the notes (FY2015: five years for bank borrowings; four/nine years for notes).

Maturity analysis

The table below analyses the Group's financial liabilities and non-settled derivative financial instruments into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity dates. The amounts disclosed in the table are the contractual undiscounted cash flows.

 

Less than

one year

£'m

One to two

years

£'m

Two to five

years

£'m

More than

five years

£'m

2016

 

 

 

 

Borrowings

9.7

9.7

296.7

46.1

Derivative financial instruments

5.6

5.6

10.5

6.0

Contractual interest payments and finance lease charges

9.8

9.4

23.5

51.3

Payables and accruals

28.3

-

-

-

 

53.4

24.7

330.7

103.4

2015

 

 

 

 

Borrowings

8.2

8.2

242.4

38.4

Derivative financial instruments

5.3

5.3

13.3

8.0

Contractual interest payments and finance lease charges

7.6

7.3

18.7

41.6

Payables and accruals

25.5

-

-

-

 

46.6

20.8

274.4

88.0

 

12. Obligations under finance leases

The Group leases certain of its investment properties under finance leases. The average remaining lease term is 11.5 years (FY2015: 11.1 years).


Minimum lease payments

 

Present value of minimum

lease payments


2016

£'m

2015

£'m

 

2016

£'m

2015

£'m

Within one year

9.8

7.6

 

9.4

7.2

Within two to five years

32.9

26.0

 

26.2

20.8

Greater than five years

51.3

41.6

 

23.3

19.1

 

94.0

75.2

 

58.9

47.1

Less: future finance charges on finance leases

(35.1)

(28.1)

 

-

-

Present value of finance lease obligations

58.9

47.1

 

58.9

47.1

 


2016

£'m

2015

£'m

Current

9.4

7.2

Non-current

49.5

39.9

 

58.9

47.1

 

13. Called up share capital

 

2016

£'m

2015

£'m

Called up, allotted and fully paid

 

 

208,689,628 (FY2015: 207,683,636) ordinary shares of 1 pence each

2.1

2.1

 

14. Cash flow from operating activities

Reconciliation of operating profit to net cash inflow from operating activities:

Cash generated from continuing operations

Notes

2016

£'m

2015

£'m

Profit before income tax

 

94.9

118.2

Gain on investment properties

8

(41.7)

(78.9)

Negative goodwill on acquisition of subsidiary

 

(5.6)

-

Depreciation

 

0.4

0.4

Change in fair value of derivatives

 

-

0.3

Net finance expense

3

14.4

16.0

Employee share options

 

1.2

1.0

Changes in working capital:

 

 

 

(Increase)/decrease in trade and other receivables

 

(0.3)

0.2

(Decrease)/increase in trade and other payables

 

(1.4)

0.6

Cash generated from continuing operations

 

61.9

57.8

 

15. Analysis of movement in net debt


2015

£'m

Cash flows

£'m

Non-cash

movements

£'m

2016

£'m

Cash in hand

13.8

(10.0)

1.6

5.4

 

 

 

 

 

Debt due after one year

(249.5)

(38.2)

(28.0)

(315.7)

Total net debt excluding finance leases

(249.5)

(38.2)

(28.0)

(315.7)

Finance leases due within one year

(7.2)

4.6

(6.8)

(9.4)

Finance leases due after one year

(39.9)

-

(9.6)

(49.5)

Total finance leases

(47.1)

4.6

(16.4)

(58.9)

Total net debt

(282.8)

(43.6)

(42.8)

(369.2)

 

Non-cash movements relate to reclassification of non-current debt to current debt, amortisation of debt issue costs, foreign exchange movements and unwinding of discount.

16. Contingent liabilities

As part of the Group banking facility, the Company has guaranteed the borrowings totalling £317.5 million (FY2015: £251.3 million) of fellow Group undertakings by way of a charge over all of its property and assets. There are similar cross guarantees provided by the Group companies in respect of any bank borrowings which the Company may draw under a Group facility agreement. The financial liability associated with this guarantee is considered remote and therefore no provision has been recorded.

Following a tax audit carried out on the Group's operations in France, elements of tax were challenged by the French Tax Administration ("FTA") for financial years 2011 to 2013. Similar challenges from the FTA have also been made to other operators within the self-storage industry. The Company and its legal advisers are of the opinion that there are no valid grounds for these challenges and intend to strongly contest the findings of the FTA. The duration and outcome of this dispute cannot be anticipated at this stage of the proceedings. Based on our analysis of the relevant information, any potential exposure in relation to the tax audit issues is not likely to be material, and no provision for any potential exposure has been recorded in the consolidated financial statements.

17. Capital commitments

The Group had £1.7 million of capital commitments as at 31 October 2016 (FY2015: £4.6 million).

18. Related party transactions

The Group's shares are widely held.

During the year £nil (FY2015: £nil) transactions were carried out with related parties.

19. Business combination

On 29 July 2016, the Group completed the acquisition of Space Maker Stores Limited ("SMS") from Allodial Capital Limited and James Elton for initial consideration of £40.9m plus £1.4m of deferred consideration, which has subsequently been paid, resulting in a total consideration of £42.3 million. The consideration paid was less than the fair value of the identifiable net assets and, as a result, £5.6 million of negative goodwill has been recognised within operating profit in the consolidated income statement. In addition, £1.3 million of transaction related costs are included within administrative expenses. The net gain arising on business combinations of £4.3 million, recognised in the income statement, is considered to be exceptional.

The fair value of the assets and liabilities of SMS recognised at the date of acquisition is set out in the table below:

 

 

 

£'m

Assets




Investment properties

 

 

48.0

Interests in leasehold properties

 

 

10.3

Trade and other receivables

 

 

2.1

Cash

 

 

0.5

Total assets


 

60.9

Liabilities




Trade and other payables

 

 

(2.7)

Obligations under finance leases

 

 

(10.3)

Total liabilities


 

(13.0)

Net assets


 

47.9

 




Fair value of consideration paid

 

 

42.3

Negative goodwill on acquisition of subsidiary


 

5.6

Transaction related costs

 

 

(1.3)

Net gain on business combinations recognised in the income statement


 

4.3

 

Since the date of acquisition, SMS has contributed £2.4 million to the revenue of the Group and £1.1 million to the profit after tax for the Group. On a pro forma basis, had the acquisition of SMS occurred at the beginning of the financial year, it would have contributed revenue of £9.0 million and profit after tax of £4.0 million to the Group.


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