Final Results

16th May 2006 07:01

Big Yellow Group PLC16 May 2006 16 May 2006 Big Yellow Group PLC ("Big Yellow", "the Group" or "the Company") Audited Results for the year and fourth Quarter ended 31 March 2006 Big Yellow Group PLC, the self storage company, is pleased to announce results for the year and for the fourth quarter ended 31 March 2006. 4th quarter 3rd quarter Year Year ended ended ended ended 31 Mar 2006 31 Dec 2005 % 31 Mar 2006 31 Mar 2005 % Annualised revenue* £43.4m £42.5m +2 £43.4m £36.5m +19Revenue £10.8m £10.8m £41.9m £33.4m +25Profit before tax £118.5m £42.8m +177Adjusted profit before tax (1) £12.6m £7.8m +62Basic earnings per share 82.10p 30.15p +172Adjusted earnings per share(2) 8.91p 5.53p +61Dividend - final 3.0p 1.5p - total 5.0p 2.0pAdjusted NAV per share(3) 297.0p 191.1p +55Cashflow from operating activities (after financing) £16.1m £9.7m +67 --------------------------------Occupied Space 1,672k sq ft 1,642k sq ft +2 1,672k 1,470k +14 --------------------------------(1) See note 10 (2) See note 12 (3) See note 12* Based on revenue at the end of the period in respect of storage and other related income only • Revenue increase of 25% in the year • Strong growth in adjusted pre-tax profit and adjusted earnings per share • Operating cash flow continues to improve with maturing store portfolio • Full year dividend increased by 150% to 5 pence • Adjusted net assets per share up significantly to 297.0 pence • 37 stores open at 31 March 2006 providing 2.2 million sq ft of self storage space. An additional two stores opened in April in Tunbridge Wells and East Finchley • Acquired ten freehold sites during the year, eight in London, one in Manchester and one in Liverpool • Three freehold sites acquired since the year end - Merton, Bromley and Sheffield and a site to extend our first Big Yellow store at Richmond • Three year development pipeline of 21 sites to provide an additional 1.4m sq ft at an estimated total cost of £186 million • Committed facility with Royal Bank of Scotland, Bank of Ireland and Barclays Bank increased to £225 million from £150 million in March 2006 Commenting on the outlook, Nicholas Vetch, Chairman, said: "Whilst we remain perennially concerned about consumer spending, at present, weare enjoying good trading conditions against the backdrop of a relatively stablehousing market. "The increasing financial strength of the Group together with a significantpipeline of new freehold stores means that Big Yellow is well placed to continueits expansion and deliver growth in shareholder value." - Ends - For further information, please contact: Big Yellow Group PLC 01276 470190Nicholas Vetch, ChairmanJames Gibson, Chief Executive Officer Weber Shandwick Square Mile 020 7067 0700Louise Robson or John Moriarty 16 May 2006 Big Yellow Group PLC ("Big Yellow", "the Group" or "the Company") Audited Results for the year and fourth Quarter ended 31 March 2006 CHAIRMAN'S STATEMENT Big Yellow Group Plc is pleased to announce results for the year and for the fourth quarter ended 31 March 2006. The Group enjoyed buoyant trading conditions throughout the summer months and,despite the usual winter slow down, saw steady trading conditions in the latterhalf of the year. We see encouraging signs of a seasonal pick up in activity aswe enter into the spring, with trading in April showing a marked improvementover the same period last year. Financial Results Revenue for the year was £41.9 million (2005: £33.4 million), an increase of25%. Annualised revenue increased at year end to £43.4 million (2005: £36.5million), up 19% compared to the previous year. Revenue for the fourth quarter was unchanged from that reported in the thirdquarter at £10.8 million although annualised revenue increased by 2% to £43.4million at the end of the quarter. This is due to a pick up in the early springat the end of the fourth quarter which will benefit revenue in the next quarter. Profit before tax for the year was £118.5 million up from £42.8 million lastyear. After adjusting for the gain on the revaluation of investment propertiesand other matters (see note 10) the Group made an adjusted profit before tax inthe period of £12.6 million, up 62% from £7.8 million in 2005. The basic earnings per share for the year was 82.10 pence (2005: 30.15 pence)and the fully diluted earnings per share was 80.47 pence (2005: 29.69 pence).Adjusted earnings per share based on adjusted profit after tax (see note 12) was8.91 pence (2005: 5.53 pence). Cash generated from operating activities (after finance) rose to £16.1 millionin the year (2005: £9.7 million), an increase of 67%. Net bank debt of £142.1 million at 31 March 2006 (2005: £102.5 million)represents approximately 30% (2005: 33%) of the Group's investment property anddevelopment property assets totalling £468.5 million (2005: £311.3 million) and44% (2005: 50%) of the adjusted net assets (see note 12) of £322.3 million(2005: £206.6 million). During the year we increased our committed bank facility with the Royal Bank ofScotland, Bank of Ireland and Barclays to £225.0 million and hence at the yearend had £82.9 million available to fund further expansion. Dividend The Board has reviewed its dividend policy and has concluded that the finaldividend be increased, reflecting the strength of the Group's operating cashflow. The Board is recommending a final dividend of 3.0 pence per ordinary share(2005: 1.5 pence) which, together with the interim dividend of 2.0 pence (2005:0.5 pence), takes the total dividend for the year to 5.0 pence (2005: 2.0 pence).The ex-dividend date will be 7 June 2006, the record date 9 June 2006, with anintended payment date of 12 July 2006. Valuation and Net Asset Value The Group's investment properties have been valued by Cushman & Wakefield (C&W).The total value of the Group's properties is £474.8million, comprising £410.5million for the 37 stores which were open at the year end, £58.0 million forsites held for development and £6.3 million of surplus land held for sale. The properties held for development and sale are held at historical cost lessprovision for impairment and have not been externally valued. The valuationtranslates into an adjusted net asset value of 297.0 pence per share (see note12), up 55% from 191.1 pence per share last year. This growth results from acombination of yield contraction and improved operating surpluses set out inmore detail in the Financial Review. The net yield on the portfolio based on the net operating income at store levelin the first year after the projected stabilisation of each store is 7.49%. Webelieve that this continues to offer attractive value, when set against the IPDAll Property yield of 5.84% and the 4% average annual net storage rent increasesachieved over the last four years. It is worth noting that external valuations are undertaken on the basis of apurchaser acquiring investment property as a direct property purchase andincurring 5.75% acquisition costs. In practice, we believe, that it is unlikelythat these branded Big Yellow stores will be bought other than in a corporatestructure. Real Estate Investment Trusts ("REITs") Following the Chancellor of the Exchequer's announcement and subsequentpublication of a draft Bill in April of this year, legislation allowing thecreation of REITs is due to be published in July this year and become law on 1January 2007. In essence, a REIT will exempt qualifying companies from paying Corporation Taxon their qualifying earnings in return for distributing 90% of qualifyingprofits to shareholders. Certain rules apply to a REIT limiting the amount ofdevelopment, debt gearing and non qualifying trading activity. In addition, for a company to convert into a REIT it will need to pay aconversion charge, representing 2% of gross property assets. Based on thecurrent value of the Group's properties of £474.8 million, the conversion chargefor Big Yellow would represent a one off payment of approximately £9.5 million. There are a number of issues relating to REIT conversion which management iscurrently investigating. Subject to the satisfactory resolution of these items,the Board is favourably disposed to conversion but will not make a decisionuntil we have further clarification on these points. Stores and the Market During the year, the Group increased occupancy by 202,000 sq ft with totaloccupancy at 31 March 2006 of 1,672,000 sq ft, representing a 76% occupancy rateacross all 37 trading stores. We have included, as usual, a table summarising the trading performance of allour stores over the year. The portfolio of 27 stores that were open for more than two years at the beginning of the period was 85% occupied at the end of the year with an average occupancy during the year of 85%. In addition these 27 stores achieved EBITDA margins of 62% and, after an allocation of central overhead, net operating income margins of 56%. Same store revenue for these 27 stores increased 17% year on year, of which 11%is a result of yield improvement and the balance occupancy growth. The self storage industry has witnessed a degree of growth in activity fromsmaller self storage operators in some of the smaller provincial towns, butbarriers to entry remain high in the Group's core areas of activity in Londonand the larger provincial cities and towns. Our People The Big Yellow team has remained stable during the year both at Head Office andwithin the stores. I remain convinced that the quality and success of ourbusiness is, has been and will continue to be intrinsically bound up in theefforts and quality of the people who work at Big Yellow, so once again I extendmy thanks to them all. In November 2005 Stephen Homer, who joined the Group in January 1999 as Marketing Director, left to pursure other interests. Stephen had a significant impact onthe development of the Big Yellow brand and I would like to thank him for all hisendeavours and wish him well in the future. Property The year has been strong in terms of progress on property acquisitions with 10sites acquired in the year; eight in London at Twickenham, Balham, Kennington,Ealing, Sutton, Bow South, Barking Central and a second existing store atRichmond, one in Manchester and one in Liverpool. Since the year end, we haveacquired a further three sites in London at Merton, Bromley, an extension siteadjacent to our original Richmond store and one in Sheffield. Including stores acquired in April, there are now 21 stores in the pipelineincluding the proposed Richmond extension. These stores, when fully developed,will represent an additional 1.35 million sq ft. The net result is now a threeyear development programme of 21 sites representing a total capital outlay ofsome £186 million, reflecting a strong bias towards more valuable London storelocations. Six of those stores are anticipated to open in the current financialyear and a further store has been granted planning permission, leaving 14 siteson which we are negotiating planning permits. 35 (61%) of our total stores andsites are located within the M25 and 49 are freehold or long leasehold. Thetotal of 58 stores open or in planning and development should provide totalcapacity when fully developed of 3.57 million sq ft. Of particular note is the planning permission we have obtained in Fulham, for a139,000 sq ft store. When the store opens in some eighteen months, it will bethe Group's largest as well as being its most centrally located in London. We have acquired a number of properties with surplus land additional to our selfstorage requirements, particularly in Twickenham, Merton and Manchester, andthese will be disposed of in due course. Outlook Whilst we remain perennially concerned about consumer spending, at present, weare enjoying good trading conditions against the backdrop of a relatively stablehousing market. The increasing financial strength of the Group together with a significantpipeline of new freehold stores means that Big Yellow is well placed to continueits expansion and deliver growth in shareholder value. Nicholas VetchChairman BUSINESS REVIEW Introduction Big Yellow has achieved substantial total returns for its shareholders in theyear under review, which arise from a combination of factors including: - a prime portfolio of self storage properties- successful acquisition and development driving new stores- the strength of operational management- improving cash flow and margins- flexible and conservative financing Business Objectives In recent years, Big Yellow has established itself as the leading self storagebrand in its main areas of operation in London and the South, a key objectiveset at flotation. The Group's strategy is to continue to invest in qualityassets at the premium end of the self storage market and expand the reach of theBig Yellow brand nationally. The main elements of our strategy remain: - the roll-out of new stores in major urban conurbations throughout the UK, in addition to retaining a focus on London- locating stores in visible, convenient and accessible locations- conservative financing using flexible bank borrowings secured against a prime freehold portfolio- an unwavering focus on customer service- excellent operational and financial management generating strong cash-flow growth- innovative and creative marketing- an entrepreneurial and passionate culture, with accessible senior management encouraging innovation and dialogue throughout the business - recruiting and retaining quality people into the business Financing Objectives Big Yellow's financing policy is to fund its current needs through a mix of debtand equity in building out the existing portfolio and strategic growthobjectives. We aim to ensure that there are sufficient medium term facilities in place tofinance our committed development programme, secured against the freeholdportfolio with debt serviced by our growing strong operational cashflows. The business is financed by a mixture of debt and equity which improves returnsto shareholders. The level of bank debt in the business is closely monitoredagainst the Board's policy guidelines, which currently require that the ratio ofnet debt to gross property assets is no greater than 50% and interest cover notless than 2.25 times based on Group net operating income, comfortably ahead ofits banking covenants. However, it is acknowledged that there may be limitedperiods where income cover temporarily falls slightly below 2.25 as a result ofknown factors, for example a number of new store openings, as new freeholdstores make a loss for the first three to six months before breaking even at thenet operating income level. Risk Management The management of risk is a fundamental part of how we have controlled thedevelopment of Big Yellow since its formation in September 1998. Self Storage market risk Economic growth in the UK was less than 2% and below trend in 2005 and we haveseen a subdued consumer under pressure from rising utility costs, petrol prices,borrowing costs and taxes, whilst feeling less confident in the equity in theirhomes given the weaker housing market. However the level of housingtransactions, having fallen significantly from the summer of 2004, has nowstabilised with signs of improvement in the housing market, particularly inLondon. In addition, economic growth in the UK is projected to improve in 2006. Approximately half our customers are in some way linked to the housing market,for example with customers renting storage space between house moves or whilstmoving within the rental sector. We estimate that 15% of customers rent storagespace as a spare room for lifestyle purposes and approximately 20% use theproduct because some event has occurred in their lives generating the need forstorage; they may be moving abroad for a job, have inherited furniture, aregetting married or divorced, are students who need storage during the holidays,or homeowners developing into their lofts or basements. The balance of 15% ofour customers, who rent approximately 30% of lettable space, are businessesranging from start ups and market traders to retailers and larger multinationalsstoring stock, documents, equipment, or promotional materials all requiring aconvenient flexible solution to their storage either to get started or to freeup more expensive space. Self storage is an immature market with further opportunity for significantgrowth. Awareness of self storage and how it can be used by domestic andbusiness customers is relatively low throughout the UK, although higher inLondon. The rate of growth in branded self storage on main roads in goodlocations continues to be limited by the difficulty of acquiring sites ataffordable prices and obtaining planning consent. Big Yellow only invests in prime locations, developing high quality self storagecentres in the large urban conurbations where the drivers in the self storagemarket and the barriers to competition are at their strongest. We have a large current storage customer base of over 28,000 spread across the portfolio of open stores and many thousands more have used Big Yellow over the years. In any month customers move in and out at the margin but the solidity of the occupancy of our stores when they lease up to maturity can be seen from the Trading Summary. Property risk The acquisition of eight to ten sites a year for development into self storageis a key strategic objective of the business. We continue to face significantcompetition for sites for these quality main road locations from other uses suchas residential, hotel, car showroom and offices. In addition we are seeingincreasing competition from our main competitors for sites. The planning process remains difficult with planning taking approximately nineto twelve months to achieve on average. In this competitive environment, we dotake planning risk as it is necessary for us to acquire sites unconditionally,with planning and other property due diligence carried out under tighttimescales. Big Yellow management has significant experience in the property industrygenerated over many years and in particular in acquiring property on main roadsin high profile locations and obtaining planning consents. In the year under review we were successful in acquiring ten sites, eight inLondon and one in Liverpool and one in Manchester, and we have acquired afurther four sites since year end. We now have a portfolio of 58 stores andsites (including one extension site) of which 39 are currently open and afurther seven have planning consents. We manage the construction of our properties very tightly. The building of eachsite is handled through a design and build contract, with the fit out projectmanaged in-house using an established professional team of external advisors andsub-contractors who have worked with us for many years on our Big Yellowspecification. Treasury risk The Group borrows in sterling at floating rates of interest and uses swaps tohedge its interest rate exposure. Since the year end other derivatives have beenput in place to ensure at least 40% of bank borrowings are hedged, the balanceis left floating paying margin over rolling 3 month LIBOR. Our portfolio is relatively high yielding and we believe this flexible approachto our hedging is appropriate for our strategic aims. Interest cover and balance sheet risk The Group reviews the current and forecast projections of cash flow, borrowingand interest cover as part of its monthly management accounts. In addition, ananalysis of the impact of significant transactions is carried out regularly, aswell as a sensitivity analysis assuming movements in interest rates on gearingand interest cover. Taxation risk The Group is exposed to changes in the tax regime affecting the cost ofcorporation tax, VAT and Stamp Duty Land Tax ("SDLT"). We regularly monitorproposed and actual changes in legislation with the help of our professionaladvisors and through trade bodies to understand and, if possible, mitigate orbenefit from their impact. Human resources At Big Yellow we have developed a professional, lively, enjoyable and funworking environment and believe our success stems from attracting and retainingthe right people. We encourage all our staff to build on their skills, throughappropriate training and regular performance reviews. We believe in anaccessible and open culture and everyone at all levels is encouraged to reviewand challenge accepted norms so as to contribute to the performance of theGroup. Reputation Big Yellow's reputation with all its stakeholders is something we value highlyand will always look to protect and enhance. We aim to communicate clearly withour customers, suppliers, local authorities and communities, employees andshareholders and to listen to and take account of their views. The Big YellowIntranet and Website (www.bigyellow.co.uk) are important avenues ofcommunication for both employees and shareholders. Corporate and Social Responsibility Big Yellow develops self storage centres in environments in which people liveand work, building storage centres for our customers who live within a three tofive mile radius providing a storage solution for businesses and homeowners. 85%of our customers are householders renting storage rooms primarily for householdcontents as explained earlier, 15% of our customers occupying 30% of the netlettable space are businesses requiring flexible storage space to operate andexpand, thus contributing to job creation and generating wealth for the localeconomy. We survey all customers at moveout to assess their views on a number of issuesand seek to respond to all complaints and views in order to improve ourperformance and meet our customers' changing needs. We work closely with our suppliers to ensure they understand our aims andobjectives and can share in the Big Yellow vision of reinforcing our position asthe leading brand in the UK self storage market. As a Board we are committed to ensuring that our development activities do notplace an unnecessary burden on future generations. Big Yellow is well aware ofits corporate social responsibility and recognises the positive contribution itcan make to address environmental concerns and sustainability issues. A moredetailed explanation of our approach to managing and minimising the impact ofour development on the environment will be set out in the Directors' Report inthe Annual Report. Big Yellow has a committed and skilled staff of 185 people. We have aresponsibility to provide an attractive and safe working environment, equalopportunities, training to improve skills and, where practicable for a businessof this size, career progression. Remuneration is linked to performance andassessed against relevant markets at all levels. Our shareholders and bankers are our providers of capital and we aim through ourreporting, our Investor Relations website and announcements to keep theminformed about the progress of the business. Furthermore we have aresponsibility through the successful performance and growth of the business toprovide our shareholders with an attractive total return on their investmentthrough dividends and share price growth. The success of Big Yellow has allowed us to put something back into the localcommunities in which we operate through the support of local causes and intosociety generally through donations to charities. Stores During the year, we opened five stores, one in Leeds, one in Bristol and threein London in Beckenham, Richmond and North Kensington. The existing storeacquired in Richmond at the end of June 2005 on the A316 comprises 23,500 sq ftstore which we opened under the Big Yellow banner whilst we seek planningpermission for redevelopment into a larger 60,000 sq ft store. We were alsosuccessful in extending our Wandsworth store by 14,000 sq ft to 47,000 sq ft andit is now back at maturity. Since the year end we have opened stores inTunbridge Wells and East Finchley bringing the number now trading to 39. Theavailable net lettable space increased by 280,000 sq ft over the year to 2.22million sq ft with the opening of the five stores and, including the twoopenings since the year end, we now have a total net lettable capacity on openstores of 2.33 million sq ft. The maturity profile across the 37 stores open at the end of the year is set outin the Trading Summary and shows a blended occupancy for the portfolio of 76% (1.67 million sq ft), with the 27 stores more than two years old at an average occupancy of 85%. There are a further 21 freehold sites at various stages of planning and construction (including Tunbridge Wells and East Finchley) which, when fully developed, will increase the total capacity of the portfolio to 3.57 million sq ft. In July last year we opened our first store in Leeds and have been pleased withits lease up and general trading performance, encouraging us to continue toexpand in the Midlands, the North of England and Scotland. Included in ourdevelopment programme are new sites in Manchester, Liverpool and Sheffield.Furthermore, 14 of the 21 stores in the development pipeline (including theextension site for our first Richmond store) are located in Greater London,which we believe will improve the quality of our portfolio. We expect to opensix stores in the current financial year. Customer move-ins per store averaged 92 per month over the year, down from the97 per month last year, reflecting a more mature store portfolio with lessavailability and hence less activity, however we expect this to pick up as newstores open in the current year. Of the 37 stores open at year end 35 are nowtrading profitably and the other two opened recently in December 2005 and March2006. The drive to improve store operating standards and consistency across theportfolio remains a key focus for the Group. Customer service is at the heart ofour business objectives as a satisfied customer is our best marketing tool. Wemeasure customer service standards through a programme of mystery shoppers andex-customer surveys. We have reorganised our operational management and now havein place an experienced field team to develop and support the stores and growwith the business. The store bonus structure rewards sales growth and cost control through settingquarterly targets based on store profitability, including the contribution fromancillary sales of insurance and packing materials. Information on bonus buildup is circulated monthly and stores are involved in tracking their ownperformance leading to improved visibility, a better understanding of saleslines and control of operating costs. The Company manages the construction and fit-out of its stores in-house as webelieve it provides better control and we have an excellent record of buildingstores on time and within budget. The total construction spend in the year was£25 million and is expected to be approximately £26 million in 2006/7. Wecurrently have six stores on site of which one is in the demolition phase andfive stores with buildings under construction. We believe that as a customer facing real estate business it is paramount tomaintain the quality of our estate and customer offering. We therefore continueto invest in a rolling programme of store makeovers, preventative maintenance,store cleaning and the repair and replacement of essential equipment, such asinternal and external gates. Marketing During the year the Company spent approximately £1.5 million, 4% of turnover, onabove the line marketing, in line with the previous year. It is our intention tocontinue to invest this proportion of our turnover to increase awareness of BigYellow in existing and new markets, particularly as we expand into the North. We ran a successful TV campaign on Carlton/London Weekend Television and a radiocampaign in London on Heart/LBC/Smooth and selected local radio stations lastsummer. These campaigns were run over our peak trading period last summer andfollowed by further radio campaigns in autumn 2005 and spring 2006. This was ourthird year of significant TV and radio investment which we believe hascontributed to the achievement of Big Yellow as the leading brand in our area ofoperation. To build on this success and reinforce Big Yellow's brand position we haverecently launched a further intensive radio advertising campaign across London,timed to coincide with our busier summer trading period, which will benefit 26stores. We are also running radio campaigns this summer on selected local radiostations outside London and a TV campaign in the ITV Wales and West region tosupport our network of stores in the South West. We see the internet as an increasing source of prospects and customers andcontinue to invest in developing our e commerce platform. We have recentlyre-launched our website to incorporate the latest web technologies and webelieve has set a new standard in the self storage sector. This is a first stagein several developments we have planned in improving our e-services forcustomers. Local marketing, selling standards and customer service at store level are alsocritical to building the brand and achieving customer loyalty andrecommendations. We invest significantly in training and have a reward structureand performance monitoring systems which focus specifically on achieving salesand customer service objectives. People At Big Yellow we aim to provide a lively, fun and enjoyable work environment,without losing the commitment to customer service and standards of performance. As the business has grown it has been necessary to formalise the means by whichideas and policy changes are communicated and discussed with employees. We holdregular consultation meetings with employees, both formally and informally, andour directors and senior management spend significant time in the stores and areaccessible to employees at all levels. We encourage a partnership culture withinthe business and believe in staff participating in corporate performance throughshare incentives. Many employees have benefited or continue to benefit fromshare options granted in previous years and an Inland Revenue approved SharesaveScheme which provides an opportunity to invest in the future success of BigYellow at a discount to the prevailing share price at the date of eachinvitation. In addition, a stakeholder pension scheme managed by Friends Provident providespension provision within the Group and is available to all employees after sixmonths. Currently over 60% of our employees are members of the scheme. We had 185 employees in the business at the year end, and recruiting andretaining the right calibre people remains critical to the continued success ofBig Yellow. We promote the individual development of staff through training andregular performance appraisals and have a policy on flexible working to meetindividual needs where possible, without compromising corporate objectives. Security The safety and security of our customers and stores remains a key priority. Toachieve this we invest in state of the art access control systems, individualroom alarms, digital CCTV systems, intruder and fire alarm systems and theremote monitoring of our stores out of hours. We have implemented customer security procedures in line with advice from theMetropolitan Police and continue to work with the regulatory authorities onissues of security, reviewing our operational procedures regularly. Theimportance of security and the need for vigilance is communicated to all storestaff and reinforced through training and we have recently run an updated courseto enhance the awareness and effectiveness of our procedures in relation tosecurity, entitled "You and your customer". FINANCIAL REVIEW International Financial Reporting Standards ("IFRS") Big Yellow Group PLC adopted IFRS with a transition date from 1 April 2004 and announced the restatement of its 2005 full year results under IFRS on 27 September 2005. That announcement, which includes reconciliations and explanations ofdifferences from reported key numbers under UK GAAP, together with theaccompanying presentation, is available on the Company's website,www.bigyellow.co.uk. The main change resulting from the introduction of IFRS isthat Big Yellow has changed its classification and accounting for the majorityof its properties to "investment properties" and its trading stores are now heldin the balance sheet at fair value, having previously been held at nethistorical cost. Furthermore, these investment properties are no longerdepreciated but are subject to bi-annual external valuations, with movements onthe fair value recognised separately in the income statement. This report is prepared in accordance with IFRS and includes the Group's IFRSaccounting policies together with further details on key performance measures inthe notes to the accounts. Whilst the adoption of IFRS has significantly changed the presentation of thefinancial results in this report, it has no impact on the underlying business orcashflow. An explanation of the transition to IFRS is set out in note 27. Financial Results Annualised revenue, the measure of store revenue being billed (net of alldiscounts) at the end of the year, increased to £43.4 million, up from £36.5million last year, an increase of 19%. Revenue for the year was £41.9 million,up 25% from £33.4 million for 2005. Other sales (included within the above), comprising the selling of packagingmaterials, insurance and storage related charges represented 14% of storageincome for the year (2005: 14%) and generated revenue of £5.2 million for theyear, up from £4.1 million in 2005. The Group made a profit before tax in the year of £118.5 million, upsignificantly from the £42.8 million in the prior year. After adjusting for thegain on the revaluation of investment properties and other matters shown in thetable below the Group made an adjusted profit before tax in the year of £12.6million, up 62% from £7.8 million in 2005. -------------------------------------------------------Profit before Tax Analysis 2006 2005 £m £m-------------------------------------------------------Profit before tax 118.5 42.8Less gain on revaluation of investment properties (106.2) (34.9)Add/(less) movement in fair value on interest rate swaps 0.2 (0.1)Loss on sale of non-current assets 0.1 --------------------------------------------------------Adjusted profit before tax 12.6 7.8------------------------------------------------------- The Group sold surplus land at four of its store development sites for netproceeds of £3.8 million making a negligible net loss. The basic earnings pershare for the year was 82.10p (2005: 30.15p) and the fully diluted earnings pershare was 80.47p (2005: 29.69p). Adjusted earnings per share based on adjustedprofit after tax was 8.91p (2005: 5.53p) (see note 12). Administration Expenses including the cost of construction management were lowerat £4.7 million compared to £5.4 million in 2005. There have been additionalcosts in 2006 relating to conversion to IFRS and compensation for loss of officeof a director as well as inflationary increases. These increases were offset bythe saving from a cost in the prior year of a one-off long term bonus payment todirectors and senior management of £1.4 million including employers' nationalinsurance contributions. Net Interest Expense on Bank Borrowings for the year increased to £7.6 millionup from £5.7 million in 2005 reflecting the increase in net borrowing over theperiod. The average cost of borrowing including margin at 31 March is set outbelow: ---------------------------------------------------------------- 2006 2005----------------------------------------------------------------Average interest rate on fixed rate debt 6.1% 6.5%Average interest rate on variable rate debt 5.6% 6.0%Overall weighted average interest rate 5.7% 6.3%---------------------------------------------------------------- Balance Sheet The Group's 37 trading stores at 31 March 2006, which are classified asinvestment properties, have been re-valued by Cushman & Wakefield (C&W) and thishas resulted in a gross asset value of £410.5 million, comprising £349.4 million(85%) for freehold and long leasehold properties, £61.1 million (15%) for shortleasehold stores. The properties held for development have not been valued andhave been included in the balance sheet at a historical cost less provision for impairment of £58.0 million. The valuation translates into an adjusted net asset value per share of 297.0pence (2005: 191.1 pence) after the dilutive effect of outstanding share options. --------------------------------------------------------------------Analysis of Net Asset Value 2006 2005 £'000 £'000--------------------------------------------------------------------Basic net asset value 244.3 159.2Exercise of share options 5.8 7.3--------------------------------------------------------------------Diluted net asset value 250.1 166.5Adjustments:Deferred tax on revaluation surpluses 72.1 40.2Deferred tax on fair value of interest rate swaps - ---------------------------------------------------------------------Adjusted net asset value 322.2 206.7-------------------------------------------------------------------- Basic net assets per share (pence) 239.2 159.0Diluted net assets per share (pence) 230.5 154.0Adjusted net assets per share (pence) 297.0 191.1Diluted shares used for calculation (million) 108.5 108.1 The value of the investment property portfolio at 31 March 2006 was £410.5million up £135.3 million from the £275.2 million at 31 March 2005. £82.6million is the increase in the valuation of the same store portfoliorepresenting a 30% total uplift, of which 16% is a function of capital growthand 14% operational performance. The balance of £52.7 million is the valuationof the new stores, comprising capital expenditure of £28.7 million and arevaluation uplift of £24.0 million mainly on new stores at Beckenham, Leeds, North Kensington and Bristol Central. The anticipated initial yield on the portfolio in the following year, asrepresented by net operating income at store level, is 6.01%, rising to 7.49% inthe year following stabilisation of each store. The reduction in the stabilisedyield from 8.83% at 31 March 2005 to 7.49% results in a 16% capital valueincrease. This yield reduction reflects a number of factors, includingsignificant yield compression on other real estate assets in the UK andelsewhere and more specifically, a growing institutionalisation of self storageassets, particularly in the US. During the year the Group has acquired a virtual freehold in its Head Officebuilding for £1.25 million plus irrecoverable VAT and this property is now heldas a freehold property in the balance sheet at cost. Total returns to shareholders as measured by the increase in net assets pershare plus dividend was 56% in 2006. Total shareholder returns since flotationin May 2000 have been 26% compound per annum and 78% compound per annum in thelast three years. Financing and Treasury The Group is strongly cash generative and draws down from its longer termcommitted facilities as required to meet obligations. The Group's cash earningscontinue to grow as reflected by the increase in cashflow from operatingactivities (after financing) for the year to £16.1 million from £9.7 millionlast year. We focus on improving our cashflows and currently have healthy interest cover inexcess of 2.5 times with a relatively conservative debt structure securedprincipally against its freehold estate. The Group was comfortably in compliancewith its bank covenants at 31 March 2006. At the end of the year, the Group had net bank borrowings of £142.1 million, anincrease of £39.6 million over last year following £61.3 million of capitalexpenditure, £9.1 million of net interest paid (including finance lease costs),dividend payments of £3.5 million, net cash inflows from changes in sharecapital of £1.5 million, offset by operating cash flow of £25.4 million, andland disposal proceeds of £7.6 million. In March 2006 the Group increased its bank facility with the Royal Bank ofScotland, Bank of Ireland and Barclays to £225 million from £150 million. Thisfacility is secured on a portfolio of freehold and leasehold assets, andincreases total banking facilities to £241 million. Net debt at the end of Marchwas £142.1 million, leaving significant available facilities to fund expansiontogether with the Group's growing operational cashflow. Treasury continues to be closely monitored and its policy approved by the Board.We maintain a close watch on medium and long term rates and the Group's policyin respect of interest rates is to maintain a balance between flexibility andhedging of interest rate risk. At 31 March 2006, the Group had total bankborrowings of £156.3 million of which £36.3 million is hedged at maturitiesexpiring in 2007 and 2010. A further £50m was hedged in April 2006. We willcontinue to review policy in relation to future interest rate exposure based onassessment of prevailing market conditions. Cash deposits are only placed with approved financial institutions in accordancewith Group policy. Share Capital The share capital of the Company totalled £10.3 million at 31 March 2006 (2005:£10.1 million), consisting of 102,752,607 ordinary shares of 10p each (2005:100,725,537 shares). During the year there were no purchases of shares by the Group into Treasury.615,000 shares were purchased in the prior year at an average price of 132p, andwere subsequently transferred into an Employee Benefit Trust ("EBT"). Theseshares are shown as a debit in reserves and are not included in calculatingearnings and net asset value per share. Shares issued for the exercise of options during the period amounted to2,027,070 at an average exercise price of 73p. -------------------------------------------------------------------------- 2006 2005 No. No.-------------------------------------------------------------------------- Opening shares 100,725,537 99,400,216Shares issued for the exercise of options 2,027,070 1,325,321-------------------------------------------------------------------------- Closing shares in issue 102,752,607 100,725,537Shares held in EBT (615,000) (615,000)-------------------------------------------------------------------------- Closing shares for NAV purposes 102,137,607 100,110,537-------------------------------------------------------------------------- 72,903,317 million shares were traded in the market during the year ended 31March 2006 (2005: 67,465,613). The average mid market price of shares tradedduring the year was 259p with a high of 377p and a low of 185p. At 31 March 2006 there were 5,592,936 shares subject to share option awards toemployees of the Group at an average strike price of 100p. In addition there are569,054 nil paid options, granted under the Group's LTIP scheme and 206,037share options granted under the Group's SAYE scheme at an average strike priceof 124p. Dividend A final dividend of 3.0p per share is proposed, increased from the 1.5p finaldividend for 2005 and together with the interim dividend of 2.0p (2005: 0.5p)takes the total dividend for the year to 5.0p (2005: 2.0p). Taxation The current year tax charge for the Group of £35.1 million (2005: £12.7 million)relates to a movement in deferred tax of £34.0 million and a corporation taxcharge of £1.1 million. The movement in the deferred tax primarily consists of the deferred taxliability arising on the revaluation of investment properties (£31.9 million)and capital allowances in excess of depreciation (£2.2 million). The Group has an effective tax rate for the year of 30% (2005: 30%) which is inline with the UK standard rate of corporation tax. The Group's actual cash tax liability for the year is, however, nil as the Groupis entitled to claim a tax deduction in the year of £3.9 million in connectionwith share options exercised by employees. Under the provisions of IAS 12,however, the benefit of this tax deduction is taken straight to reserves ratherthan being accounted for through the tax charge for the year. Trading Summary Years since opening March 2006 March 2006 March 2006 March 2005 March 2005 March 2005 as at 1 April 2005 > 2 years < 2 years Total > 2 years < 2 years Total Number of stores 27 10 37 27 5 32 ---------- ---------- ---------- ---------- ---------- ----------As at 31 March 2006Total capacity (sq ft) 1,652,000 560,000 2,212,000 1,635,000 277,000 1,912,000Occupied space (sq ft) 1,403,000 269,000 1,672,000 1,341,000 129,000 1,470,000Percentage occupied 85% 48% 76% 82% 47% 77% £'000 £'000 £'000 £'000 £'000 £'000Annualised revenue 36,326 7,074 43,400 33,248 3,226 36,474For the year:Average occupancy 85% 40% 73% 80% 36% 74%Average annual rent psf £22.56 £20.51 £22.46 £20.61 £19.60 £20.43Self storage sales 31,674 4,594 36,268 26,960 1,955 28,915Other storage related income(1) 4,395 841 5,236 3,795 355 4,150Development/tenant income 201 184 385 310 - 310 ---------- ---------- ---------- ---------- ---------- ----------Total Revenue 36,270 5,619 41,889 31,065 2,310 33,375Direct store operating costs (excluding depreciation) (11,564) (2,887) (14,451) (10,494) (1,350) (11,844)Leasehold rent(2) (2,206) - (2,206) (2,166) - (2,166) ---------- ---------- ---------- ---------- ---------- ----------Store EBITDA(3) 22,500 2,732 25,232 18,405 960 19,365EBITDA Margin(4) 62% 49% 60% 59% 41% 58% Central overhead(5) (2,174) (570) (2,744) (1,880) (240) (2,120) ---------- ---------- ---------- ---------- ---------- ----------Store Net Operating Income 20,326 2,162 22,488 16,525 720 17,245NOI Margin 56% 38% 54% 53% 31% 52% ---------- ---------- ---------- ---------- ---------- ---------- Cumulative capital expenditure £m £m £m to 31 March 2006 120.1 59.0 179.1to complete - 2.6 2.6 ---------- ---------- ---------- Total cost 120.1 61.6 181.7 ---------- ---------- ---------- (1) Packing materials, insurance and other storage related fees.(2) Rent for 9 leasehold properties accounted for as investment properties and finance leases under IFRS with total self storage capacity of 535,000 sq ft.(3) Earnings before interest, tax, depreciation and amortisation.(4) Of stores open more than 2 years, 9 leaseholds achieved a store EBITDA of £6.43 million and EBITDA margin of 50%. 18 freeholds achieved a store EBITDA of £16.07 million and EBITDA margin of 69%.(5) Allocation of overhead based on 6% of estimated stabilised income. Big Yellow Group PLCConsolidated income statementYear ended 31 March 2006 Note 2006 2005 £'000 £'000 Revenue 3 41,889 33,375Cost of sales (15,519) (12,924) -------- --------Gross profit 26,370 20,451 Administrative expenses (4,725) (5,421) -------- --------Operating profit before gain on investment properties 5 21,645 15,030Gain on the revaluation of investment properties 13a 106,218 34,976 -------- --------Operating profit 127,863 50,006(Losses)/gains on the sale of non-current assets (52) 2Investment income 7 135 142Finance costs 8 (9,399) (7,314) -------- --------Profit before taxation 118,547 42,836Taxation 9 (35,112) (12,695) -------- --------Profit for the year (attributable to equity shareholders) 83,435 30,141 ======== ========Basic earnings per share 12 82.10p 30.15p ======== ========Diluted earnings per share 12 80.47p 29.69p ======== ======== Adjusted earnings per share are shown in Note 12.All items in the income statement relate to continuing operations. Big Yellow Group PLCConsolidated balance sheetAs at 31 March 2006 Note 2006 2005 £'000 £'000Non-current assetsInvestment property 13a 410,470 275,230Development property 13a 57,988 36,076Interests in leasehold properties 13a 26,647 25,659Plant, equipment and owner-occupied property 13b 3,036 1,314Goodwill 13c 1,433 1,433 -------- -------- 499,574 339,712 -------- --------Non-current assets classified as held for sale 13d 6,300 2,867 Current assetsInventories 338 254Trade and other receivables 15 6,009 8,896Cash and cash equivalents 14,193 6,379 -------- -------- 20,540 15,529 -------- --------Total assets 526,414 358,108 ======== ========Current liabilitiesTrade and other payables 16 (20,122) (13,584)Derivative financial instruments 17 (142) (153)Current tax liabilities - (32) -------- -------- (20,264) (13,769) -------- --------Non-current liabilitiesBank borrowings 18 (155,608) (108,348)Deferred tax liabilities 19 (70,580) (39,026)Obligations under finance leases 20 (26,647) (25,659)Other payables 16 (8,996) (12,138) -------- -------- (261,831) (185,171) -------- --------Total liabilities (282,095) (198,940) ======== ========Net assets 244,319 159,168 EquityCalled up share capital 21 10,275 10,073Share premium account 22 3,668 2,390Reserves 22 230,376 146,705 -------- --------Equity shareholders' funds 244,319 159,168 ======== ========The financial statements were approved by the board of directors and authorisedfor issue on 15 May 2006. Big Yellow Group PLCConsolidated statement of changes in equityYear ended 31 March 2006 Note 2006 2005 £'000 £'000 Opening equity shareholders' funds 159,168 130,711Issue of shares 1,480 564Purchase of own shares 22 - (812)Share-based employee remuneration 22 220 109 -------- -------- 160,868 130,572Profit for the year 83,435 30,141Current and deferred tax recognised in equity 3,557 - -------- -------- 247,860 160,713Dividends 11 (3,541) (1,545) -------- --------Closing equity shareholders' funds 244,319 159,168 ======== ======== Big Yellow Group PLCConsolidated cash flow statementYear ended 31 March 2006 2006 2005 £'000 £'000 Operating profit 127,863 50,006Gain on the revaluation of investment properties (106,218) (34,976)Depreciation 1,288 1,209Employee share options 220 109(Increase)/decrease in inventories (84) 34Increase in receivables (825) (561)Increase in payables 3,156 571 -------- --------Cash generated from operations 25,400 16,392 Interest paid (9,422) (6,857)Interest received 147 129 -------- --------Cash flows from operating activities 16,125 9,664 -------- --------Investing activities Sale of non-current assets 7,619 3,729Purchase of non-current assets (61,269) (45,710) -------- --------Cash flows from investing activities (53,650) (41,981) -------- --------Financing activitiesIssue of share capital 1,480 564Purchase of own shares - (812)Equity dividends paid (3,541) (1,545)Increase in borrowings 47,400 40,000 -------- --------Cash flows from financing activities 45,339 38,207 -------- --------Net increase in cash and cash equivalents 7,814 5,890 Opening cash and cash equivalents 6,379 489 -------- --------Closing cash and cash equivalents 14,193 6,379 ======== ======= Big Yellow Group PLCReconciliation of net cash flow to movement in net debtYear ended 31 March 2006 2006 2005 £'000 £'000 Net increase in cash and cash equivalents in the year 7,814 5,890Cash inflow from increase in debt financing (47,400) (40,000) -------- --------Change in net debt resulting from cash flows (39,586) (34,110) -------- --------Movement in net debt in the year (39,586) (34,110)Net debt at the start of the year (102,514) (68,404) -------- --------Net debt at the end of the year (142,100) (102,514) ======== ======= Big Yellow Group PLCNotes to the Accounts 1. General information Big Yellow Group PLC is a company incorporated in the United Kingdom under theCompanies Act 1985. The address of the registered office is 2 The Deans, Bridge Road, Bagshot, Surrey GU19 5AT. The nature of the Group's operations and its principal activities are set out in note 4 and in the Business Review. These financial statements are presented in pounds sterling because that is thecurrency of the economic environment in which the Group operates. 2. Significant accounting policies Basis of accounting The annual financial statements have been prepared for the first time inaccordance with International Financial Reporting Standards (IFRS) adopted foruse in the European Union and therefore comply with Article 4 of the EU IASRegulation and with those parts of the Companies Act 1985 that are applicable tocompanies reporting under IFRS. The Group has applied all accounting standards and interpretations issued by theInternational Accounting Standards Board and International Financial ReportingInterpretation Committee relevant to its operations and effective for accountingperiods beginning on 1 April 2005. Accounting standards and interpretations inissue at that date of authorisation of the financial statements but not yeteffective are not expected to have material impact on the financial statementsof the Group. The disclosures required by IFRS 1 "First - time Adoption of IFRS" concerning thetransition from accounting principles generally accepted in the United Kingdom(UK GAAP) to IFRS are given in note 27. Big Yellow Group PLC adopted IFRS with a transition date of 1 April 2004.Comparative figures for the year ended 31 March 2005 and the Group's balancesheet as at 31 March 2005 that were previously reported in accordance with UKGAAP have been restated to comply with IFRS. The financial statements have been prepared on the historic cost basis exceptthat investment properties and derivative financial instruments are stated atfair value. Basis of consolidation The principal accounting polices have been applied consistently, to the results,other gains and losses, assets, liabilities and cash flows of entities includedin the consolidated financial statements The Group accounts consolidate the accounts of Big Yellow Group PLC and all itssubsidiaries at the year end using acquisition accounting principles. Allintra-group transactions, balances, income and expenses are eliminated onconsolidation. On acquisition, the assets and liabilities and contingentliabilities of a subsidiary are measured at their fair values at the date ofacquisition. Any excess of the cost of acquisition over the fair values of theidentifiable net assets acquired is recognised as goodwill. Any deficiency ofthe cost of acquisition below the fair values of the identifiable net assetsacquired (i.e. discount on acquisition) is credited to profit and loss in theperiod of acquisition. Revenue recognition Revenue represents amounts derived from the provision of services which fallwithin the Group's ordinary activities after deduction of trade discounts andany applicable value added tax. Income is recognised over the period for whichthe storage unit is occupied by the customer. Operating profit Operating profit is stated after gains on revaluation of investment propertiesand before gains and losses on non-current assets, investment income and financecosts. Finance Costs All borrowing costs are recognised in profit or loss in the period in which theyare incurred. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the year. Taxableprofit differs from the net profit as reported in the income statement becauseit excludes items of income or expense that are taxable or deductible in otheryears and it further excludes items that are never taxable or deductible. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit, and is accounted for using the balance sheet liability method. Deferredtax liabilities are generally recognised for all taxable temporary differencesand deferred tax assets are recognised to the extent that it is probable thattaxable profits will be available against which deductible temporary differencescan be utilised. Such assets and liabilities are not recognised if the temporarydifferences arise from goodwill or from the initial recognition (other than in abusiness combination) of other assets and liabilities in a transaction thataffects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differencesarising on investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheetdate and reduced to the extent that it is no longer probable that sufficienttaxable profits will be available to allow all or part of the asset to berecovered. Deferred tax is calculated at the tax rates that are expected to apply in theperiod when the liability is settled or the asset is realised. Deferred tax ischarged or credited in the income statement, except when it relates to itemscharged or credited directly to equity, in which case the deferred tax is alsodealt with in equity. Investment property Investment properties are properties owned or leased by the Group which are heldfor rental income and for capital appreciation. Investment property is initiallyrecognised at cost and revalued at the balance sheet date to fair value asdetermined by professionally qualified external valuers. In accordance withIAS40, investment property held leasehold is stated gross of the recognisedfinance lease liability. Gains or losses arising from the changes in fair value of investment propertyare included in the income statement of the period in which they arise. Inaccordance with IAS40, as the Group uses the fair value model, no depreciationis provided in respect of investment properties including integral plant. Development property Properties and land under development are recognised at historic cost less anyprovision for impairment. The assets are transferred to investment propertiesonce the store has opened to customers. Plant, equipment & owner occupied property All property, plant and equipment, not classified as investment or developmentproperty, are carried at historic cost less depreciation and any recognisedimpairment loss. Depreciation is provided on cost in equal annual instalments over the estimateduseful lives of the assets. The useful economic lives of the assets are as follows: Leasehold improvements Over period of the lease Plant and machinery 10 years Motor vehicles 4 years Fixtures and fittings 5 years Computer equipment 3 years The gain or loss arising on the disposal or retirement of an asset is determinedas the difference between the sales proceeds and the carrying amount of theasset and is recognised in income. Leases Assets held under finance leases are recognised as assets of the Group at theirfair value or, if lower, at the present value of the minimum lease payments,each determined at the inception of the lease. The corresponding liability tothe lessor is included in the balance sheet as a finance lease obligation. Leasepayments are apportioned between finance charges and reduction of the leaseobligation so as to achieve a constant rate of interest on the remaining balanceof the liability. Finance charges are charged directly against income. Rentals payable under operating leases are charged to income on a straight-linebasis over the term of the relevant lease. Rental income from operating leases is recognised on a straight-line basis overthe term of the relevant lease. Goodwill Goodwill arising on consolidation represents the excess of the cost ofacquisition over the Group's interest in the fair value of the identifiableassets and liabilities of a subsidiary at the date of acquisition. Goodwillarising on acquisitions before the date of transition to IFRS has been retainedat the previous UK GAAP amounts subject to being tested for impairment at thatdate. Goodwill is recognised as an asset and reviewed for impairment at leastannually. Any impairment is recognised immediately in profit or loss and is notsubsequently reversed. Non-current assets held for sale Non-current assets classified as held for sale are measured at the lower ofcarrying amount and fair value less costs to sell. Non-current assets are classified as held for sale if their carrying amountwill be recovered through a sale transaction rather than through continuing use.This condition is regarded as met only when the sale is highly probable and theasset is available for immediate sale in its present condition. Management mustbe committed to the sale which should be expected to qualify for recognition asa completed sale within one year from the date of classification. Impairment of assets At each balance sheet date, the Group reviews the carrying amounts of its assetsto determine whether there is any indication that those assets have suffered animpairment loss. If any such indication exists, the recoverable amount of theasset is estimated in order to determine the extent of the impairment loss (ifany). Cash and cash equivalents Cash and cash equivalents comprises cash and short term deposits. The carrying amount of these assets approximates to the fair value. Inventories Inventories are stated at the lower of cost and net realisable value. Financial instruments Financial assets and financial liabilities are recognised on the Group's balancesheet when the Group becomes a party to the contractual provisions of theinstrument. Trade Receivables Trade receivables do not carry any interest and are stated at their nominalvalue as reduced by appropriate allowances for estimated irrecoverable amounts. Bank borrowings Interest-bearing bank loans and overdrafts are recorded at the proceedsreceived, net of direct issue costs. The bank loans are disclosed net ofunamortised loan issue costs. Costs relating to the raising of general corporateloan facilities are amortised over the estimated life of the loan and charge tothe income statement as part of the interest expense. Trade payables Trade payables are not interest bearing and are stated at their nominal value. Derivative financial instruments and hedge accounting The Group's activities expose it primarily to the financial risks of interestrates. The Group uses interest rate swap contracts to hedge these exposures. TheGroup does not use derivative financial instruments for speculative purposes.The use of financial derivatives is governed by the Group's policies approved bythe Board of Directors. The policy in respect of interest rates is to maintain abalance between flexibility and the hedging of interest rate risk. Changes inthe fair value of derivative financial instruments are recognised in the incomestatement as they arise. The Group has not adopted hedge accounting. Derivativesembedded in other financial instruments or other host contracts are treated asseparate derivatives when their risks and characteristics are not closelyrelated to those of host contracts and the host contracts are not carried atfair value with unrealised gains or losses reported in the income statement. Retirement benefit costs Pension costs represent contributions payable to defined contribution schemesand are charged to as an expense to the income statement as they fall due. Theassets of which are held separately from those of the Group. Equity instruments Equity instruments issued by the Company are recorded at the proceeds received,net of direct issue costs. Share-based payments The Group has applied the requirements of IFRS 2 Share-based Payments. Inaccordance with the transitional provisions, IFRS 2 has been applied to allgrants of equity instruments after 7 November 2002 that were unvested as of 1April 2005. The Group issues equity-settled share-based payments to certain employees. Theseare measured at fair value at the date of grant. The fair value determined atthe grant date of the share-based payment is expensed on a straight-line basisover the vesting period, based on the Group's estimate of shares that willeventually vest. Fair value is measured by use of an option pricing model. The expected life usedin the model has been adjusted, based on management's best estimate, for theeffects of non-transferability, exercise restrictions, and behaviouralconsiderations. Critical Accounting Estimates and Judgements The preparation of consolidated financial statements under IFRS requiresmanagement to make estimates and assumptions that may affect the application ofaccounting policies and the reported a amounts of assets and liabilities, incomeand expenses. Actual outcomes may therefore differ from these estimates andassumptions. The estimates and assumptions that have a significant risk ofcausing a material adjustment to the carrying amounts of assets and liabilitieswithin the next financial year are discussed below. a) Estimate of Fair Value of Investment PropertiesThe Group values its self storage centres using a discounted cash flowmethodology which is based on projections of net operating income. Principalassumptions underlying management's estimation of the fair value are thoserelated to: stabilised occupancy levels; expected future growth in storage rentsand operating costs; maintenance requirements; capitalisation rates and discountrates. A more detailed explanation of the background and methodology adopted inthe valuation of the Group's investment properties is set out in note 14 to theaccounts. b) Development PropertyThe Group's development properties are held in the balance sheet at historiccost and are not valued externally. In acquiring sites for redevelopment intoself storage facilities, the Group estimates and makes judgements on thepotential net lettable storage space that it can achieve in its planningnegotiations, together with the time it will take to achieve maturity occupancylevel. In addition, assumptions are made on the storage rent that can beachieved at the store by comparing with other stores within the portfolio andwithin the local area. These judgements taken together with estimates ofoperating costs and the projected construction cost, allow the Group tocalculate the potential net operating income at maturity, projected returns oncapital invested and hence to support the purchase price of the site atacquisition. Following the acquisition, regular reviews are carried out takinginto account the status of planning negotiations, revised construction costs or capacity of the new facility, for example, to make an assessment of the carrying value of the development property at historic cost. Once a store is opened, then it is valued as an investment property in the Group's balance sheet and transferredfrom development properties. 3. Revenue Total revenue for the year was £41.9 million (2005: £33.4 million). Revenue fromself storage accommodation was £36.3 million in the year (2005: £28.9 million),£5.2 million came from other storage related income such as sales of packagingmaterials and insurance (2005: £4.1 million) and £0.4 million came fromnon-storage related income (2005: £0.3 million). Further analysis of the Group's operating revenue and costs can be found in theTrading Summary. 4. Segmental Information Revenue represents amounts derived from the provision of self storageaccommodation and related services which fall within the Group's ordinaryactivities after deduction of trade discounts and value added tax. The Group'snet assets, revenue and profit before tax are attributable to one activity, theprovision of self storage accommodation and related services. These all arise inthe United Kingdom. 5 Profit for the year a) Profit for the year has been arrived at after: 2006 2005 £'000 £'000Depreciation of plant and equipment 656 635Finance lease depreciation 632 574Increase in fair value of investment property (106,218) (34,976)Cost of inventories recognised as an expense 788 718Employee costs (see note 6) 5,645 6,650Operating lease rentals 135 138Auditors' remuneration for audit services (see below) 140 110 ======== ======= b) Analysis of fees paid to auditors: 2006 2005 £'000 £'000Services as auditors 140 110Further associate services - IFRS transition 45 -Tax services - advisory 17 164 -------- -------- 202 274 ======== =======Included in the Group's auditors' remuneration is an amount of £12k (2005: £11k)which was paid in respect of the parent company. 6. Employee costs The average monthly number of employees (including Executive Directors) was: 2006 2005 £'000 £'000Sales 146 130Administration 32 30 -------- -------- 178 160 ======== =======At 31 March 2006 the total number of Group employees was 185 (2005: 166). £'000 £'000Their aggregate remuneration comprised:Wages and salaries 4,678 5,731Social security costs 544 642Other pension costs 203 168Share-based payments 220 109 -------- -------- 5,645 6,650 ======== ======= 7. Investment income 2006 2005 £'000 £'000Interest receivable on bank deposits 135 142 ======== ======= 8. Finance costs 2006 2005 £'000 £'000Interest on bank borrowings 7,579 5,747Other interest payable 26 29Interest on obligations under finance leases 1,574 1,605Change in fair value of interest rate swaps 220 (67) -------- -------- 9,399 7,314 ======== ======= 9. Taxation UK current tax 2006 2005 £'000 £'000Current tax:- Current year 1,165 32- Adjustment in respect of prior year (32) -Deferred tax (see note 19):- Current year 34,419 13,037- Adjustment in respect of prior year (440) (374) -------- -------- 35,112 12,695 ======== ======= A reconciliation of the tax charge is shown below: 2006 2005 £'000 £'000Profit before tax 118,547 42,836 -------- --------Tax (charge) at 30% thereon (35,564) (12,851) ======== =======Effects of:Expenses not deductible for tax purposes 20 54Adjustment in respect of prior year (472) (374)Chargeable gains - 164 -------- --------Total tax charge 35,112 12,695 ======== ======= Analysis of deferred tax charge 2006 2005 £'000 £'000On share options 2,554 2,544On revaluations and disposals 31,865 10,493Credit in respect of prior years (440) (374) -------- --------Deferred tax charge 33,979 12,663 ======== =======In addition to the current year income statement tax charge of £35.1 million, there is a credit to reserves of £3.6 million in respect of the current tax deduction and the deferred tax arising on potential future deductions under Schedule 23. 10. Adjusted Profit before tax 2006 2005 £'000 £'000 Profit before tax 118,547 42,836 -------- --------Gain on revaluation of investment properties (106,218) (34,976)Change in fair value of interest rate swaps 220 (67)Losses/(gains) on sale of non-current assets 52 (2) -------- --------Adjusted profit before tax 12,601 7,791 ======== =======Adjusted profit before tax which excludes gains on revaluation of investmentproperties, changes in fair value of interest rate swaps and gains or losses onthe sale of non-current assets have been disclosed to give a clearerunderstanding of the Group's underlying trading performance. 11. Dividends 2006 2005 £'000 £'000Amounts recognised as distributions to equity holders in the period:Final dividend for the year ended 31 March 2005 of 1.5p (2004: 1.05p) per share. 1,511 1,045Interim dividend for the year ended 31 March 2006 of 2.0p (2005: 0.5p) per share. 2,030 500 -------- -------- 3,541 1,545 ======== =======Proposed final dividend for the year ended 31 March 2006 of 3.0p (2005: 1.5p) per share. 3,064 1,512 ======== =======The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting and has not been included as a liability in these financialstatements. The ex-dividend date will be 7 June; the record date 9 June; with anintended payment date of 12 July. 12. Earnings per ordinary share Year ended 31 March 2006 Year ended 31 March 2005 Earnings Shares Pence per Earnings Shares Pence per £m Million share £m Million shareBasic 83.44 101.62 82.10 30.14 99.97 30.15Adjustments:Dilutive share options - 2.07 (1.63) - 1.53 (0.46) -------- -------- -------- -------- -------- --------Diluted 83.44 103.69 80.47 30.14 101.50 29.69 -------- -------- -------- -------- -------- -------- Adjustments:Gain on revaluation of investment properties (106.22) - (102.44) (34.98) - (34.46)Change in fair value of interest rate swaps 0.22 - 0.21 (0.07) - (0.07)Tax 31.80 - 30.67 10.52 - 10.37 -------- -------- -------- -------- -------- --------Adjusted 9.24 103.69 8.91 5.61 101.50 5.53 -------- -------- -------- -------- -------- -------- The calculation of basic earnings is based on profit for the year. The weightedaverage number of shares used to calculate diluted earnings per share has beenadjusted for the conversion of share options. Adjusted earnings per ordinary share before gains on revaluation of investmentproperties and on change in fair value of interest rate swaps and associateddeferred tax balances, have been disclosed to give a clearer understanding ofthe Group's underlying trading performance. Adjusted net assets per share Analysis of net asset value As at As at 31 March 2006 31 March 2005 £'000 £'000 Basic net asset value 244,319 159,168Exercise of share options 5,839 7,331 ---------- ----------Diluted net asset value 250,158 166,499 ---------- ----------Adjustments:Deferred tax on revaluation 72,059 40,194Tax on fair value of interest rate swaps 43 (46) ---------- ----------Adjusted net asset value 322,260 206,647 ---------- ----------Basic net assets per share (pence) 239.2 159.0Diluted net assets per share (pence) 230.5 154.0Adjusted net assets per share (pence) 297.0 191.1 Shares in issue 102,752,607 100,725,537Own shares held (615,000) (615,000) Basic shares in issue used for calculation 102,137,607 100,110,537Exercise of share options 6,368,227 8,010,329Diluted shares used for calculation 108,505,834 108,120,866 Net assets per share are shareholders' funds divided by the number of shares atthe period end. The shares currently held in the Group's employee benefits trust(own shares held) are excluded from both net assets and the number of shares. Adjusted net assets per share include: • the effect of those shares issuable under employee share option schemes;• deferred tax on the revaluation uplift on freehold and leasehold properties; and• tax on the fair value adjustment on interest rate swaps. 13 Non-Current Assets a) Investment property, development property and interests in leasehold properties Investment Development Interests in property property leasehold £'000 £'000 properties £'000 At 1 April 2004 205,450 21,202 26,233Additions 29,215 27,810 -Reclassifications 5,589 (5,589) -Revaluation 34,976 - -Disposals - (7,347) -Depreciation - - (574) -------- -------- -------- At 31 March and 1 April 2005 275,230 36,076 25,659 -------- -------- --------Additions 16,839 37,976 1,620Reclassifications 12,183 (12,183) -Revaluation 106,218 - -Disposals - (3,881) -Depreciation - - (632) -------- -------- --------At 31 March 2006 410,470 57,988 26,647 -------- -------- -------- The income from self storage accommodation earned by the Group from its investmentproperty is disclosed in note 3. Direct operating expenses arising on the investmentproperty in the year are disclosed in the Trading Summary. b) Plant equipment and owner occupied property Fixtures, Leasehold fittings Freehold improve- Plant and Motor & office Property ments machinery vehicles equipment Total £'000 £'000 £'000 £'000 £'000 £'000CostAt 1 April 2004 - 37 319 19 2,420 2,795Additions - - 70 - 415 485Disposals - - - - (2) (2) -------- -------- -------- -------- -------- --------At 31 March 2005/1 April 2005 - 37 389 19 2,833 3,278Additions 1,764 (12) 68 - 562 2,382Disposals - (8) - (19) - (27) -------- -------- -------- -------- -------- --------At 31 March 2006 1,764 17 457 - 3,395 5,634 -------- -------- -------- -------- -------- --------DepreciationAt 1 April 2004 - (14) (76) (11) (1,228) (1,329)Charge for the year - - (38) (5) (592) (635) -------- -------- -------- -------- -------- --------At 31 March 2005/1 April 2005 - (14) (114) (16) (1,820) (1,964)Charge for the year - (7) (44) (2) (603) (656)Disposals - 4 - 18 - 22 -------- -------- -------- -------- -------- --------At 31 March 2006 - (17) (158) - (2,417) (2,592) -------- -------- -------- -------- -------- --------Net book valueAt 31 March 2006 1,764 - 293 - 979 3,036 ======== ======== ======== ======== ======== ========At 31 March 2005 - 23 269 3 1,017 1,314 c) GoodwillGoodwill relates to the purchase of Big Yellow Self Storage Company Limited in1999. The asset is tested bi-annually for impairment. The carrying value of £1.4million remains unchanged from the prior year as there is considered to be noimpairment in the value of the asset. d) Non-current assets classified as held for saleThe Group has land at three sites with a total historic cost of £6.3 million (2005: £2.9 million) which is surplus to requirements which it intends to sell within the next 12 months. 14. Valuations Deemed Revaluation on cost Valuation deemed cost Freehold Stores*As at 1 April 2005 122,901 223,760 100,859Movement in period 29,084 125,640 96,556As at 31 March 2006 151,985 349,400 197,415 Leasehold StoresAs at 1 April 2005 18,350 51,470 33,120Movement in period (62) 9,600 9,662As at 31 March 2006 18,288 61,070 42,782 All StoresAs at 1 April 2005 141,251 275,230 133,979Movement in period 29,022 135,240 106,218As at 31 March 2006 170,273 410,470 240,197* Includes one long leasehold property The freehold and leasehold trading properties have been valued as at 31 March2006 by External Valuers, Cushman & Wakefield, Real Estate Consultants ("C&W").The valuation has been carried out in accordance with the RICS Appraisal andValuation Standards published by The Royal Institution of Chartered Surveyors("the Red Book"). The valuation of each of the trading properties has beenprepared on the basis of Market Value as a fully equipped operational entity,having regard to trading potential. The valuation has been provided for accountspurposes and as such, is a Regulated Purpose Valuation as defined in the RedBook. In compliance with the disclosure requirements of the Red Book, C&W haveconfirmed that: • The members of the RICS who have been the signatories to the valuations provided to the Company for the same purposes as this valuation have done so since September 2004. • C&W have continuously been carrying out this valuation for the same purposes as this valuation on behalf of the Company since September 2004. • C&W do not provide other significant professional or agency services to the Company. • In relation to the preceding financial year of C&W, the proportion of the total fees payable by the Company to the total fee income of the firm is less than 5%. Valuation methodology Background The USA has approximately 40,000 self storage centres trading in a highlyfragmented market with the largest 5 operators accounting for less than 20% ofmarket share based on net rentable square footage. The vast majority of centresare owned and managed singly or in small portfolios. These properties have awell established track record of being trading and are therefore considered asliquid property assets. Many valuations of this asset class are undertaken by appraisers in the USA andthe accepted valuation approach is to value the properties on the basis ofMarket Value as fully-equipped operational entities, having regard to tradingpotential. This approach is recognised in the RICS Appraisal & Valuation Standards ("the Red Book") published by The Royal Institution of Chartered Surveyors and is adopted for other categories of property that are normally bought and sold on the basis of their trading potential. Examples include hotels, licensed properties, marinas and petrol stations. The UK self storage sector differs from the USA in that the five larger Group'scontrol over 50% of the market by net rentable storage space. The scope foractive trading of these property assets is therefore likely to be less, howeverthere is now some evidence that there will be increasing liquidity with recentsales of independently owned product in larger conurbations. In addition, the acquisition of Shurgard Storage Centres, Inc. by PublicStorage, Inc. (the largest self storage Group in the world) was announced inMarch this year including a portfolio of over 140 trading storage facilities inEurope, with 18 in the UK. C&W believe that the valuation methodology adopted in the USA is the mostappropriate for the UK market. Methodology C&W have adopted different approaches for the valuation of the leasehold andfreehold assets as follows: Freehold The valuation is based on a discounted cash flow of the net operating incomeover a ten year period and notional sale of the asset at the end of the tenthyear. Assumptions A. Net operating income is based on projected revenue received less projected operating costs together with a central administration charge representing 6% of the estimated annual revenue. The initial net operating income is calculated by estimating the net operating income in the first 12 months following the valuation date. B. The net operating income in future years is calculated assuming straight line absorption from day one actual occupancy to an estimated stabilised/mature occupancy level. In the valuation the assumed stabilised occupancy level for the 37 stores (both freeholds and leaseholds) averages 85.98% (2005: 85.64%). The projected revenues and costs have been adjusted for estimated cost inflation and revenue growth. C. The capitalisation rates applied to existing and future net cash flow have been estimated by reference to underlying yields for industrial and retail warehouse property, bank base rates, ten year money rates, inflation and the available evidence of transactions in the sector. On average, for all 37 stores, the yield (net of purchaser's costs) arising from the first year of the projected cash flow is 6.01% (2005: 7.26%). This rises to 7.49% (2005: 8.83%) based on the projected cash flow for the first year following estimated stabilisation in respect of each property. D. The future net cash flow projections (including revenue growth and cost inflation) have been discounted at a rate that reflects the risk associated with each asset. The weighted average annual discount rate adopted (for both freeholds and leaseholds) is 10.59% (2005: 11.57%). E. Purchaser's costs of 5.75% have been assumed initially and sale plus purchaser's costs totalling 7.75% are assumed on the notional sales in the tenth year in relation to the freehold stores. Leasehold The same methodology has been used as for freeholds, except that no sale of theassets in the tenth year is assumed but the discounted cash flow is extended tothe expiry of the lease. The average unexpired term of the Group's leaseholds is19.8 years (March 2005: 20.8 years). 15. Trade and other receivables 31 March 31 March 2006 2005 £'000 £'000 Trade receivables 1,042 756Other receivables 284 3,986Prepayments and accrued income 4,683 4,154 -------- -------- 6,009 8,896 ======== ======== Trade receivables are net of a bad debt provision of £4,000 (2005: £8,000). TheGroup does not offer credit terms to its customers and hence the Group is notexposed to significant credit risk. The Director's consider that the carrying amount of trade and other receivablesapproximates their fair value. 16. Trade and other payables 31 March 31 March 2006 2005 £'000 £'000CurrentTrade payables 4,835 3,623Other payables 1,855 1,914Accruals and deferred income 11,760 6,161VAT repayable under Capital Goods Scheme 1,672 1,886 -------- -------- 20,122 13,584 ======== ========Non currentVAT repayable under Capital Goods Scheme 8,996 12,138 ======== ======== The Directors consider the carrying amounts of trade and other payables and accruals and deferred income approximates fair value. See note 18 for detail of VAT repayable under Capital Goods Scheme. 17. Financial instruments and Risk Management Interest rate swaps The Group uses interest rate swaps to manage its exposure to interest ratemovements on its bank borrowings. Contracts with nominal values of £36.3 millionhave fixed interest payments at an average rate of 6.1% for periods up until2010. The fair value of swaps entered into at 31 March 2006 is estimated as aliability of £142,000 (2005: £153,000 ). These amounts are based on currentmarket values at the balance sheet date. The floating rate at 31 March 2006 on the Group's variable debt was 1.0% above three month LIBOR. The Group's policy on risk management is set out in the Business Review. 18. Bank borrowings 31 March 31 March 2006 2005 £'000 £'000 Bank borrowings 156,293 108,893Unamortised loan arrangement costs (685) (545) -------- -------- 155,608 108,348 ======== ======== The bank borrowings are secured on certain of the Group's properties and are subjectto certain covenants. Maturity profile of bank borrowings 2006 2005 Financial Financial liabilities liabilities £'000 £'000 Within one year or on demand - -Between two and five years 156,293 108,893 -------- --------Bank borrowings 156,293 108,893 ======== ======== The Group has £85,000,000 in undrawn committed borrowing facilities at 31 March2006 which expire after two but before five years. In March 2006, the maincommitted facility was increased from £150 million to £225 million. Interest rate profile of financial liabilities Weighted Weighted Period for average Floating average which the period Total rate Fixed rate interest rate is until £'000 £'000 £'000 rate fixed maturity At 31 March 2006 Gross financial liabilities 156,293 120,000 36,293 5.7% 4.3 years 3.0 years -------- -------- -------- -------- -------- --------At 31 March 2005Gross financial liabilities 108,893 56,000 52,893 6.3% 4.5 years 3.1 years -------- -------- -------- -------- -------- -------- The floating rate at 31 March 2006 was 1.0% above three month LIBOR. All monetary liabilities, includingshort term debtors and creditors are denominated in sterling. The Directors estimate the fair value of the Group's borrowings and VAT payable under CapitalGoods Scheme as follows: 2006 2005 Carrying Estimated Carrying Estimated amount fair value amount fair value £'000 £'000 £'000 £'000 Bank borrowings 156,293 156,435 108,893 109,046 ======== ======== ======== ========VAT payable under capital goods scheme 10,668 8,921 12,138 9,357 ======== ======== ======== ======== The fair values have been calculated by discounting expected cash flows at interest rates prevailing at the year end. Narrative disclosures on the Group's policy for financial instruments are included within the Business Review. 19. Deferred tax The movement and major deferred tax items are set out below: Revaluation of Accelerated Deduction investment capital for share properties allowances options Other Total At 1 April 2004 29,701 (330) (978) (908) 27,485Recognised in income 10,493 1,754 - 416 12,663Recognised in equity - - (1,122) - (1,122) -------- -------- -------- -------- --------At 31 March 2005 and 1 April 2005 40,194 1,424 (2,100) (492) 39,026 ======== ======== ======== ======== ========Recognised in income 31,865 2,250 (22) (114) 33,979Recognised in equity - - (2,425) - (2,425) -------- -------- -------- -------- --------At 31 March 2006 72,059 3,674 (4,547) (606) 70,580 ======== ======== ======== ======== ======== 20 Obligations under finance leases Present value Minimum lease minimum of payments lease payments 2006 2005 2006 2005 £'000 £'000 £'000 £,000 Amounts payable under finance leases:Within one year 2,320 2,186 2,268 2,135Within two to five years inclusive 9,079 8,740 7,637 7,322Greater than five years 37,414 34,691 16,742 16,202 -------- -------- -------- -------- 48,813 45,617 26,647 25,659 Less: Future finance charges (22,166) (19,958) - - -------- -------- -------- --------Present value of lease obligations 26,647 25,659 26,647 25,659 ======== ======== ======== ======== All lease obligations are denominated in sterling. The fair value of the Group's lease obligations approximates their carrying amount. 21 Share capital Called up, allotted and Authorised fully paid 2006 2005 2006 2005 £'000 £'000 £'000 £,000 Ordinary shares at 10 pence each 20,000 20,000 10,275 10,073 Movement in issued share capitalNumber of shares at 1 April 2004 99,400,216Exercise of share options- Share option scheme 1,325,321 ----------Number of shares at 31 March 2005/ 1 April 2005 100,725,537Exercise of share options- Share option scheme 2,027,070 ----------Number of shares at 31 March 2006 102,752,607 ========== At 31 March 2006 options in issue to Director's and employees were as follows: Option price Date on which the Number ofDate option per ordinary Date first exercise period ordinary sharesgranted share exercisable expires 18 January 1999 13.3p 18 January 2002 18 January 2009 25,9405 March 1999 25p 5 March 2002 5 March 2009 125,00016 November 1999 62.5p 16 November 2002 15 November 2009 4,6005 May 2000 100p 5 May 2003 4 May 2010 2,105,40030 November 2000 137.5p 30 November 2003 29 November 2010 9,2501 June 2001 125.5p 1 June 2004 31 May 2011 168,0004 June 2001 131.5p 4 June 2004 4 June 2011 889,0008 November 2001 98p 8 November 7 November 2011 166,17415 May 2002 102p 15 May 2005 14 May 2012 724,11116 December 2002 81.5p 16 December 2005 15 December 2012 1,089,0502 July 2003 82.5p 2 July 2006 1 July 2013 202,30111 November 2003 96p 11 November 2006 10 November 2013 84,1103 September 2004 107p* 3 September 2007 2 September 2014 142,45227 September 2004 nil p** 27 September 2007 26 September 2014 138,00022 December 2004 140p* 22 December 2007 21 December 2014 32,3436 June 2005 Nil p** 6 June 2008 6 June 2015 431,05421 July 2005 156p* 21 July 2008 21 July 2015 16,56921 December 2005 225p* 21 December 2008 21 December 2015 14,873* SAYE (see note 23)** LTIP (see note 23) Own shares 2006 2005 £ £ Balance at 1 April 812 -Acquired in the period - 812 -------- --------Balance at 31 March 812 812 ======== ======== The own shares reserve represents the cost of shares in Big Yellow Group PLCpurchased in the market and held by the Big Yellow Group PLC Employee BenefitTrust to satisfy options under the Group's share options schemes. 22. Reserves Share Capital Share premium redemption Retained Own capital account reserves earnings shares TotalGroup £'000 £'000 £'000 £'000 £'000 £'000 At 1 April 2004 9,940 1,959 1,653 117,159 - 130,711Profit for the financial year - - - 30,141 - 30,141Dividends - - - (1,545) - (1,545)Issue of shares 133 431 - - - 564Purchase of own shares - - - - (812) (812)Share options - - - 109 - 109 -------- -------- -------- ------- ------- -------At 31 March 2005/ 1 April 2005 10,073 2,390 1,653 145,864 (812) 159,168Profit for the financial year - - - 83,435 - 83,435Current/deferred Tax - - - 3,557 - 3,557Dividends - - - (3,541) - (3,541)Issue of shares 202 1,278 - - - 1,480Share options - - - 220 - 220 -------- -------- -------- ------- ------- -------At 31 March 2006 10,275 3,668 1,653 229,535 (812) 244,319 23. Share based payments The Company has three equity share-based payment arrangements, namely approvedand unapproved share option schemes, an LTIP scheme, and an Employee Share SaveScheme ("SAYE"). The Group recognised a total expense related to equity-settledshare-based payment transactions since 7 November 2002 of £0.2 million (2005:£0.1 million). Equity-settled share option plans The Group granted options to employees under Approved and Unapproved InlandRevenue Share option schemes between 16 November 1999 and 11 November 2003. TheGroup's scheme's provided for a grant price equal to the average quoted marketprice of the Group shares on the date of grant. The vesting period is three toten years. If the options remain unexercised after a period of 10 years from thedate of grant, the options expire. Furthermore, options are forfeited if theemployee leaves the Group before the options vest. Since 3 September 2004 the Group has operated an Employee Share Save Scheme("SAYE") which allows any employee who has more than six months service topurchase shares at a 20% discount to the average quoted market price of theGroup shares at the date of grant. The associated savings contracts are 3 yearsat which point the employee can exercise their option to purchase the shares ortake the amount saved, including interest, in cash. The scheme is administeredby Abbey at Work. On 27 September 2004 and 6 June 2005 the Group awarded nil-paid options tosenior management under the Group's Long Term Incentive Plan ("LTIP"). Theawards are conditional on the achievement of challenging performance targets asdescribed in the remuneration report which will be in the published AnnualReport. Weighted Weighted average average 2006 exercise 2005 exercise No. of price No. of priceShare option scheme "ESO" Options (in £) Options (in £) Outstanding at beginning of year 7,658,295 0.93 8,920,374 0.83Granted during the year 3,110 0.96 220,000 1.32Forfeited during the year (40,941) 0.90 (156,758) 0.95Exercised during the year (2,027,528) 0.73 (1,325,321) 0.36 ---------- -------- ---------- -------- Outstanding at the end of the year 5,592,936 1.00 7,658,295 0.93 ========== ======== ========== ========Exercisable at the end of the year 5,112,525 1.00 4,849,414 0.93 ========== ======== ========== ======== Options outstanding at 31 March 2006 had a weighted average contractual life of 5.3 years. 2006 2005 No. of No. of LTIP scheme Options OptionsOutstanding at beginning of year 146,000 -Granted during the year 479,332 146,000Forfeited during the year (56,278) - -------- --------Outstanding at the end of the year 569,054 146,000 ======== ========Exercisable at the end of the year - - ======== ========Options outstanding at 31 March 2006 had a weighted average contractual life of 9.0 years. Weighted Weighted average average 2006 exercise 2005 exercise No. of price No. of priceEmployee Share Save Scheme ("SAYE") Options (in £) Options (in £) Outstanding at beginning of year 206,034 1.12 32,613 1.40Granted during the year 45,455 1.78 173,421 1.07Forfeited during the year (45,252) 1.22 - -Exercised during the year - - - - ---------- -------- ---------- -------- Outstanding at the end of the year 206,237 1.24 206,034 1.12 ========== ======== ========== ========Exercisable at the end of the year - - - - ========== ======== ========== ======== Options outstanding at 31 March 2006 had a weighted average contractual life of 8.3 years. The inputs into the Black-Scholes model are as follows: ESO LTIP SAYE Expected volatility 25% 24% 27%Expected life 3 years 3 years 3 yearsRisk-free rate 4.7% 4.7% 4.7%Expected dividends 3.2% 3.2% 3.2% ======= ======= ======= Expected volatility was determined by calculating the historical volatility ofthe Group's share price over the year prior to grant. 24. Capital commitments Amounts contracted but not provided in respect of the Group's properties were£7.2 million (2005: £5.7 million). 25 Events after the balance sheet date There were no significant events after the balance sheet date. 26. Related party transactions Transactions between the company and its subsidiaries, which are relatedparties, have been eliminated on consolidation and are not disclosed in thisnote. No other related party transactions took place during the years ended 31March 2006 and 31 March 2005. The remuneration of the Executive Directors, who are the key managementpersonnel of the Group, is set out below in aggregate. Further information onthe remuneration of individual Directors is found in the audited part of theDirectors' Remuneration Report of the Annual Report. 31 March 31 March 2006 2005 £'000 £'000 Short term employee benefits 1,190 2,205Post employment benefits 75 73Share based payments 3,469 1,499 -------- -------- 4,734 3,777 ======== ======== 27. Explanation of transition to IFRS This is the first year that the company has presented its financial statements under IFRS. The following disclosures are required in the year of transition. The last financial statements under UK GAAP were for the year ended 31 March 2005 and the date of transition to IFRS was therefore 1 April 2004. IFRS 1 permits companies adopting IFRS for the first time to take certain exemptions from full retrospective application of IFRS accounting policies. Big Yellow has taken the following key exemptions: (a) Business combinations: Big Yellow has chosen not to restate business combinations that occurred prior to 1 April 2004 to comply with IFRS 3 "Business Combinations". As a result the carrying value of goodwill recorded under UK GAAP as at 1 April 2004 has been fixed at transition date. (b) Share-based payments: IFRS 2 "Share-based Payments" has been applied retrospectively to equity-settled awards that had not vested as at 1 April 2005 and were granted on or after 7 November 2002. Reconciliation of equity at 1 April 2004 (date of transition to IFRS) Effect of transition UK GAAP to IFRS IFRSNote £'000 £'000 £'000 Non-current assetsa Investment Property 106,930 99,060 205,450 Development Property 21,202 - 21,202 Interests in leasehold properties - 26,234 26,234a Plant, equipment & owner occupied property 3,100 - 3,100b Goodwill 1,432 - 1,432 -------- -------- -------- Total non-current assets 132,124 125,294 257,418 -------- -------- -------- Non-current assets classified as held for sale - - - Current Assets Inventories 288 - 288 Trade and other receivables 5,822 - 5,822 Cash and cash equivalents 756 - 756 -------- -------- ------- 6,866 - 6,866 -------- -------- ------- Total assets 138,990 125,294 264,284 -------- -------- ------- Current liabilitiesc Other payables 11,706 (1,044) 10,662 Derivative financial instruments - 220 220 Non-current liabilitiesd Bank borrowings 68,893 - 68,893e Deferred tax liabilities - 27,564 27,564c Obligations under finance leases - 26,234 26,234 -------- -------- ------- Total liabilities 80,599 52,974 133,573 Net assets 58,391 72,320 130,711 Equity Called up share capital 9,940 - 9,940 Share premium account 1,653 - 1,653 Reserves 46,798 72,320 119,118 -------- -------- ------- Equity shareholder's funds 58,391 72,320 130,711 ======== ======== =======* Reformatted to IFRS format Reconciliation of equity at 31 March 2005 Effect of transition UK GAAP to IFRS IFRSNote £'000 £'000 £'000 a Investment Property 140,434 134,796 275,230 Development Property 36,076 - 36,076a Plant, equipment & owner occupied property 1,314 - 1,341b Goodwill 1,335 98 1,433 -------- -------- -------- Total non-current assets 179,159 160,553 339,712 Non-current assets held for sale - 2,867 2,867 Current assets Inventories 254 - 254 Trade and other receivables 8,896 - 8,896 Cash and cash equivalents 6,379 - 6,379 -------- -------- -------- 15,529 - 15,529 -------- -------- -------- Total assets 194,688 163,420 358,108 -------- -------- -------- Current liabilites Trade and other payables (15,192) 1,608 (13,584) Derivative financial instruments - (153) (153) Current tax liability (32) - (32) Non-current liabilitiesd Bank borrowings (108,348) - (108,348)c Obligations under finance leases - (25,659) (25,659) Other payables (12,138) - (12,138)e Deferred tax liabilities (299) (38,727) (39,026) -------- -------- -------- Total liabilities (136,009) (62,931) (198,940) -------- -------- -------- Net assets 58,679 100,489 159,168 -------- -------- -------- Equity Called up share capital 10,073 - 10,073 Share premium account 2,390 - 2,390 Reserves 46,216 100,489 146,705 -------- -------- -------- Equity shareholder's funds 58,679 100,489 159,168 ======== ======== ======== Reconciliation of consolidated income statement for year ended 31 March 2005 Effect of transition UK GAAP to IFRS IFRSNote £'000 £'000 £'000 Revenue 33,375 - 33,375a,c Cost of sales (18,254) 5,330 (12,924) -------- -------- -------- Gross profit 15,121 5,330 20,451 -------- -------- --------c Administrative expenses (5,436) 15 (5,421) -------- -------- -------- Operating profit before gains and investment properties 9,685 5,315 15,030a Gain on the revaluation of investment properties - 34,976 34,976 -------- -------- -------- Operating profit 9,685 34,976 50,006 Gains on sale of non-current assets 2 - 2 Investment income 142 - 142c Finance costs (5,776) (1,538) (7,314) -------- -------- -------- (11,068) 33,453 22,384 -------- -------- -------- Profit before taxation 4,053 38,783 42,836 Taxation (1,531) (11,164) (12,695) -------- -------- -------- Profit for the year 2,522 27,619 30,141 ======== ======== ======== Notes to the IFRS reconciliations The principal reasons for the adjustments shown in the reconciliations betweenUK GAAP and IFRS are set out below: a) IAS 40 - Investment PropertiesUnder UK GAAP, Big Yellow classified their self storage sites as fixed assets,and were held at cost in the balance sheet. Under IFRS, these storage sites arenow classified as investment properties under the provisions of IAS 40. As aconsequence they are held on the balance sheet at fair value. Investmentproperties are not depreciated and are subject to an external valuationbi-annually with any movements on revaluation recognised separately in theincome statement. b) IFRS 3 - Business CombinationsUnder IFRS 3, goodwill on acquisition is no longer amortised, but is held at UKGAAP carrying value at the transition date, or acquisition date, and is thensubject to an impairment review at each reporting date. c) IAS 17 - LeasesUnder IAS 17, investment properties which are owned leasehold are accounted foras finance leases rather than operating leases. Investment and development properties are valued net of this obligation, so an amount equivalent to the obligation is included in the balance sheet as a non-current asset. d) IAS 32 and IAS 39 - Financial InstrumentsUnder the provisions of IAS 39, the Group's financial liabilities, such asinterest rate swaps, are held in the balance sheet at fair value. The Group hasnot adopted hedge accounting and consequently movements in the interest rateswaps are recognised in the income statement. The version of IAS 39 adopted by the European Union prohibits the option tocarry borrowings at their fair values, and consequently the Group will continueto include the borrowings in the balance sheet at amortised cost. The fair valueof the borrowings will however be disclosed as part of the requirements underIAS 32. e) IAS 12 - TaxationIAS 12 requires full provision to be made for deferred tax on temporarydifferences. The main difference compared to deferred tax under UK GAAP is thatprovision has been made in full for the deferred tax arising on the revaluationof investment properties, and the tax base has been calculated on the basis ofcontinued use of the properties. f) IAS 10 - Post balance sheet eventsUnder IAS 10, unapproved dividends are not provided for in the accounts andconsequently any liability relating to unapproved dividends recognised under UKGAAP is reversed. g) IFRS 2 - Share based paymentsUnder IFRS 2 the fair value of share options and other share based payments isrecognised as an expense in the income statement over the vesting period. The financial information set out above (which was approved by the Board on 15 May 2006) has been compiled in accordance with IFRS, but does not contain sufficient information to comply with IFRS. That financial information does not constitute the Company's statutory accounts for the year ended 31 March 2006 for the purpose of Section 240 of the Companies Act 1985 which comply with IFRS, but is extracted from those accounts. The Company's statutory accounts for the year ended 31 March 2006 will be filed with the Registrar of Companies following the Annual General Meeting. The independent auditors' report on those accounts was unqualified and did not contain any statement under Section 237(2) or (3) of the Companies Act 1985. The Company's statutory accounts for the year ended 31 March 2005 have been filed with the Registrar of Companies. The independent auditors' report on those accounts was unqualified and did not contain any statement under Section 237 (2) or (3) of the Companies Act 1985. This information is provided by RNS The company news service from the London Stock Exchange

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