Final Results

21st May 2007 07:02

Big Yellow Group PLC21 May 2007 21 May 2007 Big Yellow Group PLC ("Big Yellow", "the Group" or "the Company") AUDITED RESULTS FOR THE YEAR AND FOURTH QUARTER ENDED 31 MARCH 2007 Big Yellow Group PLC, the self storage company, is pleased to announce resultsfor the year and for the fourth quarter ended 31 March 2007. 4th quarter 3rd quarter Year Year ended ended ended ended 31 Mar 31 Dec 31 Mar 31 Mar 2007 2006 % 2007 2006 % Revenue £13.9m £12.9m +8 £51.2m £41.9m +22Profit before tax £152.8m £118.5m +29Adjusted profit before tax(1) £14.2m £12.6m +13Basic earnings per share 192.97p 82.10p +135Adjusted earnings per share(2) 10.01p 8.86p +13Dividend - final ord 5.5p 3.0p +83- total 9.0p 5.0p +80Adjusted NAV per share(3) 437.8p 297.0p +47Cash flow fromoperations £30.2m £24.4m +24 -------------------------------Occupied Space 1,835k sq ft 1,748k sq ft +5 1,835k sq ft 1,672k sq ft +10 ------------------------------- (1) See note 10 (2) See note 12 (3) See notes 12 and 14 • Revenue increase of 22% in the year • Strong growth in basic and adjusted pre-tax profit and basic and adjusted earnings per share • Cash flow from operations continues to improve with maturing store portfolio • Full year dividend increased by 80% to 9.0p • Adjusted net assets per share up significantly to 437.8p • 43 stores open at 31 March 2007 providing 2.6 million sq ft of self storage space • Six planning consents obtained in the second half and nine freehold sites acquired during the year, five in London, plus sites in Sheffield, Poole, High Wycombe and Nottingham • Three freehold sites acquired since the year end - Reading, Birmingham and Camberley • Pipeline of 23 sites to provide an additional 1.5m sq ft at an estimated total cost of £221 million, 64% by capacity in London Commenting on the outlook Nick Vetch, Chairman, said: "We are currently enjoying good trading conditions and we expect this tocontinue into the summer. We have secured six planning consents in the secondhalf of the year, two since we last reported in January. Planning remains asignificant obstacle, but with a pipeline of 23 sites, of which 14 are in London, we hope that this will deliver a steady stream of freehold store openings overthe coming years. In the meantime we intend to continue adding sites to thepipeline. "We believe that the three value drivers of our business, development, occupancygrowth and rental growth, fuelled by the location of our stores, branding,marketing and management will continue to deliver strong returns toshareholders." - Ends - For further information, please contact: Big Yellow Group PLC 01276 477 811Nicholas Vetch, ChairmanJames Gibson, Chief Executive Officer Weber Shandwick Financial 020 7067 0700Louise Robson/ John Moriarty/ Charlie Hooper Notes to EditorsBig Yellow Group PLC is one of the leading and most dynamic self-storage groupsin the UK. It was founded in 1998 by Nicholas Vetch, Philip Burks and JamesGibson and listed on AIM in May 2000, moving to the Official List of the LondonStock Exchange in 2002. Big Yellow has expanded rapidly and now operates from 43 stores in London andthe South, and one in Leeds, with a further 23 stores in development and of the66, 57 are held freehold and two long leasehold. All the stores have thedistinct yellow branding, in accessible main road locations, with the majoritybeing within the M25 or in strong urban conurbations. When fully built out theportfolio will provide approximately 4.1 million sq ft of flexible storagespace. The Group has pioneered the development of the latest generation of self-storagefacilities, which utilise state of the art technology and are located in highprofile, main road locations. Its focus on the location and visibility of itsbuildings, coupled with excellent customer service, has created the mostrecognised brand name in the UK self-storage industry. 21 May 2007 Big Yellow Group PLC ("Big Yellow", "the Group" or "the Company") AUDITED RESULTS FOR THE YEAR AND FOURTH QUARTER ENDED 31 MARCH 2007 CHAIRMAN'S STATEMENT Big Yellow Group PLC is pleased to announce results for the year and for thefourth quarter ended 31 March 2007. Overall, we are satisfied with the Group's trading performance over the year. Agood summer was followed by a modest December quarter. Activity levels saw asignificant pick up early in the New Year resulting in a strong fourth quarterto the end of March. This is a seasonal business and we expect to see the usualbuild up in occupancy and hence revenue over the forthcoming summer months. We were pleased to receive approval by HMRC for conversion to a Real EstateInvestment Trust ("REIT"), backdated to 15 January 2007. This is an importantpart of the Group's strategy and was the culmination of several months of hardwork. Financial Results Revenue for the fourth quarter has shown a significant 8% rise to £13.9 millionfrom £12.9 million for the third quarter ended 31 December 2006. Revenue for theyear was £51.2 million (2006: £41.9 million), an increase of 22%. Profit before tax for the year was £152.8 million up from £118.5 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 £14.2 million, up 13% from £12.6 million in 2006. The basic earnings per share for the year was 192.97 pence (2006: 82.10 pence)and the fully diluted earnings per share was 190.31 pence (2006: 80.47 pence). Asignificant proportion of this improvement is due to the release of deferredtaxation following the Group's conversion to a REIT (see note 9). Adjustedearnings per share based on adjusted profit after tax was 10.01 pence (2006:8.86 pence) (see note 12). Cash generated from operations rose to £30.2 million in the year (2006: £24.4million), an increase of 24%. Net bank debt of £187.9 million at 31 March 2007 (2006: £142.1 million)represents approximately 27% (2006: 30%) of the Group's investment property anddevelopment property assets totalling £686.5 million (2006: £468.5 million) and38% (2006: 44%) of the adjusted net assets of £491.2 million (2006: £322.3million). We are therefore conservatively geared, with significant balance sheet capacityon which to secure future borrowings. We have credit approval for an increase of£50 million in our bank facilities to £275 million. This will result infacilities available for drawdown of £85 million on completion. Dividend The Board has proposed a final dividend of 5.5 pence per share, which brings thetotal declared dividend in respect of the results of the financial year to 9.0pence per share (2006: 5.0 pence per share). For further information on thedividend, see the Financial Review. Valuation and Net Asset Value The value of the investment property portfolio at the 31 March 2007 was £590.1million, up £179.6 million from £410.5 million at 31 March 2006. The increase invaluation in the same store portfolio is £92.9 million, representing a 22.6%total uplift, of which we estimate 11.5% is a function of capital growth, and11.1% operational performance. The balance of £86.7 million is a valuation ofnew stores open in the period comprising capital expenditure of £39.1 millionand a revaluation uplift of £47.6 million. 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 6.80%(March 2006: 7.49%). Whilst we believe there is unlikely to be any further significant yieldcontraction for UK Real Estate assets, it is arguable that there is stillsignificant potential for yield compression for these types of self storageassets, due to a number of drivers: - the yields compare favourably with more conventional Real Estate assets, as the March UK All Property IPD yield stands at 5.39% (March 2006: 5.84%) - the yields on the Group's portfolio are post administration costs against IPD yields which are pre administration - the Group's self storage assets have enjoyed 4.6% average annual net storage rent increases over the last five years and over the same period, same store NOI margins (post allocation of administration costs) have increased from 48% to 58% - this is an institutional asset class in North America and Australia, and is growing globally and will benefit from increasing institutional interest in the UK particularly for purpose built, well located modern facilities The increase in value of the Group's investment properties, together with anadjustment to the valuation assumptions results in a 140.8p increase in theadjusted fully diluted net asset value per share over the year. The valuation ofthese assets is a business asset valuation, assuming an acquisition of not justthe property, but also the operating cash flow. This by definition requires thesale of the operational contracts (customer, employment and maintenance etc)attached to the property which is difficult to achieve except in a corporatestructure. Accordingly the adjusted net asset per share this year reflects theassumption that the assets are valued in accordance with the RICS Red Bookassuming a sale in a corporate structure. The assets are still held in the Groupbalance sheet on the basis of the prior year RICS Red Book valuation assuming adirect property sale. A full disclosure of the rationale and impact is containedin the Financial Review and in note 14. 90% by value of the Group's 43 open stores and sites held for development arefreehold (including one long leasehold). The freehold proportion will increaseas we open stores in the development pipeline, all of which are freehold. Westrongly believe that these assets will materially outperform our shortleasehold assets due to the wasting nature of the latter. This is illustrated bythe fact that the freeholds within the same store portfolio showed a valuationuplift in the year of 24%, compared to an uplift of 12% in respect of the nineshort leasehold stores. Real Estate Investment Trusts The Group has succeeded in converting to a REIT, effective from 15 January 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 activities. The cost of conversion represents 2% of gross property assets, which based onthe value of the Group's properties at the 15th of January this year totalling£599.9 million, would represent a liability of £12.0 million. The final chargewill be subject to agreement with the tax authorities. This sum will be paid inJuly 2007. Conversion to a REIT represents a significant step forward for the Group,largely eliminating the Group's corporation tax liability going forward andcompletely eliminating an estimated £95 million of contingent capital gains taxliability as at 15 January 2007. Furthermore, Big Yellow has a significant development pipeline of self storageassets, within the REIT ringfence and the development gains arising willgenerally be tax-free. Stores and the Market Self storage, we believe, will become increasingly mainstream as a sector, whichwill inevitably mean increased financial and human capital availability,resulting in increased competition over a period of time. Supply of selfstorage, however, will remain largely constrained by the availability of land,planning consents and competition from other uses, particularly in London andthe larger provincial cities and towns. At the period end, occupied space represented 1,835,000 sq ft, up 10% from1,672,000 sq ft at the same time last year. This represents 71% occupancy rateacross all 43 stores open at the period end. We have included, as usual, a table summarising the performance of all ourstores over the year. The portfolio of 30 stores that were open for more than two years at thebeginning of the period was 85% occupied at the end of the year, with an averageoccupancy during the year of 85%. In addition these 30 stores achieved EBITDAmargins of 64% (2006: 62%) and, after an allocation of central overhead, netoperating income margins of 58% (2006: 56%). The 21 freehold stores within this30 achieved EBITDA margins of 71% in the year. Same store revenue for these 30 stores increased 8% year on year, 6% as a result ofincreases in average prices and yield management; 1% average occupancy growth and the balance improved packing material and insurance sales. In addition from May 2007, we have successfully put through our target annual storage price rise of approximately 4.2% across the whole 43 store portfolio. Property We acquired nine freehold sites in the year, five in London and four outsideLondon at Sheffield, Nottingham, Poole and High Wycombe. Since the year end, we have acquired a further three sites in Reading,Birmingham, and Camberley.As part of our expansion strategy, we continue to seek sites in the Midlands andthe North and have recently acquired sites in Birmingham (since the year end)and Nottingham to add to our existing sites in Manchester, Liverpool andSheffield. After a frustrating first six months we secured six planning consents in thesecond half of the year. Importantly all six were in London, where the processis at its most complex. These, together, with our site in Fulham result in sevenstores being constructed at present or with planning. The government has imposeda target timescale of 13 weeks for Local Authorities to resolve applications.This has proved untenable in our experience, and accordingly a substantialamount of pre-application consultation is necessary before submission. Thisprocess in general is taking longer than the application process itself. We now have five further sites with applications submitted, with five more closeto being submitted following extensive consultations. One site is subject to anappeal to the Secretary of State for further determination and the balance havemore recently been acquired and are in the feasibility phase. We now have 23 stores in the pipeline (including one extension site at ourRichmond store), which when fully developed, will represent an additional 1.5million sq ft and when open will provide the Group with a total of 66 stores and4.1 million sq ft. The result is an estimated development programme of £221million. The build up in the pipeline should ensure a faster opening schedule infuture years. 61% of our total stores and sites are located within the M25 and57 are freehold or long leasehold. In the year we have opened six stores - threein London, and one each in Tunbridge Wells, Bristol (South) and Gloucester. At 31 March 2007, there was surplus land held in the balance sheet of £29.7million, and since the year end, we have sold land at our development site inMerton for £7.7 million. Further surplus land will be disposed of in due course. International Franchise I am pleased to announce that in October 2006 we signed our first InternationalFranchise Agreement for the United Arab Emirates with Big Yellow FZ LLC, aprivately backed business set up to exploit the opportunities for development ofa network of Big Yellow stores in the Gulf Cooperation Council states. The sitefor the first store in Dubai has been acquired and has now started constructionto develop a 280,000 sq ft Big Yellow Self Storage centre, which is expected toopen in spring 2008. Furthermore, since the year end we have signed a FranchiseAgreement with the same partner for the Kingdom of Bahrain. As is typical of franchise structures, we are not investing capital in thisbusiness but are providing operating know-how and the licensing of the BigYellow brand for an upfront fee and a share of future revenues. We are now reviewing other opportunities to expand the business internationallyusing this franchise model and have taken steps to protect the trademark inselected territories. Our People As we have consistently reported on over the last seven years, the Big Yellowteam has remained largely stable, both at Head Office and within the stores.Never complacent on this issue however, we are constantly investing in ourpeople, which we believe is reflected in the very high customer satisfactionresponses that we receive. 97% of our customers would recommend using Big Yellowto a friend. For some four years, James Gibson has combined the roles of Chief ExecutiveOfficer and Finance Director of the Group, but as the Group becomes larger andmore complex, we have resolved to split these functions. Accordingly, JohnTrotman has been appointed as Chief Financial Officer and will be joining theCompany on 25 June this year. It is the Board's intention to promote John to theBoard in due course. John is a Chartered Accountant and former Senior Manager atDeloitte & Touche LLP, where he specialised in the real estate sector and selfstorage. Since leaving Deloitte in 2005, John has been working for a subsidiaryof the Kajima Corporation involved in the large Silvertown Quays regenerationproject. Additionally, as reported above, we are intending to expand our internationalfranchise operations and have appointed Tom Wilcockson as InternationalFranchise Director and we expect him to join the Group in July of this year. Tompreviously held the same position at Early Learning Centre, where he was largelyresponsible for the implementation of that Group's international franchiseexpansion. I would like to take the opportunity of thanking all the people who work at BigYellow for their continued efforts, loyalty and hard work which, at the risk ofrepetition, really does make the difference between success and failure in ourbusiness. The last word goes to Philip Burks, a co-founder of the Group and its PropertyDirector for the last seven years who has surrendered his executive role tobecome a non-executive. Through his contacts, experience and expertise, Philiphas played a critical role over the years in the expansion and success of BigYellow and on behalf of the Board, I would like to thank him for hiscontribution. Furthermore I remain grateful that he will remain close to BigYellow and I am pleased to say he will be available as and when we need hisadvice or access to his connections. Outlook We are currently enjoying good trading conditions and we expect this to continueinto the summer. We have secured six planning consents in the second half of theyear, two since we last reported in January. Planning remains a significantobstacle, but with a pipeline of 23 sites, of which 14 are in London, we hopethat this will deliver a steady stream of freehold store openings over thecoming years. In the meantime we intend to continue adding sites to thepipeline. We believe that the three value drivers of our business, development, occupancygrowth and rental growth, fuelled by the location of our stores, branding,marketing and management will continue to deliver strong returns toshareholders. Nicholas Vetch Chairman 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 of new stores- the strength of operational management- occupancy and revenue growth- 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 the UK (MORI National Survey, July 2006), a key objective set atflotation. The Group's strategy is to continue to invest in quality assets atthe premium end of the self storage market and to build on our brand leadershipnationally. We intend to measure our progress by commissioning quantitativeresearch each year. We opened our first store outside our core area, in Leeds in2005 and now have sites in development in Manchester, Liverpool and Sheffield,and have recently acquired further sites in Nottingham and Birmingham. 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- conservative financing using flexible bank borrowings secured against a prime freehold portfolio- locating stores in visible, convenient and accessible locations- 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, which we believe improves returns for shareholders. We aim to ensure that there are sufficient medium term facilities in place tofinance our committed development program, 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 returned to trend in 2006, and the economy hascontinued to grow satisfactorily in 2007, with consumer spending remainingstrong. This is in spite of the recent increases in interest rates and increasedtaxes and other costs, which may in due course have an impact on the consumerand the housing market. Approximately 50% of 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% of customersuse the product because some event has occurred in their lives generating theneed for storage; they may be moving abroad for a job, have inherited furniture,are getting married or divorced, are students who need storage during theholidays, or homeowners developing into their lofts or basements. The balance of15% of our customers are businesses ranging from start ups and market traders toretailers and larger multinationals storing stock, documents, equipment, orpromotional materials all requiring a convenient flexible solution to theirstorage either to get started or to free up 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 30,000 spread across theportfolio of open stores and many thousands more have used Big Yellow over theyears. In any month customers move in and out at the margin but the solidity ofthe occupancy of our stores when they lease up to maturity can be seen from thePortfolio 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 self storage 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's 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 9 sites, five in Londonand sites in Sheffield, Nottingham, High Wycombe and Poole, and we have acquireda further three sites since year end, in Camberley, Reading and Birmingham. Wenow have a portfolio of 66 stores and sites (including one extension site) ofwhich 43 are currently open and a further 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 to our Big Yellowspecification. Treasury Risk The Group borrows in sterling at floating rates of interest and uses swaps tohedge its interest rate exposure. The Group has derivatives in place to ensureat least 35-40% of bank borrowings are hedged, the balance is left floatingpaying 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, given the conservativelevels of interest cover and gearing. 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. Credit Risk Our customers are required to pay a deposit when they start to rent a selfstorage unit and are also required to pay in advance for their four-weeklystorage charges. The Group is therefore not exposed to a significant creditrisk. 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. REIT Risk The Group converted to a REIT with effect from 15 January 2007. The Group istherefore exposed to potential tax penalties or loss of its REIT status byfailing to comply with the REIT legislation. The Group has internal monitoringprocedures in place to ensure that the appropriate rules and legislation arecomplied with. Human Resources Risk 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. Reputational Risk 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 Yellow's Intranet and Website (www.bigyellow.co.uk) are importantavenues of communication for both employees and shareholders. We signed our first international franchise in October 2006 in respect of theUnited Arab Emirates, with expansion rights for the remaining GCC states. Wecarried out due diligence on our local partners and were advised on theDevelopment Agreement by Eversheds Franchise Team. The Development Agreementprovides the requisite controls typical of arrangements of this nature toprotect our reputation and brand. We have appointed an experienced InternationalFranchise Director with over 20 years experience in franchising, who will beresponsible for growing this aspect of our business. Corporate and Social Responsibility Big Yellow develops stores in environments in which people live and work. Webuild storage centres for our customers who live or work within a three to fivemile radius providing a storage solution for businesses and households. 85% ofour customers are householders renting storage rooms primarily for householdcontents, 15% of our customers occupying 30% of the net lettable space arebusinesses requiring flexible storage space to operate and expand, thuscontributing to job creation and generating wealth for the local economy. We survey all customers at moveout to assess their views on a number of issuesand seek to respond to all feedback 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 is set out below. Big Yellow has a committed and skilled staff of 208 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. For the first time, Big Yellow has appointed a Charity of the Year, which in2007 is Cancer Research. Employees have carried out a number of events to raisemoney for the charity, and the Group has matched all amounts raised by staff.Additionally, we are liaising with representatives from Cancer Research withregards to the collection of household items which could be donated at stores bycustomers and then sold at their charity shops. Environmental Policy Maintaining and improving the quality of the built environment in which we liveis an important concern for the Group, its staff, customers, suppliers and thecommunities in which we operate. Big Yellow endeavours to balance the triplebottom line of financial, social and environmental concerns. The Directors of Big Yellow are committed to ensuring its development andoperational activities do not place an unnecessary burden on future generations.Big Yellow is well aware of its corporate social responsibility and the companyrecognises the positive contribution it can make to address environmentalconcerns and sustainability issues. James Gibson, CEO, has responsibility to theBoard on all matters of environmental policy. In recognition of the UK regulatory objectives and growing environmentalawareness of consumers, Big Yellow has initiated simple, straightforwardalterations to its behaviour to reduce its carbon footprint. Furthermore theGroup are investing over £1.0 million in renewable energy technologies in newdevelopments at Barking, Balham, Fulham and Kennington. This investment forms akey part of a detailed study into the building design to quantify the energy,material and waste usage and benefits of the new technologies in use and toconsider where improvements could be introduced within the existing and newstores portfolio. Big Yellow will endeavour to use less energy, use energy from renewable sourcesand supply energy efficiently where practicable. To demonstrate our commitmentto the environment we are recruiting a full time environmental manager toincrease the pace of change within the company. There are many ways in which Big Yellow currently achieves its 'environmental'objectives, the main examples of which are set out below: - We clean up previously contaminated 'brown' field sites as part of the redevelopment; we do not build on green field sites or previously undeveloped land. - Access for each site is a key criteria and is therefore highly sustainable given its close proximity to the road network and public transport, stores benefit from good pedestrian and cycle routes. - Big Yellow are respectful of local communities and all new Construction Sites are registered with the Considerate Contractors scheme. - We recycle demolition materials and endeavour to minimise construction waste. Store Operations generate minimum quantities of waste although facilities are provided for recycling. - We are designing new stores with products that are more sustainable. We select building materials responsibly with low embodied energy, with easy reuse and from sustainable sources The buildings are in the main part constructed of steel, a material which could be recycled in the future. The mezzanine floors offers flexibility such that the building can be used for different purposes. - Big Yellow is not a high user of energy, nonetheless we meet building regulations which require high insulation standards to the building envelope even though large areas of the building are unheated. We only heat or cool our reception areas which on a standard store occupy approximately 3% of the gross floor area. - We are investing in renewable energy sources where practicable and financially viable at our stores in Barking, Balham, Fulham and Kennington. The benefits will be monitored and form the basis of a model concept for future new eco stores. - We are encouraging and improving bio diversity by replacing previously lost habitat with green walls/green roofs and the reintroduction of landscaping. - We now install low energy lighting throughout our newer stores and plan to upgrade existing stores over a period of time. Big Yellow obtains its electricity supplies from a services provider with a green energy policy which generates electricity from a renewable source or with a company policy of investing in research into renewable capacity. - On our recent stores we have moved from hydraulic lifts to more energy efficient 'traction' lifts. - We are now providing facilities on our new stores to encourage the use of public transport and cycling by store staff, a requirement of planning. - We conserve water resources by minimising the number of sanitary fittings and include flow control systems within the staff kitchen and store facilities. - Sustainable Urban Drainage Systems (SUDS) and rainwater harvesting are being installed at stores under construction to meet Environment Agency requirements for surface water attenuation and irrigation. - We are raising environmental awareness and encouraging suppliers, staff and customers to change their behaviour and encourage sustainable solutions. Stores During the year we opened six stores, three in London (at Finchley (East),Kingston & Edmonton), one at Tunbridge Wells, a second store at Bristol (South),and one at Gloucester. These store openings bring the number now trading to 43.The available net lettable space increased by 360,000 sq ft over the year to 2.6million sq ft with the opening of these six stores. The maturity profile across the 43 stores open at the end of the year is set outin the Portfolio Summary and shows a blended occupancy for the portfolio of 71%(1.84 million sq ft occupied), with the 30 stores more than two years old at anaverage occupancy of 85%. There are a further 23 freehold sites (including an extension site at Richmond)at various stages of planning and construction which, when fully developed, willincrease the total capacity of the portfolio to 4.1 million sq ft. 14 of the 23 stores in the development pipeline (including the extension site toour first Richmond store) are located in Greater London, which we believe willcontinue to improve the quality of our store portfolio. Our store in Leedscontinues to perform ahead of budget. We have therefore also continued with ourstated intention to acquire sites in key Northern Cities and have recentlybought sites in Birmingham and Nottingham to add to our existing acquisitions inManchester, Liverpool and Sheffield. We continue to work on obtaining planningconsents for these future stores. We expect to open seven stores in the currentfinancial year. We have received planning permission in the year to demolish our existing 25,000sq ft storage facility in Sheen and replace this with a new 60,000 sq ftfacility. We expect to start work on this in July, with opening of the new storeplanned for early 2008. During the year we moved in over 42,000 customers taking 2.5 million sq ftcompared to 38,400 customers taking 2.3 million sq ft last year. This resultedin the stores increasing occupancy by 163,000 sq ft (202,000 sq ft last year).Customer move-ins per store averaged 86 per month over the year, down from the92 per month last year, reflecting a larger and more mature store portfolio,with less availability, and hence less potential activity. Of the 43 stores openat year end 41 are now trading profitably with the other two being the mostrecent to open. The Big Yellow store model is now well established. The "typical" store contains60,000 sq ft and takes some 2.5 years to achieve 85% occupancy, leasing up at anaverage rate of 1,700 sq ft per month. The average room size is some 60 sq ftand the average rental achieved last year across the 43 stores was £23.79 per sqft per annum (the average rent in London is higher at £27.36 per sq ft perannum). The store is initially run by three staff - adding a part timer once thestore occupancy justifies the need for the extra administrative and salesworkload. Given that the operating costs of these assets are relatively fixed,larger stores in bigger urban conurbations, particularly London, drive higherrevenues and higher operating margins. The drive to improve store operating standards and consistency across theportfolio remains a key focus for the Group. Excellent customer service is atthe heart of our business objectives, as a satisfied customer is our bestmarketing tool. From our surveys 97% amount of customers would recommend BigYellow to a friend. We measure customer service standards through a programme ofmystery shoppers and ex-customer surveys. We now have in place a team of AreaManagers (who between them have a total of 40 years experience in self storage)to develop and support the stores and to continue to drive the growth of thebusiness. 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 preparing their own targetsand budgets, leading to improved visibility, a better understanding of saleslines and control of operating costs. The Group 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£30 million and is expected to be approximately £45 million in 2007/8. Wecurrently have seven new stores on site, all of which are new stores underconstruction. 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. Sales and Marketing During the year we conducted a strategic review of our Marketing programme. Thiswas driven by a comprehensive customer research project, using both quantitativeand qualitative techniques. Highlights of the survey include: - Big Yellow has achieved brand awareness of 35 to 40% in our target customer groups in London and the South - Our Brand awareness is more than double that of our nearest competitor - London and the South East have the highest regional awareness of self storage at 25-30% - Across the UK, 77% of the public are either unaware if self storage, or have heard of it but know nothing about it - 80% of our customers fall within the top three ACORN customer categories, (Wealthy Achievers, Urban Prosperity and Comfortably Off, with Urban Prosperity the largest) The survey was carried out by IPSOS Mori in July 2006. The findings of this research confirm the success of our previous marketingactivity, and justify our Brand positioning at the quality end of the market.The high standards of our stores, our people and our locations have successfullyattracted customers who are looking for quality and value. Our customers areparticularly attracted by our modern, purpose built stores, our state of the artsecurity systems and convenient locations. The customer research helped to set the direction for our marketing strategy.Following the research we appointed Clemmow Hornby Inge as our advertisingagency, with a brief to overhaul all of our marketing communications materials,and launch a new advertising campaign. This campaign was launched in April 2007,and has been led by an intensive TV campaign on Channel 4 and linked satellitechannels, supported by additional advertising in national press, online andthrough direct marketing. The campaign is already achieving good awareness aftera short period of time, and is due to last throughout the summer. We continually monitor local market conditions and review our promotionsmonthly. Our policy is to offer targeted promotions to ensure we are offeringthe best value available to our customers. Our embedded discount varies by storematurity: stores with 85% occupancy and over have discount levels of 7%, 60-85%have 9% and new stores have 12%. The average across the Group is 8%. The successof this strategy is confirmed by the high occupancy achieved by our mature storeportfolio - 85% over the year for stores with an average size of 60,000 sq ft,which is significantly higher than most of our competitors. We see the internet as an increasing source of prospects and customers andcontinue to invest in developing our e-commerce platform. We have recentlylaunched a ground breaking fully integrated online reservation service for theself storage industry, and we will continue to stay at the forefront ofinnovations in this area. 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. During the year the Group spent approximately £2 million, (4% of our turnover),on above the line marketing, in line with the previous year. It is our intentionto continue to invest this proportion of our turnover to increase awareness ofBig Yellow in existing and new markets, particularly as we expand into the newcities in the country that we have not previously had a presence in. People At Big Yellow we aim to provide a lively, fun and enjoyable work environment,without losing our commitment to the best customer service and standards ofperformance. 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. An annual Employee Attitude Surveyprovides the management with key feedback and guidance as to where to focus itsresources in each year. We encourage a partnership culture within the business and believe in staffparticipating in corporate performance through share incentives. Many employeeshave benefited, or continue to benefit, from share options granted in previousyears and an Inland Revenue approved Sharesave Scheme. This provides anopportunity to invest in the future success of Big Yellow at a discount to theprevailing share price at the date of each invitation. In addition, a stakeholder pension scheme managed by Friends Provident providespension provision within the Group and is available to all employees after sixmonths. We had 226 full, part time and casual employees in the business at the year end(2006: 185 employees), and recruiting and retaining the right calibre peopleremains critical to the continued success of Big Yellow. We promote theindividual development of staff through training and regular performanceappraisals and delivered over 500 days training to employees in the last year,equating to an average of approximately 3 days training per employee. We have apolicy on flexible working to meet individual needs where possible, withoutcompromising 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 continue to run courses toenhance the awareness and effectiveness of our procedures in relation tosecurity, entitled "You and your customer". FINANCIAL REVIEW International Financial Reporting Standards ("IFRS") 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. REIT Conversion The most significant financial event for the Group in the year was the approvalby HMRC of the Group's election to convert to a REIT with effect from 15 January2007. The required changes to the Group's articles commensurate with conversionto a REIT were subsequently approved at an EGM on 4 May 2007. This was theculmination of several months of hard work to achieve this successful outcomefor the Group. The cost of conversion represents 2% of gross property assets, which based onthe value of the Group's properties at the 15th of January this year totalling£599.9 million, would represent a liability of £12.0 million. The final chargewill be subject to final agreement with the tax authorities. This sum will bepaid in July 2007. REIT conversion means that the income and capital gains from the Group'seligible UK activities will be tax exempt. Accordingly, the accounts for theyear ended 31 March 2007 include the release at 15 January 2007 of £95 millionof contingent capital gains tax liability. Furthermore, Big Yellow has a significant development pipeline of self storageassets, within the REIT ringfence and the future revaluation gains on thesedevelopments and its existing open stores will be largely free from capitalgains tax. Dividends As stated in our interim accounts to 30 September 2006, the Group's policy inanticipation of conversion to a REIT, was to significantly increase the interimdividend and to pay a total dividend in excess of the minimum property incomedividend ("PID") required under the regulations. Dividends will be set based on90% of qualifying post depreciation earnings, without further deduction foradditional shadow capital allowances. We are recommending a final dividend payment of 5.5p per share. Taken togetherwith the interim dividend of 3.5p, this makes a full year declared dividend of9.0p per share (2006: 5.0p), which represents an 80% increase. The Group's dividend now consists of two components; the PID from the REITqualifying activities and a dividend distribution from our non-qualifyingactivities (non-PID). The aggregate of these two components will still be knownas our total dividend. We are obliged to withhold tax from certain shareholders,currently at a rate of 22% (decreasing to 20% from 6 April 2008), from the PIDelement of the dividend. Our total dividend is therefore a gross dividend. Since Big Yellow only became a REIT on 15 January 2007, over three-quarters ofthis financial year fell outside REIT status. Shareholders will find anexplanation of the individual components of the total dividend on the taxvoucher sent out with the payment on 18 July 2007. Of the proposed final dividend of 5.5p, only 0.4p is a PID. This is subject to22% withholding tax for relevant shareholders. Next year we expect a higherproportion of the total dividend payments to be in the form of a PID. Subject to approval by shareholders at the Annual General Meeting to be held on11 July 2007, the final dividend will be paid on 18 July 2007 to shareholders onthe Register on 15 June 2007. Dividend Table Interim Final Total Dividend Dividend Dividend p p p-----------------------------------------------------------Property income distribution - 0.4 0.4Non-property income distribution 3.5 5.1 8.6-----------------------------------------------------------Total 3.5 5.5 9.0----------------------------------------------------------- Financial Results Annualised revenue, the measure of store related revenue being billed (net of alldiscounts) at the end of the year, increased to £50.9 million, up from £43.4million last year, an increase of 17%. Revenue for the year was £51.2 million,up 22% from £41.9 million for 2006. Included in revenue in 2007 is a leasesurrender premium received of £1.2 million. This is a one-off non-recurringitem. Other sales (included within the above), comprising the selling of packagingmaterials, insurance and storage related charges represented 16% of storageincome for the year (2006: 14%) and generated revenue of £6.7 million for theyear, up from £5.2 million in 2006. The Group made a profit before tax in the year of £152.8 million, upsignificantly from the £118.5 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 £14.2million, up 13% from £12.6 million in 2006. ------------------------------------------------------------------Profit before Tax Analysis 2007 2006 £m £m------------------------------------------------------------------Profit before tax 152.8 118.5Gain on revaluation of investment properties (138.3) (106.2)Movement in fair value on interest rate derivatives (0.7) 0.2Loss on non-current assets 1.1 0.1Tenant surrender premium (1.2) -REIT conversion costs 0.5 -------------------------------------------------------------------Adjusted profit before tax 14.2 12.6------------------------------------------------------------------ The loss on non-current assets of £1.1 million is a write down to net realisablevalue of surplus land at one of our development sites. The basic earnings pershare for the year was 192.97p (2006: 82.10p) and the fully diluted earnings pershare was 190.31p (2006: 80.47p). A significant proportion of this improvementis due to the release of deferred taxation following the Group's conversion to aREIT (see note 9). Adjusted earnings per share based on adjusted profit aftertax was 10.01p (2006: 8.86p) (see note 12). Administration Expenses including the cost of construction management werehigher at £5.6 million million compared to £4.7 million in 2006. There wereadditional costs in 2007 relating to the conversion to a REIT of £0.5 million(including irrecoverable VAT), coupled with additional head office staff andinflationary increases. Net Interest Expense on Bank Borrowings for the year increased to £10.5 millionup from £7.4 million in 2006 reflecting the increase in net borrowing over theperiod, coupled with the rise in interest rates. The average cost of borrowingincluding margin at 31 March is set out below: -------------------------------------------------------------------- 2007 2006--------------------------------------------------------------------Average interest rate on fixed rate debt 6.0% 6.1%Average interest rate on variable rate debt 6.4% 5.6%Overall weighted average interest rate 6.3% 5.7%-------------------------------------------------------------------- Balance Sheet The Group's 43 open stores at 31 March 2007, which are classified as investmentproperties, have been re-valued by Cushman & Wakefield (C&W) and this hasresulted in a gross property asset value of £686.5 million, comprising £521.4million (76%) for the 34 freehold (including one long leasehold) open stores,£68.7 million (10%) for the nine short leasehold open stores and £96.4 million(14%) for development properties. The properties held for development have notbeen externally valued and have been included in the balance sheet at ahistorical cost less provision for impairment. Change in Valuation Assumption for Purchaser's Costs The Group's investment property assets have been valued for the purposes of thefinancial statements after deducting notional purchaser's cost of 5.75% of grossvalue, as if they were sold directly as property assets. The valuation is anasset valuation which is entirely linked to the operating performance of thebusiness. They would have to be sold with the benefit of operational contracts,employment contracts and customer contracts, which would be very difficult toachieve except in a corporate structure. We believe therefore that the valuationassumptions should be adjusted to reflect the reality. This approach follows the logic of the valuation methodology in that thevaluation is based on a capitalisation of the net operating income afterallowing a deduction for operational cost and an allowance for centraladministration costs. Sale in a corporate structure would result in a reductionin the assumed Stamp Duty Land Tax but an increase in other transaction costsreflecting additional due diligence resulting in a reduced notional purchasercost of 2.75% of gross value. All the significant sized transactions that havebeen concluded in the UK in recent years were completed in a corporatestructure. We therefore instructed C&W to carry out a Red Book valuation on theabove basis, and this results in a higher property valuation at 31 March 2007 of£615,950,000 (£25,890,000 higher than the value recorded in the financialstatements or 21.9 pence per share). We have included this revised valuation inthe adjusted diluted net asset calculation (see note 12). We intend to consult with our industry peers, relevant regulatory bodies onwhether this basis of valuation for operational assets of this type should beformally incorporated into the balance sheet. The revised valuation translates into an adjusted net asset value per share of437.8 pence (2006: 297.0 pence) after the dilutive effect of outstanding shareoptions (see table below). ---------------------------------------------------------------------------Analysis of Net Asset Value 2007 2006---------------------------------------------------------------------------Basic net asset value (£m) 488.0 244.3Exercise of share options (£m) 3.3 5.8---------------------------------------------------------------------------Diluted net asset value (£m) 491.3 250.1Adjustments:Deferred tax on revaluation (£m) - 72.1Deferred tax on fair value of interest rate swaps (£m) (0.1) ----------------------------------------------------------------------------Balance sheet adjusted net asset value (£m) 491.2 322.2---------------------------------------------------------------------------Basic net assets per share (pence) 428.3 239.2Diluted net assets per share (pence) 416.0 230.5Balance sheet adjusted net assets per share (pence) 415.8 297.0Diluted shares used for calculation (million) 118.1 108.5 Balance sheet adjusted net asset value (as above) (£m) 491.2Valuation methodology assumption (see note 14) (£m) 25.9Adjusted net asset value (£m) 517.1Adjusted net assets per share (pence) 437.8 *--------------------------------------------------------------------------- * There was no valuation carried out on the basis of a sale in a corporate structure at 31 March 2006. The recorded book value of the investment property portfolio at 31 March 2007was £590.1 million up £179.6 million from the £410.5 million at 31 March 2006.£92.9 million is the increase in the valuation of the same store portfoliorepresenting a 22.6% total uplift, of which 11.5% is a function of capitalgrowth and 11.1% operational performance. The balance of £86.7 million is avaluation of new stores open in the period comprising capital expenditure of£39.1 million and a revaluation uplift of £47.6 million. The anticipated initial yield on the portfolio in the following year, asrepresented by net operating income at store level, is 5.24%, rising to 6.80% inthe year following stabilisation of each store. The reduction in the stabilisedyield from 7.49% at 31 March 2006 to 6.80% results in a 11.5% 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. In common with other real estate groups, we have calculated the total return toour equity shareholders based on the increase in fully diluted net assets pershare plus dividends paid in the year. As can be seen from the table below BigYellow achieve total returns to shareholders of 49.6% (147.3 pence per share),or 53.1% (157.6 pence per share) after adding back the REIT conversion charge of£12 million (or 10.4 pence per share). 2007 2006 Increase NAV per share 428.3p 239.2p 79%Adjusted diluted NAV per share (see note 12) 437.8p 297.0p 47%Dividend paid per share 6.5p 3.5p 86%Total return per share 147.3p 109.4p 35%Total return 49.6% 57.2% Financing and Treasury The Group is strongly cash generative operationally and draws down from itslonger term committed facilities as required to meet obligations. The Group'scash earnings continue to grow as reflected by the increase in cashflow fromoperating activities (pre financing costs) for the year to £30.2 million from£24.4 million last year. A summary of the cashflow for the year is set out in the table below: Year ended 31 March 2007 2006 £'000 £'000 Cash flow from operations 30,198 24,412Finance costs (net) (13,472) (9,275) Free cash flow 16,726 15,137Capital expenditure (96,007) (60,281)Asset sales 2,165 7,619Ordinary dividends (7,051) (3,541)Issue of share capital 38,377 1,480 Net funds flow (45,790) (39,586)Increase in borrowings 33,707 47,400 Net cash (outflow)/inflow (12,083) 7,814Opening cash and cash equivalents 14,193 6,379Closing cash and cash equivalents 2,110 14,193 We focus on improving our cashflows and we currently have healthy interest coverof approximately 2.5 times with a relatively conservative debt structure securedprincipally against the freehold estate. The Group was comfortably in compliancewith its bank covenants at 31 March 2007, and we forecast to be in compliancewith our banking covenants in the foreseeable future. At the end of the year, the Group had net bank borrowings of £187.9 million, anincrease of £45.8 million over last year following £96.0 million of capitalexpenditure, £13.5 million of net interest paid (including finance lease costs),dividend payments of £7.1 million, offset by net cash inflows from changes inshare capital of £38.4 million, operating cash flow of £30.2 million, and landdisposal proceeds of £2.2 million. The Group has a syndicated bank facility with the Royal Bank of Scotland, Bankof Ireland and Barclays of £225 million. This facility is secured on a portfolioof 31 freehold and leasehold assets. Net debt at the end of March was £187.9million, leaving £37.1 million of available facilities to fund expansion withsignificant balance sheet space given the low level of gearing. Since year endthe Group has obtained credit approval to increase this facility by a further£50 million. 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 2007, the Group had total bank borrowings of £190 million of which37% was hedged in the medium term. £70 million is hedged at maturities expiringbetween 2007 and 2011. The Group has historically had a relatively high level ofvariable debt to maintain flexibility and given the low level of gearing withloan to total gross assets of 25% and 12 month rolling interest cover of 2.5times. Now that we have converted to a REIT, we intend to review the long termfinancing of the Group, and related hedging. The Group does not hedge account its interest rate derivatives. Thereforemovements in the fair value are taken to the income statement, but asrecommended by EPRA (European Public Real Estate Association), these areeliminated from adjusted profit before tax and adjusted earnings per share. Cash deposits are only placed with approved financial institutions in accordancewith Group policy. Share Capital The share capital of the Company totalled £11.5 million at 31 March 2007 (2006:£10.3 million), consisting of 114,559,534 ordinary shares of 10p each (2006:102,752,607 shares). On 12 July 2006 the Company placed 9.1 million new ordinary shares of 10p eachwith institutions, raising approximately £36.4 million before expenses. Shares issued for the exercise of options during the period amounted to2,706,927 at an average exercise price of 99p. During the year there were no purchases of shares by the Group into Treasury.615,000 shares were purchased in 2005 at an average price of 132p, and weresubsequently transferred into an Employee Benefit Trust ("EBT"). These sharesare shown as a debit in reserves and are not included in calculating earningsand net asset value per share. ----------------------------------------------------------------------- 2007 2006 No. No.----------------------------------------------------------------------- Opening shares 102,752,607 100,725,537Shares issued by way of Placing 9,100,000 -Shares issued for the exercise of options 2,706,927 2,027,070----------------------------------------------------------------------- Closing shares in issue 114,559,534 102,752,607Shares held in EBT (615,000) (615,000)----------------------------------------------------------------------- Closing shares for NAV purposes 113,944,534 102,137,607----------------------------------------------------------------------- 144,998,398 million shares were traded in the market during the year ended 31March 2007 (2006: 72,903,317). The average mid market price of shares tradedduring the year was 513p with a high of 705p and a low of 362p. At 31 March 2007 there were 2,880,867 shares subject to share option awards toemployees of the Group at an average strike price of 102p. In addition there are1,052,164 nil paid options, granted under the Group's LTIP scheme and 234,858share options granted under the Group's SAYE scheme at an average strike priceof 165p. Taxation The current year tax credit for the Group of £60.4 million (2006: charge of£35.1 million) relates to a deferred tax credit of £75.1 million, a REITconversion charge of £12.0 million and a corporation tax charge of £2.7 million. The movement in the deferred tax consists of the write back of the deferred taxprovisions in the Group's Balance Sheet at 31 March 2006, as following ourconversion to a REIT, we will no longer be liable to tax on the disposal of theassets. The REIT conversion charges has been calculated based on 2% of the valuations ofour portfolio at the conversion date of 15 January 2007. This charge is payablein July 2007. The Group's actual cash tax liability for the year is £0.1 million as the groupis entitled to claim a tax deduction in the year of £2.7 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. REIT status gives the Group exemption from UK corporation tax on profits andgains from its qualifying portfolio of UK stores. Future revaluation gains onthe Group's existing investment properties and development pipeline will largelybe exempt from corporation tax on capital gains, provided certain criteria aremet. Big Yellow Group PLCPortfolio Summary Years since opening March 2007 March March 2007 March 2006 March March 2006as at 1 April 2006 2 years 2007 Total 2 years 2006 Total < 2 years < 2 years Number of stores 30 13 43 30 7 37==================================================================================================As at 31 March 2007Total capacity (sq ft) 1,788,000 784,000 2,572,000 1,787,000 425,000 2,212,000Occupied space (sq ft) 1,513,000 322,000 1,835,000 1,513,000 159,000 1,672,000Percentage occupied 85% 41% 71% 85% 37% 76% £'000 £'000 £'000 £'000 £'000 £'000Annualised revenue 41,607 9,281 50,888 39,263 4,137 43,400For the year:Average occupancy 85% 32% 68% 84% 27% 73%Average annual rent psf £23.97 £23.07 £23.79 £22.64 £19.96 £22.46Self storage sales 36,434 5,788 42,222 33,978 2,290 36,268Other storage relatedincome(1) 5,350 1,391 6,741 4,693 543 5,236Ancillary store rental income 70 16 86 57 30 87--------------------------------------------------------------------------------------------------Total Revenue 41,854 7,195 49,049 38,728 2,863 41,591Direct store operating costs (excluding depreciation) (12,943) (4,274) (17,217) (12,471) (1,946) (14,417)Leasehold rent(2) (2,261) (43) (2,304) (2,206) - (2,206)--------------------------------------------------------------------------------------------------Store EBITDA(3) 26,650 2,878 29,528 24,051 917 24,968EBITDA Margin(4) 64% 40% 60% 62% 32% 60% Central overhead(5) (2,511) (503) (3,014) (2,324) (420) (2,744)--------------------------------------------------------------------------------------------------Store Net Operating Income 24,139 2,375 26,514 21,727 497 22,224NOI Margin 58% 33% 54% 56% 17% 53%-------------------------------------------------------------------------------------------------- Cumulative capital £m £m £mexpenditure to 31 March 2007 140.5 81.9 222.4to complete - 2.6 2.6----------------------------------------------------------------Total cost 140.5 84.5 225.0---------------------------------------------------------------- (1) Packing materials, insurance and other storage related fees.(2) Rent for 9 short and one long leasehold property accounted for as investment properties and finance leases under IFRS with total self storage capacity of 595,000 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 £6.7 million and EBITDA margin of 50%. 24 freeholds achieved a store EBITDA of £20.0 million and EBITDA margin of 71%.(5) Allocation of overhead based on 6% of estimated stabilised income. Big Yellow Group PLCConsolidated income statementYear ended 31 March 2007 Note 2007 2006 £'000 £'000 Revenue 3 51,248 41,889Cost of sales (18,536) (15,519)-------------------------------------------------------------------------Gross profit 32,712 26,370 Administrative expenses (5,645) (4,725)-------------------------------------------------------------------------Operating profit before gains and losses onproperty assets 5 27,067 21,645Gain on the revaluation of investmentproperties 13a 138,349 106,218Losses on non-current assets 10 (1,078) (52)-------------------------------------------------------------------------Operating profit 164,338 127,811Investment income 7 1,250 135Finance costs 8 (12,751) (9,399)-------------------------------------------------------------------------Profit before taxation 152,837 118,547Taxation 9 60,391 (35,112)-------------------------------------------------------------------------Profit for the year (attributable to equityshareholders) 213,228 83,435=========================================================================Basic earnings per share 12 192.97p 82.10p=========================================================================Diluted earnings per share 12 190.31p 80.47p========================================================================= Adjusted earnings per share are shown in Note 12.All items in the income statement relate to continuing operations. Big Yellow Group PLCConsolidated balance sheet31 March 2007 Note 2007 2006 £'000 £'000Non-current assetsInvestment property 13a 590,060 410,470Development property 13a 96,393 57,988Interests in leasehold properties 13a 27,038 26,647Plant, equipment and owner-occupied property 13b 3,170 3,036Goodwill 13c 1,433 1,433------------------------------------------------------------------------ 718,094 499,574------------------------------------------------------------------------Current assetsInventories 437 338Trade and other receivables 15 6,982 6,009Deferred tax asset 19. 650 -Cash and cash equivalents 2,110 14,193Derivative financial instruments 17 512 -Non-current assets classified as held for sale 13d 18,227 6,300------------------------------------------------------------------------ 28,918 26,840------------------------------------------------------------------------Total assets 747,012 526,414========================================================================Current liabilitiesTrade and other payables 16 (25,586) (20,122)Derivative financial instruments 17 - (142)Obligations under finance leases 20 (2,306) (2,268)Current tax liabilities - REIT conversion charge 9 (11,997) - - Corporation tax liability (71) ------------------------------------------------------------------------- (39,960) (22,532)------------------------------------------------------------------------Non-current liabilitiesBank borrowings 18 (189,225) (155,608)Deferred tax liabilities 19 - (70,580)Obligations under finance leases 20 (24,732) (24,379)Other payables 16 (5,116) (8,996)------------------------------------------------------------------------ (219,073) (259,563)------------------------------------------------------------------------Total liabilities (259,033) (282,095)========================================================================Net assets 487,979 244,319========================================================================EquityCalled up share capital 21 11,456 10,275Share premium account 22 40,864 3,668Reserves 22 435,659 230,376------------------------------------------------------------------------Equity shareholders' funds 487,979 244,319======================================================================== Big Yellow Group PLCConsolidated statement of recognised income and expenseYear ended 31 March 2007 2007 2006 £'000 £'000---------------------------------------------------------------------Current and deferred tax recognised in equity (1,230) 3,557--------------------------------------------------------------------- Net (expense)/income recognised directly in equity for the year (1,230) 3,557 Profit for the year 213,228 83,435---------------------------------------------------------------------Total recognised income and expense for the period attributable to equity shareholders 211,998 86,992===================================================================== Big Yellow Group PLCConsolidated cash flow statementYear ended 31 March 2007 2007 2006 £'000 £'000 (restated) Operating profit 164,338 127,811Gain on the revaluation of investmentproperties (138,349) (106,218)Losses on non current assets 1,078 52Depreciation 1,349 1,288Employee share options 336 220Increase in inventories (99) (84)Increase in receivables (978) (825)Increase in payables 2,523 2,168-----------------------------------------------------------------Cash generated from operations 30,198 24,412 Interest paid (14,073) (9,422)Interest received 601 147-----------------------------------------------------------------Cash flows from operating activities 16,726 15,137----------------------------------------------------------------- Investing activities Sale of non-current assets 2,165 7,619Purchase of non-current assets (96,007) (60,281)-----------------------------------------------------------------Cash flows from investing activities (93,842) (52,662)----------------------------------------------------------------- Financing activitiesIssue of share capital 38,377 1,480Equity dividends paid (7,051) (3,541)Increase in borrowings 33,707 47,400-----------------------------------------------------------------Cash flows from financing activities 65,033 45,339-----------------------------------------------------------------Net (decrease)/increase in cash and cashequivalents (12,083) 7,814 Opening cash and cash equivalents 14,193 6,379-----------------------------------------------------------------Closing cash and cash equivalents 2,110 14,193================================================================= The prior year cash flow statement has been restated to reflect a revisedtreatment of finance lease payments. The effect of this restatement is to reducethe prior year increase in payables and reduce the purchase of non-currentassets by £988,000. Big Yellow Group PLCReconciliation of net cash flow to movement in net debtYear ended 31 March 2007 2007 2006 £'000 £'000 Net (decrease)/increase in cash and cash equivalents in the year (12,083) 7,814Cash inflow from increase in debt financing (33,707) (47,400)----------------------------------------------------------------------Change in net debt resulting from cash flows (45,790) (39,586)----------------------------------------------------------------------Movement in net debt in the year (45,790) (39,586)Net debt at the start of the year (142,100) (102,514)----------------------------------------------------------------------Net debt at the end of the year (187,890) (142,100)====================================================================== Big Yellow Group PLCNotes to the financial statementsYear ended 31 March 2007 1. GENERAL INFORMATION Big Yellow Group PLC is a company incorporated in the Great Britain under theCompanies Act 1985. The nature of the group's operations and its principalactivities 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. BASIS OF PREPARATION The financial information set out above (which was approved by the Board on 18May 2007) has been compiled in accordance with IFRS, but does not containsufficient information to comply with IFRS. That financial information does notconstitute the Company's statutory accounts for the year ended 31 March 2007 forthe purpose of Section 240 of the Companies Act 1985 which comply with IFRS, butis extracted from those accounts. The Company's statutory accounts for the yearended 31 March 2007 will be filed with the Registrar of Companies following theAnnual General Meeting. The independent auditors' report on those accounts wasunqualified and did not contain any statement under Section 237(2) or (3) of theCompanies Act 1985. The Company's statutory accounts for the year ended 31 March2006 have been filed with the Registrar of Companies. The independent auditors'report on those accounts was unqualified and did not contain any statement underSection 237(2) or (3) of the Companies Act 1985. The annual financial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRS) adopted for use in theEuropean Union and therefore comply with Article 4 of the EU IAS Regulation andwith those parts of the Companies Act 1985 that are applicable to companiesreporting under IFRS. The Group has applied all accounting standards andinterpretations issued by the International Accounting Standards Board andInternational Financial Reporting Interpretations Committee relevant to itsoperations and effective for accounting periods beginning on 1April 2006. IFRS 7Financial Instruments: Disclosures and IFRS 8 Operating Segments were in issueat the date of authorisation of the financial statements but not yet effective.IFRS 7 and IFRS 8 affect only disclosures and therefore have no material impacton the financial statements of the Group. The financial statements have been prepared using accounting policies which havebeen applied consistently throughout the year and the preceding year. 3. REVENUE Analysis of the Group's operating revenue and costs can be found below and inthe Portfolio Summary. 2007 2007 2006 2006 £'000 £'000 £'000 £'000 Open storesSelf storage income 42,222 36,268Other storage related income 6,741 5,236Ancillary store rental income 86 87------------------------------------------------------------------------------- 49,049 41,591Stores under developmentNon-storage income 927 298Surrender premiums received 1,172 -------------------------------------------------------------------------------- 2,099 298Franchise incomeFranchise fee received 100 -------------------------------------------------------------------------------- 100 --------------------------------------------------------------------------------Total revenue 51,248 41,889=============================================================================== The Group also received investment income of £1,250,000 in the year ended 31March 2007 (2006: £135,000). 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, with the exception of £100,000 of income which arose in theEmirate of Dubai. 5. PROFIT FOR THE YEAR a) Profit for the year has been arrived at after: 2007 2006 £'000 £'000 Depreciation of plant and equipment 652 656Finance lease depreciation 697 632Increase in fair value of investment property (138,349) (106,218)Cost of inventories recognised as an expense 897 788Employee costs (see note 6) 6,460 5,645Operating lease rentals 57 135Auditors' remuneration for audit services (see below) 138 140===================================================================== b) Analysis of auditors' remuneration: 2007 2006 £'000 £'000 Fees payable to the Company's auditors for the audit of the Company's annual accounts 128 130Other services - audit of the Company'ssubsidiaries' annual accounts 10 10---------------------------------------------------------------------Total audit fees 138 140=====================================================================Tax services - advisory - 17Other services - IFRS transition - 45 - REIT conversion 50 - - other 3 ----------------------------------------------------------------------Total non-audit fees 191 202===================================================================== 6. EMPLOYEE COSTS The average monthly number of employees (including Executive Directors) was: 2007 2006 Number Number Sales 157 146Administration 34 32------------------------------------------------------------------------------- 191 178=============================================================================== At 31 March 2007 the total number of Group employees was 208 (2006: 185) £'000 £'000Their aggregate remuneration comprised:Wages and salaries 5,266 4,678Social security costs 638 544Other pension costs 220 203Share-based payments 336 220------------------------------------------------------------------------------- 6,460 5,645=============================================================================== 7. INVESTMENT INCOME 2007 2006 £'000 £'000 Interest receivable on bank deposits 596 135Change in fair value of interest rate derivatives 654 -------------------------------------------------------------------------------- 1,250 135=============================================================================== 8. FINANCE COSTS 2007 2006 £'000 £'000 Interest on bank borrowings 11,124 7,579Other interest payable 20 26Interest on obligations under finance leases 1,607 1,574Change in fair value of interest rate derivatives - 220------------------------------------------------------------------------------- 12,751 9,399=============================================================================== 9. TAXATION UK current tax 2007 2006 £'000 £'000 Current tax:- Current year 2,739 1,165- Adjustment in respect of prior year - (32)- REIT conversion charge 11,997 -Deferred tax (see note 19):- Current year (75,127) 34,419- Adjustment in respect of prior year - (440)------------------------------------------------------------------------------- (60,391) 35,112=============================================================================== A reconciliation of the tax charge is shown below: 2007 2006 £'000 £'000 Profit before tax 152,837 118,547-------------------------------------------------------------------------------Tax charge at 30% thereon 45,851 35,564 Effects of:Adjustment in respect of prior year - (472)REIT conversion charge 11,997 -Revaluation of investment properties post-REIT (18,596) -Revaluation of investment properties pre-REIT (22,908) -Permanent differences (1,308) 20REIT conversion release of deferred tax (75,427) --------------------------------------------------------------------------------Total tax (credit)/charge (60,391) 35,112=============================================================================== Analysis of deferred tax (credit)/charge 2007 2006 £'000 £'000 On share options - 2,554Accelerated capital allowances (3,068) -On revaluations and disposals (72,059) 31,865Credit in respect of prior years - (440)-------------------------------------------------------------------------------Deferred tax (credit)/charge (75,127) 33,979=============================================================================== In addition to the current year income statement tax charge of £2.7 million,there is a debit to reserves of £3.9 million in respect of the current taxdeduction and the deferred tax arising on potential future deductions underSchedule 23. From 15 January 2007, the Group has REIT status. As a result the Groupwill no longer pay UK corporation tax on the profits and gains from qualifyingrental business in the UK provided that it meets certain conditions.Non-qualifying profits and gains of the Group continue to be subject tocorporation tax as normal. On entering the REIT regime a conversion charge equalto 2% of the aggregate market value of the properties associated with thequalifying rental business is payable. Deferred tax accrued at the date ofconversion in respect of the assets and liabilities of the qualifying rentalbusiness has been released to the income statement, as the relevant timingdifferences will no longer be taxable when they reverse. 10. ADJUSTED PROFIT BEFORE TAX 2007 2006 £'000 £'000 Profit before tax 152,837 118,547-------------------------------------------------------------------------------Gain on revaluation of investment properties (138,349) (106,218)Change in fair value of interest rate derivatives (654) 220Losses on non-current assets 1,078 52Tenant surrender premium (1,172) -REIT conversion costs 493 --------------------------------------------------------------------------------Adjusted profit before tax 14,233 12,601=============================================================================== Adjusted profit before tax which excludes gains on revaluation of investmentproperties, changes in fair value of interest rate derivatives, losses onnon-current assets and non-recurring items of income and expenditure have beendisclosed to give a clearer understanding of the Group's underlying tradingperformance. The loss on non-current assets in 2007 is comprised of a provision againstnon-current assets held for sale of £1.1 million (2006: £nil) and a £22,000profit (2006: £52,000 loss) on disposal of other development sites. 11. DIVIDENDS 2007 2006 £'000 £'000Amounts recognised as distributions to equityholders in the period:Final dividend for the year ended 31 March 2006 of 3.0p(2005: 1.5p) per share. 3,065 1,511Interim dividend for the year ended 31 March 2007 of 3.5p (2006: 2.0p) per share. 3,986 2,030------------------------------------------------------------------------------- 7,051 3,541 Proposed final dividend for the year ended 31 March2007 of 5.5p (2006: 3.0p) per share. 6,267 3,064=============================================================================== The proposed final dividend are subject to approval by shareholders at theAnnual General Meeting and have not been included as liabilities in thesefinancial statements. The ex-dividend date will be 13 June; the record date 15June; with an intended payment date of 18 July. 12. EARNINGS PER ORDINARY SHARE Year ended 31 March 2007 Year ended 31 March 2006 Earnings Shares Pence per Earnings Shares Pence per £m Million share £m Million share Basic 213.23 110.50 192.97 83.44 101.62 82.10Adjustments:Dilutive share options 1.54 (2.66) 2.07 (1.63)------------------------------------------------------------------------------------------Diluted 213.23 112.04 190.31 83.44 103.69 80.47------------------------------------------------------------------------------------------Adjustments:Gain on revaluation of investment properties (138.35) (123.48) (106.22) (102.44)Change in fair value ofinterest rate swaps (0.65) (0.58) 0.22 0.21Losses on non-currentassets 1.08 0.96 (0.05) (0.05)Tenant surrender premium (1.17) (1.04) - -REIT conversion costs 0.49 0.44 - -REIT conversion charge 12.00 10.71 - -Deferred tax (75.13) (67.06) 31.85 30.72Tax effect of non- recurringitems* (0.28) (0.25) (0.05) (0.05)------------------------------------------------------------------------------------------Adjusted 11.22 112.04 10.01 9.19 103.69 8.86------------------------------------------------------------------------------------------ * - this takes into account the tax effect of the change in fair value ofderivatives, the losses on non-current assets, and the REIT conversion costs. The calculation of basic earnings is based on profit after tax for the year. Theweighted average number of shares used to calculate diluted earnings per sharehas been adjusted for the conversion of share options. Adjusted earnings per ordinary share before non-recurring items, gains onrevaluation of investment properties and on change in fair value of interestrate swaps and associated deferred tax balances, have been disclosed to give aclearer understanding of the Group's underlying trading performance. The prior year figures have been adjusted to include losses on non-currentassets. These were not included in the prior year. ADJUSTED NET ASSETS PER SHARE Analysis of net asset value As at As at 31 March 2007 31 March 2006 £'000 £'000 Basic net asset value 487,979 244,319Exercise of share options 3,345 5,839---------------------------------------------------------------------------------Diluted net asset value 491,324 250,158---------------------------------------------------------------------------------Adjustments:Deferred tax on revaluation - 72,059Tax on fair value of interest rate swaps (154) 43---------------------------------------------------------------------------------Balance sheet adjusted net asset value 491,170 322,260---------------------------------------------------------------------------------Basic net assets per share (pence) 428.3 239.2Diluted net assets per share (pence) 416.0 230.5Balance sheet adjusted net assets per share (pence) 415.8 297.0 Balance sheet adjusted net asset value (as above) (£'000) 491,170Valuation methodology assumption (see below) (£'000) 25,890-------------------------------------------------------------------Adjusted net asset value (£'000) 517,060Adjusted net assets per share (pence) 437.8 * Shares in issue 114,559,534 102,752,607Own shares held (615,000) (615,000)Basic shares in issue used for calculation 113,944,534 102,137,607Exercise of share options 4,167,888 6,368,227Diluted shares used for calculation 118,112,422 108,505,834 * There was no valuation carried out on the basis of a sale in a corporate structure at 31 March 2006. 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; • the effect of revised valuation methodology assumptions (see note 14); • 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 2005 275,230 36,076 25,659Additions 16,839 37,976 804Adjustment to present value - - 816Reclassifications 12,183 (12,183) -Revaluation 106,218 - -Disposals - (3,881) -Depreciation - - (632)--------------------------------------------------------------------------------At 31 March 2006 410,470 57,988 26,647-------------------------------------------------------------------------------- Additions 2,115 77,531 -Adjustment to present value - - 1,088Reclassifications 39,126 (39,126) -Revaluation 138,349 - -Depreciation - - (697)--------------------------------------------------------------------------------At 31 March 2007 590,060 96,393 27,038 The income from self storage accommodation earned by the Group from itsinvestment property is disclosed in note 3. Direct operating expenses arising onthe investment property in the year are disclosed in the Portfolio Summary. Within the brought forward cost balance for development property is a provisionof £675,000 against the cost of one of our development sites. b) Plant equipment and owner occupied property Freehold Leasehold Plant and Motor Fixtures, Total Property improvements machinery vehicles fittings £'000 £'000 £'000 £'000 £'000 & office equipment £'000CostAt 1 April 2005 - 37 389 19 2,833 3,278Additions 1,770 (12) 62 - 563 2,383Disposals - (8) - (19) - (27)---------------------------------------------------------------------------------At 31 March 2006 1,770 17 451 - 3,396 5,634Additions 26 - 112 - 648 786---------------------------------------------------------------------------------At 31 March 2007 1,796 17 563 - 4,044 6,420---------------------------------------------------------------------------------DepreciationAt 1 April 2005 - (14) (114) (16) (1,820) (1,964)Charge for the year (6) (7) (44) (2) (597) (656)Disposals - 4 - 18 - 22---------------------------------------------------------------------------------At 31 March 2006 (6) (17) (158) - (2,417) (2,598)Charge for the year (44) - (57) - (551) (652)---------------------------------------------------------------------------------At 31 March 2007 (50) (17) (215) - (2,968) (3,250)---------------------------------------------------------------------------------Net book valueAt 31 March 2007 1,746 - 348 - 1,076 3,170=================================================================================At 31 March 2006 1,764 - 293 - 979 3,036================================================================================= c) Goodwill Goodwill 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 sale The Group has land at three sites with a total historic cost of £19.3 million,which is carried at £18.2 million, after a provision for impairment of £1.1million against a site. Land at these three sites is surplus to requirements andthe Group intends to sell them within the next 12 months. The balance at 31March 2006 was £6.3 million cost and carrying value. 14. VALUATIONS Deemed Valuation Revaluation cost on deemed cost £'000 £'000 £'000Freehold Stores *As at 1 April 2006 151,985 349,400 197,415Movement in period 40,966 172,020 131,054-------------------------------------------------------------------------------As at 31 March 2007 192,951 521,420 328,469-------------------------------------------------------------------------------Leasehold StoresAs at 1 April 2006 18,288 61,070 42,782Movement in period 275 7,570 7,295-------------------------------------------------------------------------------As at 31 March 2007 18,563 68,640 50,077-------------------------------------------------------------------------------All StoresAs at 1 April 2006 170,273 410,470 240,197Movement in period 41,241 179,590 138,349-------------------------------------------------------------------------------As at 31 March 2007 211,514 590,060 378,546------------------------------------------------------------------------------- * Includes one long leasehold property The freehold and leasehold investment properties have been valued as at 31 March2007 by external valuers, Cushman & Wakefield, ("C&W"). The valuation has beencarried out in accordance with the RICS Appraisal and Valuation Standardspublished by The Royal Institution of Chartered Surveyors ("the Red Book"). Thevaluation of each of the trading properties has been prepared on the basis ofMarket Value as a fully equipped operational entity, having regard to tradingpotential. The valuation has been provided for accounts purposes and as such, is aRegulated Purpose Valuation as defined in the Red Book. In compliance with thedisclosure requirements of the Red Book, C&W have confirmed that: • The members of the RICS who have been the signatories to the valuations provided to the Group 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 Group since September 2004. • C&W do not provide other significant professional or agency services to the Group. • In relation to the preceding financial year of C&W, the proportion of the total fees payable by the Group to the total fee income of the firm is less than 5%. Valuation methodology C&W have adopted different approaches for the valuation of the leasehold andfreehold assets as follows: FreeholdThe 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 43 stores (both freeholds and leaseholds) averages 86.06% (2006: 85.98%). 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 43 stores, the yield (net of purchaser's costs) arising from the first year of the projected cash flow is 5.24% (2006: 6.01%). This rises to 6.80% (2006: 7.49%) 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 10.19% (2006: 10.59%). E. Purchaser's costs of 5.75% (2006: 5.75%) (see below) have been assumed initially and sale plus purchaser's costs totalling 7.75% (2006: 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 is18.8 years (March 2006: 19.8 years). Change in valuation assumption for purchaser's costs The Group's investment property assets have been valued for the purposes of thefinancial statements after deducting notional purchaser's cost of 5.75% of grossvalue, as if they were sold directly as property assets. The valuation is anasset valuation which is entirely linked to the operating performance of thebusiness. They would have to be sold with the benefit of operational contracts,employment contracts and customer contracts, which would be very difficult toachieve except in a corporate structure. We believe therefore that the valuationassumptions should be adjusted to reflect the reality. This approach follows the logic of the valuation methodology in that thevaluation is based on a capitalisation of the net operating income afterallowing a deduction for operational cost and an allowance for centraladministration costs. Sale in a corporate structure would result in a reductionin the assumed Stamp Duty Land Tax but an increase in other transaction costsreflecting additional due diligence resulting in a reduced notional purchaser'scost of 2.75% of gross value. All the significant sized transactions that havebeen concluded in the UK in recent years were completed in a corporatestructure. We therefore instructed C&W to carry out a Red Book valuation on theabove basis, and this results in a higher property valuation at 31 March 2007 of£615,950,000 (£25,890,000 higher than the value recorded in the financialstatements or 21.9 pence per share). We have included this revised valuation inthe adjusted diluted net asset calculation (see note 12). 15. TRADE AND OTHER RECEIVABLES 31 March 31 March 2007 2006 £'000 £'000 Trade receivables 1,449 1,042Other receivables 267 284Prepayments and accrued income 5,266 4,683----------------------------------------------------------- 6,982 6,009=========================================================== Trade receivables are net of a bad debt provision of £53,000 (2006: £4,000). TheGroup does not offer credit terms to its customers and hence the Group is notexposed to significant credit risk. The Directors consider that the carrying amount of trade and other receivablesapproximates their fair value. 16. TRADE AND OTHER PAYABLES 31 March 31 March 2007 2006 £'000 £'000CurrentTrade payables 5,283 4,835Other payables 2,584 1,855Accruals and deferred income 15,162 11,760VAT repayable under Capital Goods Scheme 2,557 1,672------------------------------------------------------------------- 25,586 20,122===================================================================Non currentVAT repayable under Capital Goods Scheme 5,116 8,996=================================================================== The Directors consider the carrying amount of trade and other payables andaccruals and deferred income approximates fair value. See note 18 for details ofVAT repayable under Capital Good Scheme. 17. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Interest rate swaps Interest rate swap contracts have been entered into to hedge the cash flowinterest rate risk inherent in liabilities with an aggregate notional value of£20 million. These swaps ensure an average effective fixed rate payable of 5.03%until October 2007. Thereafter an effective fixed rate of 5.11% is payable toJanuary 2010 on a notional value of £10 million. In addition to these, an interest rate collar contract has been entered into inorder to hedge cash flow interest rate risk inherent in a notional liability(£50 million) which is dependent on 3 month LIBOR, until April 2010. Theeffective rate payable during the year was the equivalent to the 3 month LIBORrate. The floating rate at 31 March 2007 on the Group's variable debt was 0.9% abovethree month LIBOR. The Group's policy on risk management is set out in the Business Review. The fair value of interest rate derivatives at 31 March 2007 was an asset of£512,000 (2006: liability of £142,000). 18. BANK BORROWINGS 31 March 31 March 2007 2006 £'000 £'000 Bank borrowings 190,000 156,293Unamortised loan arrangement costs (775) (685)------------------------------------------------------------------------------- 189,225 155,608=============================================================================== The bank borrowings are secured via a first charge on 31 of the Group'sproperties and are subject to certain covenants. Maturity profile of bank borrowings 2007 2006 Financial Financial liabilities liabilities £'000 £'000 Within one year or on demand - -Between one and two years 190,000 -Between two and five years - 156,293------------------------------------------------------------------------------------Bank borrowings 190,000 156,293==================================================================================== The Group has £35,000,000 in undrawn committed borrowing facilities at 31 March2007 which expire between one and two years. Interest rate profile of financial liabilities Total Floating Fixed Weighted Period Weighted £'000 rate rate average for which average £'000 £'000 interest the rate period rate is fixed until maturity At 31 March 2007Gross financial liabilities 190,000 170,000 20,000 6.3% 4.1 years 2.0 years------------------------------------------------------------------------------------------At 31 March 2006Gross financial liabilities 156,293 120,000 36,293 5.7% 4.3 years 3.0 years------------------------------------------------------------------------------------------ The floating rate at 31 March 2007 was 0.9% above three month LIBOR. Allmonetary liabilities, including short term debtors and creditors are denominatedin sterling. The Director's estimate the fair value of the Group's borrowings and VAT payableunder capital goods scheme as follows: 2007 2006 Carrying Estimated Carrying Estimated amount fair amount fair £'000 value £'000 value £'000 £'000 Bank borrowings 190,000 189,488 156,293 156,435================================================================================VAT payable under capital goods scheme 7,673 6,680 10,668 8,921================================================================================ The fair values have been calculated by discounting expected cash flows atinterest rates prevailing at the year end. Narrative disclosures on the group's policy for financial instruments areincluded within the Business Review. 19. DEFERRED TAX The movement and major deferred tax items are set out below: Revaluation Accelerated Deduction Other Total of capital for share investment allowances options properties £'000 £'000 £'000 £'000 £'000 At 31 March 2005 and 1 April 2005 40,194 1,424 (2,100) (492) 39,026Recognised 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=====================================================================================Recognised in income 22,908 127 - 439 23,474Release of deferred tax provision (94,967) (3,801) - 167 (98,601)Recognised in equity - - 3,897 - 3,897-------------------------------------------------------------------------------------At 31 March 2007 - - (650) - (650)===================================================================================== 20. OBLIGATIONS UNDER FINANCE LEASES Minimum lease Present value payments minimum of lease payments 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Amounts payable under finance leases:Within one year 2,357 2,320 2,306 2,268Within two to five years inclusive 9,468 9,079 8,025 7,637Greater than five years 35,796 37,414 16,707 16,742------------------------------------------------------------------------------- 47,621 48,813 27,038 26,647-------------------------------------------------------------------------------Less: Future finance charges (20,583) (22,166) - --------------------------------------------------------------------------------Present value of lease obligations 27,038 26,647 27,038 26,647=============================================================================== All lease obligations are denominated in sterling. The fair value of the Group's lease obligations approximates their carryingamount. 21. SHARE CAPITAL Authorised Called up, allotted and fully paid 2007 2006 2007 2006 £'000 £'000 £'000 £'000 Ordinary shares at 10 pence each 20,000 20,000 11,456 10,275 No.Movement in issued share capitalNumber of shares at 1 April 2005 100,725,537Exercise of share options -Share option scheme 2,027,070-------------------------------------------------------------------------------Number of shares at 31 March2006/1 April 2006 102,752,607Issue of shares 9,100,000Exercise of share options -Share option scheme 2,706,927-------------------------------------------------------------------------------Number of shares at 31 March 2007 114,559,534=============================================================================== 21. SHARE CAPITAL (CONTINUED) At 31 March 2007 options in issue to Directors and employees were as follows: Date option Option price Date first Date on which Number ofgranted per ordinary exercisable the exercise ordinary share period expires shares 5 March 1999 25p 5 March 2002 5 March 2009 89,0605 May 2000 100p 5 May 2003 4 May 2010 348,40030 November 2000 137.5p 30 November 2003 29 November 2010 2,5001 June 2001 125.5p 1 June 2004 31 May 2011 166,0004 June 2001 131.5p 4 June 2004 4 June 2011 621,0008 November 2001 98p 8 November 2004 7 November 2011 144,67415 May 2002 102p 15 May 2005 14 May 2012 693,20016 December 2002 81.5p 16 December 2005 15 December 2012 653,2102 July 2003 82.5p 2 July 2006 1 July 2013 134,04711 November 2003 96p 11 November 2006 10 November 2013 28,7753 September 2004 107p* 3 September 2007 2 March 2008 132,72027 September 2004 nil p** 27 September 2007 26 September 2014 138,00022 December 2004 140p* 22 December 2007 21 June 2008 32,0736 June 2005 Nil p** 6 June 2008 5 June 2015 443,33221 July 2005 156p* 21 July 2008 20 January 2009 16,32621 December 2005 225p* 21 December 2008 20 June 2009 12,7969 June 2006 Nil p** 9 June 2009 8 June 2016 470,83218 August 2006 347p* 18 August 2009 17 February 2010 24,71612 March 2007 554p* 12 March 2010 11 September 2011 16,227-------------------------------------------------------------------------------- 4,167,888================================================================================ * SAYE (see note 23)** LTIP (see note 23) OWN SHARES 2007 2006 £ £ Balance at 1 April and 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. MOVEMENTS IN EQUITY Group Share Share Capital Retained Own Total capital premium redemption earnings shares £'000 £'000 account reserve £'000 £'000 £'000 £'000 At 1 April 2005 10,073 2,390 1,653 145,864 (812) 159,168Profit for thefinancial year - - - 83,435 - 83,435Taxation - - - 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) 244,319Profit for thefinancial year - - - 213,228 - 213,228Taxation - - - (1,230) - (1,230)Dividends - - - (7,051) - (7,051)Issue of shares 1,181 37,196 - - - 38,377Share options - - - 336 - 336--------------------------------------------------------------------------------At 31 March 2007 11,456 40,864 1,653 434,818 (812) 487,979================================================================================ The capital redemption reserve arose on the buy back of the Company's shares inthe years ended 31 March 2003 and 31 March 2004. The own shares balance is amounts held by the Employee Benefit Trust (see note20). The Group's distributable reserves at 31 March 2007 were £56,272,000. 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 in the year related to equity-settled share-based payment transactions since 7 November 2002 of £0.3 million (2006: £0.2 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 Yorkshire Building Society. On 27 September 2004, 6 June 2005 and 9 June 2006 the Group awarded nil-paidoptions to senior management under the Group's Long Term Incentive Plan("LTIP"). The awards are conditional on the achievement of challengingperformance targets. Share option scheme "ESO" 2007 2007 2006 2006 No. of Weighted No. of Weighted Options average Options average exercise exercise price price (in £) (in £) Outstanding at beginning of year 5,592,936 1.00 7,658,295 0.93Granted during the year - - 3,110 0.96Forfeited during the year (14,861) 0.87 (40,941) 0.90Exercised during the year (2,697,208) 0.98 (2,027,528) 0.73--------------------------------------------------------------------------------Outstanding at the end of the year 2,880,867 1.02 5,592,936 1.00================================================================================Exercisable at the end of the year 2,880,867 1.02 5,112,525 1.00================================================================================ Options outstanding at 31 March 2007 had a weighted average contractual life of4.7 years. 23. SHARE BASED PAYMENTS (CONTINUED) LTIP scheme 2007 2006 No. of No. of Options Options Outstanding at beginning of year 591,054 146,000Granted during the year 470,832 493,332Forfeited during the year - (48,278)Exercised during the year (9,722) --------------------------------------------------------------------------------Outstanding at the end of the year 1,052,164 591,054===============================================================================Exercisable at the end of the year - -=============================================================================== Options outstanding at 31 March 2007 had a weighted average contractual life of8.5 years. Employee Share Save Scheme ("SAYE"). 2007 2007 2006 2006 No. of Weighted No. of Weighted Options average Options average exercise exercise price price (in £) (in £) Outstanding at beginning of year 206,237 1.24 206,034 1.12Granted during the year 40,943 4.29 45,455 1.78Forfeited during the year (11,072) 1.31 (45,252) 1.22Exercised during the year (1,250) 1.07 - ---------------------------------------------------------------------------------Outstanding at the end of the year 234,858 1.65 206,237 1.24================================================================================Exercisable at the end of the year - - - -================================================================================ Options outstanding at 31 March 2007 had a weighted average contractual life of8.0 years. The inputs into the Black-Scholes model are as follows: ESO LTIP SAYEExpected volatility 25% 26% 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£17.2 million (2006: £7.2 million). 25. EVENTS AFTER THE BALANCE SHEET DATE Subsequent to the year end, the Group secured an extension to its bankingfacilities of £50 million, taking the total facilities available to £275million. 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. On 12 July 2006, the Group raised £36.4 million by the placing of 9.1 millionshares. David Ross, a non-executive Director of the Group acquired 1.5 millionordinary shares at 400 pence per share in the placing. No other related party transactions took place during the years ended 31 March2007 and 31 March 2006. Five Year Summary IFRS UK GAAP 2007 2006 2005 2004 2003 £ £ £ £ £ResultsRevenue 51,248 41,890 33,375 23,830 15,579======================================================================================Operating profit/(loss) before gains and losses on property assets 27,067 21,645 15,030 4,719 (449)======================================================================================Profit/(loss) before taxation 152,837 118,547 42,836 1,243 (2,294)======================================================================================Adjusted profit before taxation 14,233 12,601 7,791 - -======================================================================================Declared total dividend per share 9.0p 5.0p 2.0p 1.05p 1p Key statisticsNumber of stores open 43 37 32 29 26Square footage occupied 1,835,000 1,672,000 1,470,000 1,268,000 875,000Number of customers 30,100 27,800 24,600 20,400 13,800Average number of employees during the year 191 178 160 140 116 The amounts disclosed for 2004 and earlier periods are stated on the basis of UKGAAP because it is not practicable to restate amounts for periods prior to thedate of transition to IFRS. This information is provided by RNS The company news service from the London Stock Exchange

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