30th Oct 2006 07:01
Lok'n Store Group PLC30 October 2006 30th October 2006 Lok'nStore Group Plc Preliminary results for the year ended 31st July 2006 Lok'nStore Group plc, one of the leading players in the fast growingself-storage market, announces Preliminary Results for the year ended 31 July2006. Financial Highlights • Turnover £8.95 million - up 15.1% (2005: £7.77 million) • Company EBITDA £1.75 million - up 29% (2005: £1.36 million) • Storage centres EBITDA £3.1 m - up 24% (2005: £2.5 million) • Operating Profit £851k - up 40.3% (2005 £607k) • EBITDA margin on established stores (>250 weeks): 40% Property Highlights • Property valuation £66.6 m • Net Asset Value (NAV) £2.13 per share (based on 31.07.2006 valuations) • Built and opened first purpose built store in Farnborough • Total portfolio capacity 920,000 sq ft • Planning permission granted for the new Reading store on adjacent land Operational Highlights • Good sales growth at established and new storage centres • Opened Farnborough and Crayford centres on time and on budget • 104,818 sq ft of self-storage units fitted - an increase of 20% in fitted space • 19 out of 21 stores now operating at EBITDA positive levels • Prices for self-storage up 4% year on year Andrew Jacobs, Chief Executive Officer commented: "Lok'nStore has made excellent progress during the year and we are encouraged bythe early success of the Farnborough store as a model for rolling out futurestores. The new centre with its prominent design, distinctive orange elevationsand position adjacent to the M3 motorway will help to raise the profile of thewhole Lok'nStore brand. "Our property portfolio has been independently valued at £66.6 million whichtranslates into net asset value per share of 213 pence. This reflects theimproved operational efficiency of the business, the immediate increase of thevalue of the new stores opened during the year, and the full market value of theKingston and Reading properties. "The UK self-storage market continues to offer an excellent combination ofpredictable profits and potential for growth. It continues to grow rapidly andoffers a great opportunity, particularly to the major operators with specialistskills. Lok'nStore has a proven ability to increase revenue from our existingcentres and open new centres, which combine to produce attractive growth andprofits. There are opportunities to open new stores, and to improve marginsfurther by enlarging their average size and increasing prices. We believe thatthere is an opportunity to further increase the value of the business byaccelerating our growth rate. "Lok'nStore's market position, leading brand and increasing balance sheetstrength means we are well positioned to take advantage of this under-developedmarket and I am confident that our management team will continue to deliversubstantial growth in shareholder value." Press Enquiries:Andrew Jacobs, CEO Lok'nStore Tel: 01252 521010Ray Davies, Finance Director Lok'nStoreJonathon Brill/ Billy Clegg Financial Dynamics Tel: 020 7831 3113 CHAIRMAN'S STATEMENT OVERVIEW I am pleased to report that Lok'nStore continues to make good progress and I amdelighted at the successful opening of our new flagship store and head office inFarnborough. The operating performance of our existing centres has continued toimprove, we have increased the value of our existing centres and we havesuccessfully launched new sites acquired last year. At our year end we haverevalued all of our properties. These valuations have not been included in thebalance sheet. Lok'nStore's focus on growth again has underpinned satisfactory results.Turnover, profits and operating cash flows have all increased. We continue toinvest in our existing centres, as well as opening new centres, reflecting ourpositive view of the market. We believe that the UK self-storage market offers great potential forLok'nStore. SALES AND EARNINGS GROWTH Total turnover for the year was £8.95 million (2005: £7.77 million), an increaseof 15.1%, with annualised revenues now reaching £10.36 million (2005: £8.48million) demonstrating the continued growth of the business during the year.The Group made an operating profit for the year of £851,351 up 40.3% comparedwith £606,961 in 2005. The Group made a pre-tax profit for the year of £124,301compared with £114,325 in 2005. The cash-flow of the operating business has continued to grow with earningsbefore interest, tax, depreciation and amortisation (EBITDA) from the storagecentres at £3.08 million, and cash flow from operating activities amounting to£1.6 million. At 31 July 2006, the number of customers/contracts had risen to 7,570 up from6,715 at 31 July 2005, an increase of 12.7% over the year. Our established centres have continued to grow alongside the more rapid salesincreases at our newest centres. On a like for like basis, our 15 Centrestrading for more than 250 weeks grew revenue by 9.2%, our 4 centres with 100 to250 weeks' trading grew revenue by 42.3%. Our 2 new centres at Farnborough andCrayford had been trading for around six months at the year end and have startedencouragingly. Lok'nStore's 11 most established centres (those stores over 250 weeks old in thelast financial year) made EBITDA margins of 49% this year compared to 48% lastyear, demonstrating improvement in the underlying margin on a like for likebasis. At 31 July 2006, Lok'nStore had 15 established stores (over 250 weeksold) with the addition of 4 stores, all leasehold, joining this category duringthe year. These made an aggregate EBITDA margin of 39.8%. Again, we have seenmargin improvement when compared to 37.7% last year for the same 15 stores,showing the strong underlying and increasing profitability of the business. Overall EBITDA margins on the aggregate of all stores improved from 32.4% to34.6% DIVIDEND The directors do not recommend the payment of a dividend; however the Board willkeep this matter under periodic review. NEW CENTRES During the year we built and opened our new centre in Farnborough, and opened anew centre in Crayford. They are both located in attractive markets with highvisibility. We now have 21 stores open with capacity of 920,000 sq. ft. ofstorage space when fully fitted. These two new stores, which provide 128,000 sq ft of space, are larger thanLok'nStore's average size of 43,800 ft per store, and add 16% to total space.Combined with the fact that they are both freeholds and prominent, highspecification buildings this adds significantly to the potential margins theyare capable of achieving. This in turn positively impacts on the potentialmargins of the Group overall. The successful development and opening of the Farnborough centre, which is thefirst purpose built for Lok'nStore, represents an evolution of the businessmodel, creating value through larger new-build centres. It is the first centrewhere Lok'nStore has managed the entire process of buying the land, gainingplanning permission, building, and fitting the store. With its prominent designand position adjacent to the M3 motorway it has raised the profile of the wholeLok'nStore brand. I would like to take this opportunity to thank the Lok'nStore team for itsprompt construction and successful opening. Our objective is to increase the number of Lok'nStore centres and we havefurther sites in the pipeline which we expect to sign during the comingfinancial year. We continuously review opportunities to buy, to build, and tolease new stores and are encouraged by the early success of the Farnboroughstore as a model for rolling out future stores. We believe that there is anopportunity to further increase the value of the business by accelerating ourgrowth rate. PROPERTY ASSETS Lok'nStore's property holdings have been valued at 31 July 2006. This reportvalued our properties at £66.6 million (Jan 2005: £31.8 million) compared to anet book value of £25.2 million. (2005: NBV £16.7 million). This valuationincludes the new Farnborough and Crayford stores, in addition to the Kingstonand Reading properties at full market value. This valuation translates into anet asset value of 213 pence per share. The value of trading properties whichwere previously valued in January 2005 showed an uplift of 33.42% from thatdate, of which 13.25% is capital growth (yield contraction) and 20.17%operational performance. During the year we were pleased to conclude the planning permission formalitiesin respect of high-density residential development at our existing Kingston sitewith the formal execution of the S.106 Agreement. SELF-STORAGE IN THE UK AND US The UK self-storage market continues to grow rapidly and offers a greatopportunity, particularly to the major operators with specialist skills. The more mature US market, grew from 2.9 sq. ft. per member of the population in1994 to 5.54 sq. ft. in 2006. The population density of the US is only 32 persquare kilometre against 246 in the UK. This creates far more pressure to useproperty resources efficiently in the UK, which is a driver of demand forself-storage. Lok'nStore is one of two quoted storage operators in the UK, ranked fourth insize in the UK and sixth in Europe. LOK'NSTORE PEOPLE Andrew Jacobs, Chief Executive Officer, is supported by an experienced executiveteam now all based at our corporate head office in Farnborough. Our storagecentre personnel are committed and motivated and help maintain the exemplarylevels of friendly service that Lok'nStore provides to its customers. I would like to thank all of the people who work at our head office and in ourcentres for their commitment to our business and for their hard work. Theircontinued effort will enable us to further increase the value of the business. OUTLOOK The UK self-storage market continues to offer an excellent combination ofpredictable profits and potential for growth. It continues to grow rapidly andoffers a great opportunity, particularly to the major operators with specialistskills. Lok'nStore has a proven ability to increase revenue from our existingcentres and open new centres, which combine to produce attractive growth andprofits. There are opportunities to open new stores, and to improve marginsfurther by enlarging their average size and increasing prices. We believe thatthere is an opportunity to further increase the value of the business byaccelerating our growth rate. Lok'nStore's market position, leading brand and increasing balance sheetstrength means we are well positioned to take advantage of this under-developedmarket and I am confident that our management team will continue to deliversubstantial growth in shareholder value." Simon ThomasChairman27th October 2006 OPERATING REVIEW SALES AND PRICING During the year under review we have continued to raise operational standards atLoknStore, and to focus store personnel on taking responsibility for increasingturnover. This work has continued to improve the consistency of performanceacross the centres. Our central sales team are now running more frequent andimproved sales training courses using facilities in our new flagship store inFarnborough. In addition, we regularly review the bonus scheme to linkperformance and reward more directly to turnover growth and consistently highquality customer service. During the year we increased occupied space by 50,301 sq. ft. (9.1%), with totaloccupied space at 31 July 2006 of 605,746 sq ft. (31 July 2005 of 555,445 sqft). We have included a table summarising the trading performance of all ourcentres over the year, analysed between centres open less than 100 weeks,between 100 and 250 weeks, and more than 250 weeks at the end of the period. Encouragingly, revenue from the 15 most established centres (over 250 weeks)increased 9.2% on the previous year. We believe there is room for furtherincreases in these older stores with new space still to be fitted out inaddition to improving income from existing space. Lok'nStore is now taking a more active approach to yield management with averageprices for self-storage units increasing 4% over the year. This comparesfavourably with the last several years where prices have only risen 0.5-1 % perannum. We have introduced a yield management system underlying our confidencethat we will be able to increase prices by more than inflation for severalyears. Our average price for self-storage was £16.40 at 31st July 2006 whichcompares favourably with the average of £18.29 for the industry across thesouth-east. (Source: Self-Storage Association survey 2006). We believe thatthere is room to continue to increase prices while retaining our pricecompetitive position in the market. Lok'nStore's established centres (over 250 weeks old) achieved EBITDA margins of40%. 14 of the centres are trading profitably at the pre-tax level (2005: 14) and 19have positive operating cash flow (2005: 17). Packing materials, insurance and other sales increased 18.6% over the yearaccounting for 7.9% of turnover (2005: 7.7%). MARKETING The Company spent approximately 6.5% of turnover on advertising and marketing(including postage, printing and stationery) (2005: 6.4%). Our marketing costsshould remain at these levels over the coming years. Marketing resources andefforts have been upgraded, and this contributed to Lok'nStore achieving anotherincrease in occupancy over the year of 50,301 sq. ft, up 9.1% on the previousyear, and increases in self storage pricing by 4%. We continually review new and better opportunities in the media and throughlocal marketing efforts and each of these shows progress. New centres benefitfrom the marketing and promotion effort already applied to our existing centres. Work on the visibility of our storage centres is also improving response to ourmarketing. Our new Farnborough centre with its prominent design, distinctiveorange elevations and position adjacent to the M3 motorway will help to raisethe profile of the whole Lok'nStore brand. We are prominent in our directoryadvertising, which also produces a significant proportion of our enquiries. We apply coordinated sales and marketing messages. Our storage centre personnelare closely involved and work with our head office, to ensure our expenditureremains effective. SYSTEMS - CENTRALISED SPACE MANAGER During the year we have centralised our store management computer system whichis already yielding marketing and other management information benefits. Weremain committed to continuing systems centralisation, greater audit capabilityand a continued focus on efficient and timely data. During the year we haveincreased the penetration of direct debit facilities which reducesadministrative effort and saves on stationery and postage costs at the centres.As well as being a positive service to our customers it also reduces the timecommitted to credit management. The centre audit system has been effective interms of improved security, credit control and centre presentation. SECURITY ISSUES The safety and security of our customers and centres remains a high priority.With today's heightened terrorist concerns this is of particular importance. Wealready invest in CCTV systems, intruder and fire alarm systems and the remotemonitoring of our centres out of hours and we have rigorous security proceduresin relation to customers. Furthermore, we continually review our security resources and are upgrading oursecurity in line with up-to-date equipment, for example, colour CCTV monitors ofgreater capability and detail and improved lighting. The importance of security and the need for vigilance is communicated to allpersonnel and reinforced through our various training procedures. OUR PEOPLE At 31 July 2006, we had 104 employees (2005: 94). Attracting, retaining and encouraging the right people is key to the success ofLok'nStore. We are committed to providing a positive attitude in the businessand an enjoyable working environment. In January 2006, we moved the Lok'nStorehead office from our Kingston centre to a new purpose built accommodation in ourFarnborough centre. This has improved coordination and communication within theCompany, and particularly amongst our property and other functional managementpreviously dispersed around our different offices. All head office staff nowoperate from Farnborough. Lok'nStore encourages all personnel to build their skills through appropriatetraining and regular performance monitoring. Regular weekly training courses atFarnborough support these objectives. We have incorporated a new conference roominto our head office, which can accommodate all our training requirements forthe foreseeable future. We have reduced outgoings, increased the regularity oftraining and improved contact between head office and the stores by bringingstaff into head office for regular training. All employees are eligible to participate in share ownership plans after 3months of employment .34% of our employees have EBT shares or options. 36% ofthe personnel are members of the contributory pension scheme. I would like to thank all of our people for their contribution to a successfulyear. The continuing progress of the Group is being achieved as a result oftheir efforts and hard work. PROPERTY AND CONSTRUCTION During the year we built and opened our new freehold centres in Farnborough, andCrayford totalling 128,000 square feet. Farnborough is the first store we havehad purpose built for Lok'nStore and we are delighted with the result. Boththese stores are located in attractive markets with high visibility. We now have 21 stores open with capacity of 920,000 sq. ft. of storage spacewhen fully fitted. 11 stores are held freehold and 10 leasehold. We prefer toacquire freeholds if possible, and where opportunities arise we will seek toacquire the freehold of our leasehold centres. However, our overiding objectiveis to increase the number of storage centres we operate and we are comfortableto take leases on appropriate terms. Lok'nStore continues to focus on the efficiency of our fitting out programme inorder to bring forward the revenue stream and maximise our rate of return. Weoptimise the available space in new centres by fitting mezzanine floors andstorage units as customer demand dictates. This allows revenue to be generatedby opening storage space, and keeping tight control on capital expenditure byfitting out when it is required. Over the year under review we fitted out afurther 104,818 sq. ft. of self-storage units, a 20% increase in fitted space. Subject to market conditions, it is our current aim to acquire between 2 and 4centres per annum. Our current average centre size is 43,800 sq. ft. and thismay increase for new centres up to 60,000 sq. ft. or more. The exact timing ofcentre openings will largely depend on market availability, and we will retainour disciplined and flexible approach to site acquisition. Centre Analysis Maturity Analysis Jul-06 Weeks Old over 250 100 to 250 under 100 Total Sales (£'000) 7,243 1,443 202 8,888 Stores EBITDA (£'000) 2,885 269 -78 3,076 EBITDA MARGIN (%) 39.8 18.7 -38.7 34.6Maximum Net Area 630 162 128 920('000 sq ft) Freehold 7 2 2 11 Leasehold 8 2 0 10 Total Centres 15 4 2 21 Customer Analysis At the end of July 39.6% of our turnover was from business customers (25.2% bynumber) and 60.4% was from household customers (74.8% by number). Andrew JacobsChief Executive Officer27th October 2006 FINANCIAL REVIEW TRADING Total turnover for the year was £8.95 million (2005: £7.77 million), an increaseof 15.1%, with annualised revenues now reaching £10.36 million. (2005: £8.48million) Excluding the rental income foregone by expanding the Poole Store selfstorage turnover grew by 16.4%. Group EBITDA was up 29% to £1.75 million (2005: £1.36 million). Operating profitincreased 40.3% to £851,351 (2005: £606,961). There were no exceptional costs. Lok'nStore's business model is a robust one with security deposits taken fromcustomers when they first store with us. Customers also pay four weekly inadvance. Credit control therefore remains tight with only £44,000 of bad debtswritten off during the year representing less than 0.5% of turnover. The net interest charge increased from £492,636 to £727,050. This is aconsequence of the Group utilising its bank facilities to acquire the freeholdsites at Farnborough and Crayford, and the continuing fit-out programme at ourexisting stores. Year-end borrowings were £14.12 million. The Group made a profit on ordinary activities before tax of £124,301 (2005:£114,325). The current year tax charge of £100,483 relates to a movement in deferred taxarising on capital allowances in excess of depreciation. No actual cashliability to corporation tax arises during the year as a result of the Group'stax loss in the year. Tax losses available to carry forward for offset againstfuture profits amount to some £3.4 million. In addition the business had capitallosses available to carry forward of £362,636. Basic earnings per share was 0.10 pence per share (2005: 0.47 pence per share). BORROWINGS AND CASH FLOW Cash flows from the Group remain encouraging, with increasing cash flows asturnover increases continuing to demonstrate the cash generative nature of thebusiness. The Group had cash balances at the year-end of £0.92 million (2005:£0.42 million). Cash inflow from operating activities before interest and capital expenditurewas £1.6 million. Capital expenditure totalling some £6.3 million reflects theGroup's commitment to growing the business through a combination of siteacquisition and related works (£5.2 million) and investing in our existingstores (£1.1 million). At 31 July 2006, the Group had £14.12 million ofborrowings representing gearing on a NBV basis of 123% on net debt of £13.2million. Gearing, when adjusted, on the basis of the Group's revalued stores,drops to 25%. BUYBACK AUTHORITY At the Company's AGM on 1 December 2005, shareholders gave approval to replacethe existing share buy-back authority. This authority will be sought annuallyat the Company's annual general meeting each year. The authority is restrictedto a maximum of 5,845,299 Ordinary Shares, which is equivalent to 23.3% of theCompany's issued share capital and is equal to the number of shares availablefor purchase under the previous authority. The buy-back authority will only beexercised in circumstances where the Directors regard such purchases to be inthe best interests of Shareholders as a whole and is subject to the waiver ofRule 9 by the Panel of Takeovers and Mergers being approved by the Shareholders. The total number of shares in issue is 25,091,144 Ordinary Shares. BALANCE SHEET Net assets at the year-end increased to £10.74 million (2005: £10.7 million).This does not reflect the significant uplift in valuation as a result of theproperty valuation of £66.6 million which increases net assets to £52.1 million.This valuation translates into a net asset value per share of £2.13 as reportedbelow. The Employee Benefit Trust owns 627,500 (2005: 627,500) shares, the costs ofwhich are shown as a deduction from shareholders' funds in accordance withUrgent Issues Task Force Abstract 38. Market valuation of freehold and leasehold land and buildings On 31 July 2006, professional valuations were prepared by external valuers,Cushman & Wakefield (C&W), in respect of 11 freehold and 6 leasehold properties.The valuation was prepared in accordance with RICS Appraisal and ValuationStandards, The valuation has been provided for accounts purposes and as such, isa Regulated Purpose Valuation as defined in the Red Book, The external valuationmethodology provides for a Purchaser acquiring a centre incurring purchase costsof 5.75% initially and sale plus purchaser's costs totalling 7.75% are assumedon the notional sales in the tenth year in relation to the freehold stores. Inpractice we believe that it is unlikely that Lok'nStore stores would be acquiredother than in a corporate structure (See note 5 in the notes to the accounts fora more detailed description of the valuation methodology). The valuation report indicates a total for properties valued of £66.6 million(NBV £25.2 million). (January 2005 : £31.8 million : NBV £16.7 million). Thesevaluations have not been included in the Balance Sheet. The 2006 valuationincludes the new stores Farnborough and Crayford and reflects the uplift invalue which has resulted from the grant of planning permission and the executionof the S.106 Agreement at the Kingston site. In relation to the existing storeat Reading, there is potential for redevelopment for residential use.Accordingly the site has been valued as an operating self storage site but withan additional uplift to reflect residential development potential, butrecognising that this has yet to be obtained. The valuations also do notaccount for any further investment in existing centres since July 2006. Whilethe Company does not envisage routinely revaluing its properties it willcontinue to do so when appropriate. PROPERTY ASSETS 31.07.2006 31.01.2005 £ million £ million Valuation NBV Valuation NBVProperties valued by 'C&W' 66.6 25.2 31.8 16.7Farnborough at cost - - 1.8 1.8 66.6 25.2 33.6 18.5 Over the years Lok'nStore has acquired the freehold interest in previouslyleased centres at Horsham, Reading and Poole. This tactical approach combinesthe early cash flow advantages of leasehold centres with the long-term incomesecurity and investment potential of freeholds. 8 of our 10 leaseholds arewithin the terms of the Landlord and Tenant Act (1954) giving a degree ofsecurity of tenure. The average length of the leases on the stores valued was11.2 years at the date of the 2006 Valuation. (Source: 'C &W') (2005 valuation:11.1 years). NET ASSET VALUE PER SHARE 2006 Analysis of net asset value £ Net assets per balance sheet 10,742,441Add : revalued property assets 66,590,000Deduct : tangible fixed assets at net book value (NBV) (25,240,096)Revalued net assets 52,092,345 Shares in Issue Number Opening shares 25,071,144Shares issued for the exercise of options 20,000Closing shares in issue 25,091,144Shares held in EBT (627,500)Closing shares for NAV purposes 24,463,644 Basic net asset value per share 213 pence Net assets per share are shareholders' funds divided by the number of shares atthe year 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. FINANCING & LIQUIDITY The Company has a £20 million revolving five-year committed credit facility withRoyal Bank of Scotland Plc and provides sufficient additional liquidity for theGroup's immediate expansion plans. Interest payable on the loan is on terms,paying between 1.25% and 1.35% over LIBOR. Non-utilisation charges are 0.25% onthe value of the undrawn facility. Undrawn committed facilities at the year-endamounted to £5.88 million. The facility is secured on the existing property portfolio, excluding theKingston and Reading properties. This ensures that the group has the fullflexibility to maximise the value of any potential exit or realisation of thesetwo redevelopment opportunities. During the year the Company complied with all corresponding debt covenants. TREASURY All cash deposits are placed with Royal Bank of Scotland Plc on treasury depositutilising either one-day or two-day money funds. The Group's cash position isreviewed daily and cash is transferred daily between these accounts and thecompany's operational current accounts as required. During the year the companyobtained improved terms on its treasury deposit rates. Ray DaviesFinance Director27th October 2006 CONSOLIDATED PROFIT AND LOSS ACCOUNT for the year ended 31 July 2006 Notes 2006 2005 £ £ TURNOVER 8,946,083 7,774,541Operating expenses (8,094,732) (7,167,580)OPERATING PROFIT 851,351 606,961Interest receivable 36,936 35,898PROFIT ON ORDINARY ACTIVITIES BEFORE 888,287 642,859INTEREST PAYABLEInterest payable (763,986) (528,534)PROFIT ON ORDINARY ACTIVITIES BEFORE 124,301 114,325TAXATIONTaxation 2 (100,483) -PROFIT FOR THE YEAR 8 23,818 114,325EARNINGS PER SHAREBasic 3 0.10p 0.47pDiluted 3 0.09p 0.44p The operating profit for the year arises from the Group's continuing operations. No separate statement of Total Recognised Gains and Losses has been presented asall such gains and losses have been dealt with in the Profit and Loss account. BALANCE SHEET as at 31 July 2006 Group Group Company Company Notes 2006 2005 2006 2005 £ £ £ £ FIXED ASSETS 334,813 359,068 - - Intangible assets 4Tangible assets 5 25,430,037 20,032,760 - -Investments 6 - - 214,563 214,563 25,764,850 20,391,828 214,563 214,563CURRENT ASSETS 77,668 88,648 - - StocksDebtors 2,022,769 1,684,793 6,040,331 6,025,331Cash at bank and in hand 921,928 424,738 - - 3,022,365 2,198,179 6,040,331 6,025,331CREDITORS: Amounts falling due within (3,877,489) (3,736,384) - -one year NET CURRENT (LIABILITIES)/ASSETS (855,124) (1,538,205) 6,040,331 6,025,331TOTAL ASSETS LESS CURRENT LIABILITIES 24,909,726 18,853,623 6,254,894 6,239,894CREDITORS: Amounts falling due after (14,066,802) (8,150,000) - -more than one yearPROVISION FOR LIABILITIES (100,483) - - -AND CHARGESNET ASSETS 10,742,441 10,703,623 6,254,894 6,239,894CAPITAL AND RESERVES 250,911 250,711 250,911 250,711 Called up share capital 7Share premium account 8 66,776 51,976 66,776 51,976Capital redemption reserve 8 34,205 34,205 34,205 34,205Merger reserve 8 6,295,295 6,295,295 - -Other distributable reserve 8 5,903,002 5,903,002 5,903,002 5,903,002Profit and loss account 8 (1,298,162) (1,321,980) - -ESOP shares 9 (509,586) (509,586) - -SHAREHOLDERS' FUNDS 10,742,441 10,703,623 6,254,894 6,239,894 Approved by the Board of Directors and authorised for issue on 27th October 2006and signed on its behalf by: A JacobsChief Executive R DaviesFinance Director CONSOLIDATED CASH FLOW STATEMENT for the year ended 31 July 2006 Notes 2006 2005 £ £ Cash flow from operating activities 10a 1,603,118 1,983,832Returns on investments and servicing of finance 10b (771,211) (500,901)Taxation (50,500) -Capital expenditure and financial investment 10b (6,273,461) (2,293,945)CASH OUTFLOW BEFORE FINANCING (5,492,054) (811,014)Financing 10b 5,989,244 581,392INCREASE/(DECREASE) IN CASH IN THE PERIOD 497,190 (229,622) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Notes 2006 2005 £ £ Increase/(decrease) in cash in the period 497,190 (229,622)Cash inflow from increase in debt and lease financing (5,974,244) (549,852)MOVEMENT IN NET DEBT IN PERIOD (5,477,054) (779,474)NET DEBT AT 1 AUGUST (7,725,262) (6,945,788)NET DEBT AT 31 JULY 10c (13,202,316) (7,725,262) NOTES TO THE FINANCIAL STATEMENTS 1. ACCOUNTING POLICIES The above results for the year ended 31 July 2006 are an abridged version of theCompany's statutory financial statements. The profit and loss account andbalance sheet do not constitute statutory financial statements within themeaning of Section 240 of the Companies Act 1985. These accounts have beenprepared on the basis of the same accounting policies as set out in thestatutory accounts for the year ended 31 July 2005. 2. TAXATION 2006 2005 £ £ Current tax charge for the year (see below) - - Deferred taxOrigination and reversal of timing differences (100,483) -Total deferred tax charge for the year (100,483) -Tax on profit on ordinary activities (100,483) - The tax assessed is lower than the standard rate of corporation tax in the UK(30%). A reconciliation of the factors affecting the tax charge for the yearis shown below: 2006 2005 £ £ Profit on ordinary activities before tax 124,301 114,325Profit on ordinary activities multiplied by the standard rate of 37,290 34,298corporation tax in the UK of 30% (2005 - 30%)Expenses not deductible for tax purposes 19,534 15,295Capital allowances for period in excess of depreciation (159,558) (82,429)Tax losses not utilised 123,173 60,552General provision (101) (203)Deduction for employee share options (15,000) (23,277)Depreciation on revenue items capitalised (5,338) (4,236)Current tax charge for the year - - The Group has revenue tax losses of approximately £3.4 million available tocarry forward against future taxable profits of the same trade. The current yeartax charge relates to a movement in deferred tax arising on accelerated capitalallowances in excess of depreciation after taking account of all revenue taxlosses. Future tax charges may be affected by the degree to which deferred tax assetsare subject to recognition in the future. It is not the intention of the directors to dispose of any of the properties asoperational self-storage centres in the foreseeable future. If, however, theproperties were sold at their market values as operational self-storage centresor in the case of the Kingston and Reading sites with their residentialdevelopment value as disclosed in note 5, an estimate of the tax payable on thegain arising would be approximately £10.6 million. This tax payable figuredoes not take into account any claims to rollover relief that the company mightmake. At present, it is not envisaged that any tax will become payable in theforeseeable future. 3. EARNINGS PER ORDINARY SHARE The calculations of earnings per share are based on the following profits andnumbers of shares. 2006 2005 £ £ Profit for the financial year 124,301 114,325 2006 2005 No. of shares No. of sharesWeighted average number of shares 24,453,288 24,432,491For basic earnings per shareDilutive effect of share options 1,526,446 1,414,688For diluted earnings per share 25,979,734 25,847,179 4. INTANGIBLE FIXED ASSETS PurchasedGROUP Goodwill £ Cost 1 August 2005 and 31 July 2006 485,09331 July 2006Amortisation 1 August 2005 126,025Charged in year 24,25531 July 2006 150,280Net book value 31 July 2006 334,813Net book value 31 July 2005 359,068 5. TANGIBLE FIXED ASSETS GROUP Freehold Furniture, Motor properties Short leasehold fixtures vehicles Total improvements & fittings £ £ £ £ £Cost 14,453,112 1,497,642 7,456,771 69,049 23,476,5741 August 2005Additions 4,074,589 97,935 2,101,005 - 6,273,529Disposals - - - (8,643) (8,643)31 July 2006 18,527,701 1,595,577 9,557,776 60,406 29,741,460Depreciation 427,482 502,463 2,472,585 41,284 3,443,8141 August 2005Charged in year 112,596 130,592 626,033 5,982 875,203Disposals - - - (7,594) (7,594)31 July 2006 540,078 633,055 3,098,618 39,672 4,311,423Net book value 17,987,623 962,522 6,459,158 20,734 25,430,03731 July 2006Net book value 14,025,630 995,179 4,984,186 27,765 20,032,76031 July 2005 The additions to freehold properties include the acquisition and development ofthe freehold sites in Hawley Lane, Farnborough and at Optima Business Park,Crayford totalling £3.8 million. The additions to fixtures & fittings includesfit-outs at Tonbridge, Poole, Sunbury, Luton, Eastbourne and Milton Keynesstores. Market valuation of freehold and leasehold land and buildings On 31 July 2006, a professional valuation was prepared by external valuers,Cushman & Wakefield (C&W), in respect of 12 freehold and 6 leasehold properties.The valuation was prepared in accordance with RICS Appraisal and ValuationStandards, 5th Edition, published by The Royal Institution of CharteredSurveyors ("the Red Book"). The valuations were prepared on the basis of MarketValue for the two non trading properties and, for the 16 trading properties,Market Value as a fully equipped operational entity, having regard to tradingpotential. The valuation has been provided for accounts purposes and as such,is a Regulated Purpose Valuation as defined in the Red Book. In compliance withthe disclosure requirements of the Red Book, C&W have confirmed that: • The members of the RICS who have been the signatories to the valuation provided to the Company for the same purposes as this valuation have done so since January 2004. • C&W have prepared two previous valuations for the same purpose as this valuation on behalf of the Company. • C&W do not provide other significant professional or agency services to the Company • In relation to the preceding financial year of C&W, the proportion of the total fees payable by the Company to the total fee income of the firm is less than 5%. The valuation report indicates a total for all properties valued of £66.6million (NBV £25.2 million). (January 2005 : £31.8 million : NBV £16.7 million).These valuations have not been included in the Balance Sheet. The 2006 valuation includes the new stores Farnborough and Crayford and reflectsthe uplift in value which has resulted from the grant of planning permission andthe execution of the S.106 Agreement at the Kingston site. In relation to theexisting store at Reading, there is potential for redevelopment for residentialuse. Accordingly the site has been valued as an operating self storage facilitybut with an additional uplift to reflect residential development potential butrecognising that this has yet to be obtained. The valuations also do notaccount for any further investment in existing centres since July 2006. Whilethe Company does not envisage routinely revaluing its properties it willcontinue to do so when appropriate. Valuation Methodology Background The USA has over 40,000 self-storage centres trading in a highly fragmentedmarket with the largest 5 operators accounting for less than 20% of market sharebased on net rentable square footage. The vast majority of centres are owned andmanaged singly or in small portfolios. These properties have a well establishedtrack record of being traded and are therefore considered as liquid propertyassets. Many valuations of this asset class are undertaken by appraisers in the USA andthe accepted valuation approach is to value the properties on the basis ofMarket Value as fully equipped operational entities, having regard to tradingpotential. This approach is recognised in the Red Book and is adopted for othercategories of property that are normally bought and sold on the basis of theirtrading potential. Examples include hotels, licensed properties, marinas andpetrol stations. The UK self storage sector differs from the USA in that the five larger groupscontrol over 50% of the market by net rentable storage space. The scope foractive trading of these property assets is therefore likely to be less, howeverthere is now some evidence that there will be increasing liquidity with recentsales of independently owned product in larger conurbations. In addition the acquisition of Shurgard Storage Centres, Inc. by Public Storage,Inc. was announced in March this year including a portfolio of over 140 tradingstorage facilities in Europe, with 18 in the UK. C&W believe that the valuation methodology adopted in the USA is the mostappropriate for the UK market. Methodology C&W have adopted different approaches for the valuation of the leasehold andfreehold assets as follows: Freehold The valuation is based on a discounted cash flow of the net operating incomeprojected over a ten-year period and a notional sale of the asset at the end ofthe tenth year. Assumptions A. Net operating income is based on projected revenue receivedless projected operating costs together with a central administration chargerepresenting 6% of the estimated annual revenue. The initial net operatingincome is calculated by estimating the net operating income in the first twelvemonths following the valuation date. B. The net operating income in future years is calculatedassuming straight-line absorption from day 1 actual occupancy to an estimatedstabilised/mature occupancy level. In the valuation the assumed stabilisedoccupancy level for the sixteen stores (both freehold and leaseholds) averages78.28% (2005:78.20%). The projected revenues and costs have been adjusted forestimated cost inflation and revenue growth. C. The capitalisation rates applied to existing and future netcash flow have been estimated by reference to underlying yields for industrialand retail warehouse property, bank base rates, ten-year money rates, inflationand the available evidence of transactions in the sector. On average, for allsixteen stores, the yield (net of purchaser's costs) arising from the first yearof the projected cash flow is 6.05% (2005 6.00%). This rises to 10.54% (2005:12.86%) based on the projected cash flow for the first year following estimatedstabilisation in respect of each property. D. The future net cash flow projections (including revenuegrowth and cost inflation) have been discounted at a rate that reflects the riskassociated with each asset. The weighted average annual discount rate adopted(for both freeholds and leaseholds) is 11.31% (2005: 12.50%). E. Purchaser's costs of 5.75% have been assumed initially andsale plus purchaser's costs totalling 7.75% are assumed on the notional sales inthe tenth year in relation to the freehold stores. Leaseholds The same methodology has been used as for freeholds, except that nosale of the assets in the 10th year are assumed, but the discounted cash flow isextended to the expiry of the lease. The average unexpired term of the Group'sleaseholds is approximately 11 years and 2 month as at 31 July 06 (11 years and1 month as at January 2005). 6. INVESTMENTSCOMPANY Shares in subsidiary undertakings £ Cost: At 1 August 2005 and 31 July 2006 Lok'nStore Limited 214,563 The Company holds more than 20% of the share capital of the following companies,all of which are incorporated in England and Wales: Subsidiary undertakings Class of % of shares held shareholding Directly Indirectly Nature of business Lok'nStore Limited Ordinary 100 - Self-storageLok'nStore Trustee Limited Ordinary - 100 Trustee Company (dormant) 7. SHARE CAPITAL 2006 2005 £ £Authorised: 350,000 350,00035,000,000 ordinary shares of 1p each (2005: 35,000,000) Allotted, issued and fully paid ordinary shares: Number of shares £At 1 August 2005 25,071,144 250,711Options exercised 20,000 200 25,091,144 250,911 At 31 July 2006 During the year, options were exercised on 20,000 ordinary shares at 38 pence per share and that number of shares were issued for a consideration of £7,600. At the Company's AGM on 1 December 2005, shareholders gave approval to replacethe existing share buy-back authority and this authority will be subsequentlyrenewed annually at the Company's annual general meeting each year thereafter.The authority is restricted to a maximum of 5,845,299 Ordinary Shares, which isequivalent to 23.3% of the Company's issued share capital and is equal to thenumber of shares available for purchase under the previous authority. Thebuy-back authority will only be exercised in circumstances where the Directorsregard such purchases to be in the best interests of Shareholders as a whole andis subject to the waiver of Rule 9 by the Panel of Takeovers and Mergers beingapproved by the Shareholders. 8. RESERVES Other Capital Profit and Total Share Merger Distributable Redemption loss account premium reserve reserve reserve £ £ £ £ £ £ 1 August 2005 51,976 6,295,295 5,903,002 34,205 (1,321,980) 10,962,498Exercise of share options 14,800 - - - - 14,800Profit for the year - - - - 23,818, 23,81831 July 2006 66,776 6,295,295 5,903,002 34,205 (1,298,162) 11,001,116 The merger reserve represents the excess of the nominal value of the sharesissued by Lok'nStore Group Plc over the nominal value of the share capital andshare premium of Lok'nStore Limited as at 31 July 2001. 9. ESOP SHARES Group 2006 Group 2005 Group 2006 Group 2005 Number Number £ £ 1 August 2005 & 31 July 2006 627,500 627,500 509,586 509,586 The ESOP shares are held by the employee benefit trust. 10. CASH FLOWS 2006 2005 £ £a Reconciliation of operating profit to net cashinflow from operating activitiesOperating profit 851,351 606,961Depreciation 875,203 728,522Amortisation 24,255 24,255Loss on sale of fixed assets 980 -Decrease in stocks 10,980 15,232(Increase)/decrease in debtors (330,187) 263,089Increase in creditors 170,536 345,773 Net cash flow from operating activities 1,603,118 1,983,832 b Analysis of cash flows for headings netted in the 2006 2005cash flow £ £ Returns on investments and servicing of financeInterest received 36,936 35,898Interest paid (808,147) (536,757)Interest element of finance lease rental payments - (42)Net cash outflow for returns on investments and servicing of (771,211) (500,901)finance Capital expenditure and financial investment (6,273,529) (2,293,945) Purchase of tangible fixed assetsProceeds from sale of tangible fixed assets 68 -Net cash outflow for capital expenditure and financial investment (6,273,461) (2,293,945)Financing 5,974,244 550,000 Bank loansCapital element of finance lease rental payments - (148)Exercise of share options 15,000 31,540Net cash inflow from financing 5,989,244 581,392 c Analysis of net debt At Other non At 31 July 2005 Cash flow cash changes 31 July 2006 £ £ £ £ Cash at bank and in hand 424,738 497,190 - 921,928Debt due after 1 year (8,150,000) (5,974,244) - (14,124,244)Total (7,725,262) (5,477,054) (13,202,316) 11. EVENTS AFTER THE BALANCE SHEET DATE On 25th September 2006, Lok'nStore Limited exchanged contracts on the purchaseof a freehold site in Portsmouth with a contractual completion date set for 27thNovember 2006. The purchase price is £2,025,000 and the property will berefurbished and fitted out for a further cost of approximately £2 million. Therefurbished store will open in 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Lok N Store