Final Results

RNS Number : 6728H

Lok'n Store Group PLC

07 November 2008

7 November 2008

Lok'nStore Group Plc

Preliminary results for the year ended 31 July 2008

Lok'nStore Group Plc, a leading company in the UK self-storage market announces results for the year ended 31 July 2008. These are the first full-year results presented under International Financial Reporting Standards as adopted in the EU ('IFRS') and the first after the sale of the two established stores at Kingston and Woking at the end of the previous financial year. Where reference is made below to 'like for like' this excludes the Kingston and Woking stores from the 2007 figures for comparative purposes. 'EBITDA', 'Store EBITDA' and 'operating profit' are defined in the accounting policies section.

Financial Highlights

·         Revenue £10.83 million up 8.4% like for like (2007: £10.67 million)
·         Group EBITDA £2.73 million up 2.7 % like for like (2007: £2.90 million)
·         Operating profit £0.66 million (2007: £1.31 million) down 11.5% on a like for like basis
        before the write-off of goodwill
·         Adjusted NAV * £2.44 per share (2007: £2.70 per share)
·         Embedded Value** £3.43 per share (2007: £3.57 per share)
·         Final dividend proposed 0.67 pence per share (2007: 0.67 pence)

Operational Highlights

·         Store EBITDA £4.61 million (2007: £4.48 million) up 11.9% on a like for like basis
·         Store EBITDA margin increased to 42.9% (2007: 41.8%)
·         Unit prices achieved for self-storage up 4.2% year-on-year

Property Highlights

·         Total portfolio 1.23 million sq ft. up 18.1% (2007: 1.04 million sq ft.) (64% freehold/long leasehold)
·         Three new sites acquired
·         New Portsmouth freehold store opened
·         High density residential planning permission achieved on Reading site
·         Planning permission achieved for new Southampton store (post balance sheet)

* refer to Financial Review for detailed calculation

** refer to Property Review

Andrew Jacobs, Chief Executive of Lok'nStore, commented:

'Lok'nStore performed well over the last year, underlining the resilience of its business against a challenging economic backdrop. Store EBITDA increased to a record £4.6 million, a great result having disposed of two high cash producing stores in the previous financial year.

'Lok'nStore has a flexible approach and a robust business model. Our stores serve customers and businesses in the affluent south-east of England with a price competitive offering. We have no capital commitments beyond opening our new Harlow store in January 2009 and our existing banking facilities run to 2012.

'Lok'nStore is well positioned to withstand the current economic turbulence and benefit from the long term growth of the UK self-storage market.'

- Ends -

Press Enquiries:

Andrew Jacobs, CEO	Lok'nStore	Tel: 01252 521010
Ray Davies, Finance Director	Lok'nStore
Jonathon Brill/ Billy Clegg/Ed Westropp	Financial Dynamics	Tel: 020 7831 3113
David Currie/Rowena Murray	Investec Investment Banking	Tel: 020 7597 4000

Chairman's Statement

Overview

Lok'nStore performed well over the last year, underlining the resilience of its business model against a more challenging economic backdrop. Turnover increased 8.4% like for like and store EBITDA increased to a record £4.6 million, up 11.9% on a like for like basis.

We are proposing a final dividend of 0.67 pence per share, demonstrating our confidence in the strength of the business.

Impact on current year results of prior year disposals

At the end of the last financial year we sold our stores in Kingston and Woking. These two stores were established cash producing stores with substantial revenues, but with little scope for further growth or expansion. In the case of Kingston we managed to achieve a planning permission for high density residential development that resulted in a value far higher than could be achieved by self-storage use. The sale proceeds of around £12.5 million are being reinvested in new stores and these typically larger stores will increase the profitability of the Group when they start trading in future years.

Accordingly, in this narrative we have shown the comparative figures excluding Kingston and Woking from the previous period in order to show shareholders the growth of the underlying operating performance of the remaining assets over the period. Where a reference is made to 'like for like' in this document this excludes the Kingston and Woking stores from the 2007 figures for comparative purposes (see table in Chief Executive's Review for details).

At a headline level you will see that we have largely or wholly replaced the revenue and profit foregone from these disposals over this period, a pleasing performance. We were able to relocate many of the Kingston customers to our Sunbury store.

First full year of IFRS

These are the first full year accounts that the Company has reported under International Financial and Reporting Standards ('IFRS'). The main change, more fully set out with other accounting changes in the Financial Review and the notes to the financial statements, is that under IFRS our 11 freehold sites are now held in the balance sheet at fair value, having previously been held at historic cost less accumulated depreciation. These fair values have been determined externally by Cushman and Wakefield. (Refer to Note 8 - property plant and equipment and also to the basis of accounting section in relation to the fair value of trading properties)

The leasehold stores are held as 'operating leases' and are not taken onto the balance sheet. However seven of these have also been externally valued and these external valuations have been used to calculate the net asset value position of the Company.

Net Asset Value

The adjusted net asset value per share has decreased from £2.70 last year to £2.44 this year (see Financial Review). This equates to a total value of properties held of £86.4million. When all of our existing stores trade as fully established stores this translates into £3.43 per share embedded value (see Property Review).

During the course of the year we purchased 1.14 million shares in the Company for treasury representing 4.3% of the issued share capital. This was done at an average price of £1.82 per share, significantly below net asset value. Your board considers that share buybacks at large discounts to net asset value represent good long-term value for remaining investors.

Current conditions in the economy and self-storage market

Historically the self-storage market has been considered to be closely related to the housing sector. In Lok'nStore's view the household demand for storage is affected more by the number of house moves than by the level of house prices. In the period under review transactions in the housing market collapsed from a peak of 154,000 in December 2006 to 126,000 in September 2007 and only 59,000 in September 2008, a decline of 62%. Lok'nStore has proved its resilience against low housing market volumes with our household business declining only 1.3 % over this period.

At the end of July 2008 40.5% of Lok'nStore's revenue was from business customers (25.1% by number) and 59.5% was from household customers (74.9% by number) providing further insulation. The Company's commercial business increased 0.3% from July 2007 through to September 2008. Further, none of our credit control indicators are showing any signs of weakening through the first quarter of our financial year to the end of October 2008.

We do expect trading conditions to remain challenging for the foreseeable future. Occupancy growth will be hard to come by, so it will be increasingly important to achieve pricing increases and to continue to be vigilant with costs.

Our new Harlow store will open on 2nd January 2009. Importantly the Company has no further capital expenditure commitments beyond this so we are in the fortunate position of being able to monitor conditions in the overall economy and the UK self-storage market before committing to any further outlays.

The Self-storage Market in the UK

The self-storage market in the UK has grown rapidly over the last decade and continues to offer a great opportunity, particularly to major operators such as Lok'nStore. The UK Self-Storage Association estimated that in 2007 the market grew by around 15%.

The more mature US market grew from 2.9 sq ft. per member of the population in 1994 to 6.9 sq ft. in 2007 with nearly 45,000 facilities throughout the US. This compares with only 0.4 sq ft. in the UK spread across around 680 facilities. This lower penetration in the UK contrasts with the difference in population density which is only 32 per sq km in the US against 246 per sq km in the UK. This creates far more pressure to use property resources efficiently in the UK, which is a main driver of demand for self-storage. Combined with this, the restrictive town planning regime in the UK is a strong barrier to entry in the industry.

Therefore despite the current economic environment we believe that the UK self-storage market offers excellent medium and long-term potential and Lok'nStore is well positioned to capitalise on this.

Lok'nStore is the fourth largest and one of three quoted storage operators in the UK, with around a 5% market share.

Outlook

With Lok'nStore's flexible approach and robust business model we will maximise the cash flow from the existing portfolio until economic conditions stabilise. We have no capital commitments beyond opening our new Harlow store and comfortably complied with bank covenants at the year end. Our banking facilities run to 2012.

In the current uncertain economic climate it is difficult to forecast the future outlook. However we continue to see a resilient demand from our business customers and have absorbed the biggest collapse in housing transactions since records began. We continue to be the low cost operator in the sector but have room for future price increases. UK self storage is an attractive long term growth market and we are well positioned for future growth.

Simon G Thomas

Chairman

6 November 2008

Chief Executive's Operating Review

Sales and Earnings Growth

Lok'nStore's total revenue for the period was £10.83 million (2007: £10.67 million), a 'like for like' increase of 8.4%, and a headline increase of 1.5%. Having sold two established stores at the end of the previous financial year we are particularly pleased with this result.

The cash flow of the operating business has continued to grow with store earnings before interest, tax, depreciation and amortisation (Store EBITDA) up 11.9% like-for-like at £4.61 million (2007: £4.48 million). This is a key performance indicator and reflects both the effects of the efficient operational management and the increasingly established nature of the existing portfolio.

During the year we have acquired three new sites, opened one of these (Northampton Central), moved our Portsmouth store into a new larger purpose built freehold site, and in September 2008 obtained planning permission for the new Southampton site.

Sales and Margin Performance

We have recruited a new sales and operations director with a strong background in retailing. His retail management skills and experience have helped to further raise operational standards, and to focus store personnel on taking personal responsibility for increasing revenue. This work will continue to improve the consistency of performance across the stores.

During the year Lok'nStore had 15 established stores (over 250 weeks old) including 1 freehold store which joined this category during the year. These 15 stores made EBITDA margins of 43.5% this year compared to 42.9% last year for the same 15 stores.

Our established stores have continued to grow alongside the more rapid sales increases at our newest stores. On a like-for-like basis, our 15 stores trading for more than 250 weeks grew revenue by 4.6%. We believe there is room for further increases in these more established stores with new space still to be fitted out in addition to improving income from existing space.

On a same store basis, our 4 stores with 100 to 250 weeks' trading grew revenue by 18.9% with Farnborough and Crayford moving into this category during this year. We are pleased both by the continued growth of the more established stores as well by the early success of the newer units.

Overall EBITDA margins across all stores improved from 41.8% to 42.9%.

Our central sales team are running frequent and improved sales training courses using the facilities in our flagship store in Farnborough. In addition, we regularly review the bonus scheme to link performance and reward more directly to revenue growth and consistently high quality customer service.

Pricing

Lok'nStore takes an active approach to yield management with average prices achieved for self-storage units increasing 4.2% over the year, (2007: 5.4%) beating our target of 4%. Average prices for all rented space increased 3.6% (2007: 7.2%) over the year. The continued success of our yield management system underlies our confidence that we will be able to increase prices over the medium term. Clearly with weaker economic growth over the coming year making occupancy growth harder to come by, managing yield effectively will be an important focus.

Our average price for self-storage was £18.01 per sq ft. per annum at 31 July 2008 (2007: £17.29 per sq ft. per annum), which compares favourably with the average of £20.63 for the UK industry (source: Self-Storage Association Survey 2007). Other large self-storage operators also appear to be raising prices successfully so we believe that there is room to continue to increase prices while retaining our strong price competitive position in the market.

Packing materials, insurance and other sales increased by 0.5% over the year on a like for like basis accounting for 7.5% of revenue (2007: 7.8%).

Operational Performance of Stores

Store analysis Weeks old	Over 250	100 to 250	July 2008 Under 100	Pipeline	Total
Year ended 31 July 2008
Revenue (£'000)	8,498	2,254*	1	-	10,753*
Stores EBITDA (£'000)	3,697	966	(55)	-	4,608
EBITDA margin (%)	43.5	42.9	N/A	-	42.9
As at 31 July 2008
Maximum Area ('000 sq ft.)	765	209	40	212	1,226
Freehold and long leasehold	8	2	0	3	13
Short leasehold	7	2	1	0	10
Total stores	15*	4	1	3	23

* In respect of the Farnborough store revenue includes a contribution receivable from Group Head Office in respect of the space and facilities the store provides for the Head Office function. This income to the store and the corresponding charge to Head Office is netted down in the Group revenue figures. Revenue from sites under development is excluded.

Revenue and Earnings Comparison - Actual and like-for-like

	Year Ended 31 July 2008 Actual £	Year Ended 31 July 2007 Actual £	Increase/ (decrease) July 08 vs. July 07 %	Year Ended 31 July 2007 Excl Kingston & Woking £	Like for like Increase/ (decrease) * July 08 vs. July 07 %
Revenue	10,827,064	10,665,532	1.5	9,989,976	8.4
Store EBITDA	4,608,824	4,478,055	2.9	4,120,112	11.9
EBITDA	2,732,632	2,903,396	(5.9)	2,661,282	2.7
Operating profit	662,733	1,311,035	(49.4)	1,099,413	(39.7)
(Loss)/profit before tax	(741,446)	950,558		738,937

* In this table we show the comparative figures excluding Kingston and Woking from the previous year in order to show shareholders the growth of the underlying operating performance of the remaining stores. Where a reference is made to 'like for like' this excludes the Kingston & Woking stores from the 2007 figures for comparative purposes. We were able to relocate many of the Kingston customers to our Sunbury store.

Marketing

The Company spent approximately 5.8% of revenue on advertising and marketing (including postage, printing and stationery), up from 5.5% in 2007.

The Internet produces an increasing proportion of our enquiries and physical directories a decreasing proportion, and we continue to allocate more of our marketing budget towards the Internet. With the currently challenging business conditions we are giving a strong focus to cost control and we have reduced the marketing budget by around 16% for the coming year.

Enquiries from the Internet have a lower conversion ratio of around 31% in the year under review. This pulled our overall conversion rate down to 44% from 56% in the previous year. This may also be symptomatic of customers shopping around more in the current economic climate so we are focussing our sales and marketing efforts on tools to improve conversion.

New stores benefit from the marketing and promotion effort already applied to our existing stores and we can see the benefit of this at our Northampton Central store where we have not allocated any extra marketing budget. It is noteworthy that 23% of our business is from referrals and previous and existing customers.

43% of business comes from passing traffic so work on the visibility of our stores is also improving response to our marketing. Our new Portsmouth store with its prominent design, distinctive orange elevations and position adjacent to the port helps the profile of the Lok'nStore brand, as well as work on the external branding of other stores further improving the appearance of the overall portfolio.

Our store personnel are closely involved with these decisions and work with our Head Office to ensure our marketing expenditure remains targeted and effective.

Systems

Centralisation of our store management computer system continues to yield marketing and other management information benefits and we remain committed to continuing systems centralisation, greater audit capability and the delivery of efficient and timely data. During the year we have completed the implementation of a new financial and accounting system which delivers enhanced analysis and reporting of our core financials. The system also integrates our stores and head office via a web-enabled system to deliver more automated and integrated processes in areas of petty cash and expenses handling as well as stock reporting. We continue to increase the penetration of direct debit facilities which reduces administrative effort. as well as being a positive service to our customers and reducing the time committed to credit management. The store audit system has been effective in terms of improved security, credit control and store presentation and is continually monitored and upgraded to ensure its utility.

Security

The safety and security of our customers and their goods remains our highest priority. With today's heightened terrorist concerns this is of particular importance. We already invest in CCTV, intruder and fire alarm systems and the remote monitoring of our stores out of hours. We have rigorous security procedures in relation to customers.

Furthermore, we continually review our security resources and are upgrading our security with up-to-date equipment, for example, colour CCTV monitors of greater capability and detail, and improved lighting. The importance of security and the need for vigilance is communicated to all personnel and reinforced through our various training procedures.

Corporate Social Responsibility

Lok'nStore believes in conducting its business in a manner that reflects honesty, integrity and ethical conduct. As a responsible company, Lok'nStore believes that the long-term success of the business is best served by respecting the interests of all our stakeholders. Management of social, environmental and ethical issues is of high importance to Lok'nStore. These issues are dealt with on a day-to-day basis by the Company's managers with principal accountability lying with the Board of Directors. We look actively for opportunities to address our responsibility to the environment, and a full assessment of the Company's environmental impact is included elsewhere in this report. This year has seen a significant reduction in our carbon dioxide emissions, water use and waste production.

Dealing Responsibly with Our Customers

Brochures and literature are written in plain English, explaining clearly our terms of business without hiding anything in the 'small print'. We are open and honest about our products and services. We do not employ pressure selling techniques or attempt to take advantage of any vulnerable groups. If something is wrong we acknowledge the problem and deal with it as soon as possible. We continually review all aspects of our business, never accepting that things cannot be improved. We listen to our customers to help us improve our service. In return for our responsible dealings with our customers we have been rewarded with customer loyalty. 23% of our business comes from previous customers, existing customers taking additional units, and referrals.

Dealing Responsibly with Our Suppliers

We are committed to conducting our business with suppliers in a fair and honest manner, with openness and integrity, operating in accordance with the terms and conditions agreed upon. We expect our suppliers to operate to these same principles.

Our people

At 31 July 2008, we had 103 employees (2007: 111).

We treat our employees with dignity and respect and are committed to providing a positive attitude in the business and an enjoyable working environment. We have developed a professional open culture where staff can exchange ideas and offer suggestions for work and business improvement. This encourages our staff to build on their skills, through appropriate training and regular performance review. Regular weekly training courses at our Farnborough Head Office support these objectives where we have a large conference room which can accommodate all our training requirements for the foreseeable future. This reduces outgoings and increases and improves contact between Head Office and the stores by bringing staff into Head Office for regular training. This in turn contributes to attracting and retaining the right people which is key to the success of Lok'nStore. Additionally the Company supports employees undertaking National Vocational Qualifications.

All employees are eligible to participate in share ownership plans and 24% of our employees have employee benefit trust shares and 18% hold options. 24% of the personnel are members of the contributory pension scheme. At the beginning of the year Lok'nStore launched a new Share Incentive Plan with 55% of employees participating in the Scheme. This high level of participation is testament to the loyalty and commitment of our staff.

Our personnel are committed and motivated and help maintain the exemplary levels of friendly service that Lok'nStore provides to its customers. I would like to thank all of our staff for their commitment to our business and for their hard work. The continuing progress of the Group is being achieved as a direct result of their efforts.

Andrew Jacobs
Chief Executive Officer
6 November 2008

Property Review

Property Assets and Net Asset Value

Lok'nStore's freehold and operating leasehold properties have been independently valued by Cushman & Wakefield ('C&W') at £72.1 million as of 31 July 2008 (July 2007: £75.7 million) compared to a net book value of £35.4 million (2007: NBV £27.9 million). This is referred to further in the Financial Review and is detailed in note 11 of the notes to the financial statements. Adding our stores under development at cost, our total property valuation of £86.4 million (NBV £45.5 million) translates into a net asset value of 244 pence per share, a decrease of 9.6% compared to last year. The value of the properties which were also valued in July 2007, and therefore on a comparable basis, showed a decrease of 3.26%. This represents a 3.56% decrease in capital growth (yield increase) and 0.30% increase from operational performance.

New Stores

During the year we acquired a 20 year leasehold site in Northampton which is prominently located close to the city centre. The existing building was fitted and branded on a short time scale and opened in July 2008, providing up to 40,000 square feet of self-storage space. Total investment was around £1.1 million.

We will officially open our new purpose-built store in Harlow in January 2009. This is located in an attractive market and will be highly branded and prominent. This high specification freehold store will cost approximately £5.5 million once fully constructed and fitted-out. It will provide 69,000 sq ft. of space, and increases the Company's total trading area when fully fitted to 1,067,000 sq ft., breaking the 1 million sq ft. barrier for the first time.

In October 2007 Lok'nStore purchased a freehold site in North Harbour, Portsmouth. The freehold site extends to almost two acres and will be used to build a new self-storage centre of around 60,000 sq ft. of space once planning permission is obtained. The store will front the A27 to the north of Portsmouth, is opposite a busy retail area and is prominent to the M27. Total net investment in the store is likely to be around £6 million.

Additionally, we have acquired a new long leasehold site of 1.6 acres in Maidenhead which may ultimately provide up to 83,000 sq ft of self-storage space when completed. It is prominently located opposite a busy retail park. Total investment in the purpose built store will be up to £7 million. The lease term runs until April 2076.

These acquisitions will take the Company's total number of stores to 23. A development pipeline of 228,000 sq ft. takes total space to over 1.23 million sq ft. of which 64% is held freehold/long leasehold. Of these 23 stores 8 will be purpose-built with a further 3 occupied as brand new buildings showing the continuous upgrading of Lok'nStore's estate.

In the second half of the year we completed the move from our old leased Portsmouth Central store to a new purpose built freehold store located immediately adjacent to the motorway spur into the middle of Portsmouth city. We successfully moved 96% of the customers to the new store. The new store is 74% larger than the old one, and already trading cash-generatively. We have recognised an exceptional cost of £125,814 relating to this move and the full cost has been written off in the Income Statement.

Part of our strategy is to increase store size and the number of stores in order to increase profit margins. Our current average store size (including pipeline) is now around 53,300 sq ft. up from just over 51,900 sq ft. at 31 July 2007. The exact timing of store openings will largely depend on market availability of sites and obtaining planning permission. We will retain our disciplined but flexible approach to site acquisition and view the current slowing of the property investment market as a potential opportunity to acquire new stores. However with the current uncertain economic environment we are monitoring market conditions carefully before making further capital expenditures.

On 8 January 2008, Lok'nStore obtained planning permission for high-density residential development on the freehold site of its existing Reading store. The local planning committee originally rejected the application but our appeal has been upheld and permission has been granted. The permission is for 112 flats on the 0.66 hectare site.

The Company has planning permission for a new larger 53,500 sq ft. store on its site opposite the existing store, an increase in space of 29%. The prominence and modern look of the new store with its distinctive orange livery will position Lok'nStore in a highly visible and easily accessible location adjacent to the A33 at the gateway to Reading. The existing self-storage business will be moved into the new store once it is complete.

When market circumstances are appropriate the site of the existing store may be sold with the benefit of its permission for residential development and the proceeds will be reinvested in our new store pipeline. The two properties in Reading are held at a cost of £2.2 million.

Expansion of Existing Stores

We reported last year that we had acquired a freehold site on Third Avenue, Millbrook, Southampton. The site of 2.16 acres fronts the main access road to Southampton city centre. It will replace the existing Southampton Lok'nStore, which is located a few hundred metres away and currently provides up to 84,000 sq ft. in a freehold property. On 30 September 2008, after the Group's year end, we secured planning permission on this new site and it will provide around 100,000 sq ft. of self-storage space. (Refer note 27 - Events after the balance sheet date).

The purpose-built store will capitalise on the prominent main roadside position using the strong Lok'nStore branding similar in design to the successful flagship Farnborough store. The increased prominence and modern look of the building will allow the business to leverage off the existing business which is trading well, increasing both the volume of space rented and the rates achieved on those rentals. The store fronts the busy main access road to the city centre, and will carry the distinctive orange livery and neon lighting which is proving an effective generator of business at our other stores. The total investment in the new store will be up to £8 million.

These projects are part of our core strategy of continually reviewing and actively managing our operating portfolio, to ensure we are maximising its value. This includes strengthening our distinctive brand, increasing the size and number of our stores and moving or selling stores or sites when it will increase shareholder value.

Portfolio

With the sale of the Kingston and Woking stores at the end of the previous financial year we currently have 20 stores open with capacity of around 1 million sq ft. of storage space when fully fitted. Ten stores are held freehold and ten are leasehold. With the new freehold sites at Portsmouth, Harlow and Southampton this net new space takes capacity to 1.17 million sq ft. Adding the North Harbour and Maidenhead sites total capacity rises to around 1.23 million sq ft. Of this 64% will be held freehold and 36% leasehold. We prefer to acquire freeholds if possible, and where opportunities arise we will seek to acquire the freehold of our leasehold stores. However we are happy to take leases on appropriate terms and benefit from the advantages of a lower entry cost.

With the current volatile property market we are carefully monitoring land prices. Transactions are few and far between and we expect prices may come down further. We will assess our acquisition strategy when the market stabilises, although we still believe that acquiring land, and building and opening new stores, will add to shareholder value over the medium and long term.

Embedded Value

The Cushman and Wakefield valuation includes a calculation of the value of the estate once fully established, which together with stores under development at cost represents the embedded value of the estate. This translates into a value of £3.43 per share (2007: £3.57 per share).

Andrew Jacobs
Chief Executive Officer
6 November 2008

Financial Review

Main changes as a result of adoption of IFRS

· Freehold property values have been recognised in the balance sheet at their fair value levels increasing
tangible assets by £35.3 million to £81.0 million (historic cost £45.7 million).

· Comparative figures have been similarly restated.

· A deferred tax provision of £12.4 million is shown which predominantly results from this revaluation
surplus.

Trading

Total revenue for the year was £10.83 million (2007: £10.67 million), an increase of 1.5%, which increases to 8.4% on a like for like basis adjusting for the sale of our Kingston and Woking stores.

Total store EBITDA, the cash flow engine of the operating business, has continued to grow this year to £4.61 million, up 11.9% from last year on a like for like basis (2007: £4.48 million).

Group EBITDA, before exceptional items, was 2.73 million (2007: £2.90 million). The Group made an operating profit for the year of £662,732, down 39.7% compared with £1,099,413 in 2007 on a like for like basis

The Group made a pre-tax loss for the year of £741,446 compared with £950,558 profit in 2007. Lok'nStore's self-storage business model is a robust one with security deposits taken from customers. Customers also pay four weekly in advance. Therefore credit control remains tight with only £45,200 of bad debts written off during the year representing around 0.4% of revenue (2007: 0.4%). There was £3,702 of additional costs associated with recovery (2007: £8,072).

The net interest charge increased from £965,740 to £1,278,928. This is a consequence of the Group utilising its bank facilities to acquire the freehold sites at North Harbour, Portsmouth, and Maidenhead, further site fit-out at the Harlow and Northampton Central stores, and the continuing fit-out programme at our existing trading stores. Year-end borrowings were £25.4 million. Net debt was £23 million.

There is no corporation tax liability to pay due to the availability of tax losses. Tax losses available to carry forward for offset against future profits amount to some £5.7 million. The Company has made a claim for rollover relief in respect of the gains arising on the disposal of the stores during the last financial year.

Basic (loss) / earnings per share was (3.21) pence per share (2007: 2.5 pence per share). On a diluted basis earnings per share was (3.21) pence per share (2007: 2.4 pence per share).

Borrowings and Cash Flow

Cash flows from the Group have grown.The Group utilises cash generated from operations to fund some of the store capital expenditure rather than draw against its revolving credit facility.

Cash inflow from operating activities before interest and capital expenditure was £1.4 million (2007: £5 million). The net cash from operating activities in the cash flow statement was distorted by £1.7 million of VAT provided in trade and other payables at 31 July 2007 arising on the disposal of the Kingston store, which was paid during the year. The Group is cash generative as demonstrated by its EBITDA earnings from its operating activities.

The Group also draws from its five year revolving credit facility with Royal Bank of Scotland Plc to finance new site acquisitions, construction and store fit-outs. This provides sufficient additional liquidity for the Group's immediate expansion plans. Interest is payable on the loan at a rate of between 1.25% and 1.35% over LIBOR. Non-utilisation charges are 0.25% on the value of the undrawn facility. Undrawn committed facilities at the period-end amounted to £14.6 million. The facility is secured on the existing property portfolio.

Turbulence in the capital and debt markets caused LIBOR rates to fluctuate materially during the year under review with some sharp upward spikes. This resulted in the business incurring higher interest charges on the revolving loans rolled over during the year. The 'All-in' average rate since July 2007 was 7.28 % compared to 6.85% last year.

During the year the Group complied with all debt covenants.

The Group is committed to growing its business through a combination of new site acquisition and related works. Capital expenditure during the period totalled £14.3 million, which includes the acquisition of the freehold site at North Harbour, Portsmouth and the acquisition of a long lease at Maidenhead. Store construction at Portsmouth Central (£2.35 million) and ongoing build at Harlow (£2.5 million) as well as the fit-out at Northampton Central (£1.1 million) all added to a total £13.1 million. The balance of the additions relate to fit-outs at the existing stores including the enlargements of the existing Northampton and Fareham stores. In December 2007, the Group received £4.14 million representing the balance due plus accrued interest following the sale of the Kingston store in June 2007 for £10 million.

At 31 July 2008, the Group had cash balances of £2.48 million (2007: £5.19 million) and £25.4 million of borrowings representing gearing of 53.5% on net debt of £23 million (2007: 20.5%). After adjusting for the uplift in value of leaseholds which are stated at depreciated historic cost in the balance sheet, gearing is 47.3%. (2007: 18.8%). After adjusting for the deferred tax liability carried at year end of nearly £12.5 million gearing drops to 38% (2007: 15%).

Buy-back Authority

At the Company's AGM on 7 December 2007 shareholders approved renewal of the existing share buy-back authority. This authority will be sought at the Company's Annual General Meeting again this year. The authority is restricted to a maximum of 5,845,299 Ordinary Shares, which is equivalent to 21.8% of the Company's issued share capital and is equal to the number of shares available for purchase under the previous authority. The buy-back authority will only be exercised in circumstances where the Directors regard such purchases to be in the best interests of shareholders as a whole and is subject to the waiver of Rule 9 by the Panel of Takeovers and Mergers being approved by the Shareholders.

The total number of ordinary shares in issue is 26,758,865 (2007: 26,731,365).

Balance Sheet

Net assets at the year-end decreased to £42.9 million (2007: £50.9 million) mainly as a result of the 2008 property valuation which valued freehold properties at £60.5 million (2007: £66.3 million) This valuation translates into an adjusted net asset value per share of £2.44 (2007: £2.70) as reported below.

The Employee Benefit Trust owns 624,947 (2007: 627,500) shares, the costs of which are shown as a deduction from shareholders' funds. During the year the Company purchased in several tranches a total of 1,142,000 of its own ordinary shares of 1p each for treasury with an aggregate nominal value of £11,420 for an aggregate cost of £2,092,902 at an average price of 181.88 pence per share (2007: nil). These shares represent 4.27% of the Company's issued share capital.

Market Valuation of Freehold and Operating Leasehold Land and Buildings

On 31 July 2008, professional valuations were prepared by external valuers Cushman & Wakefield (C&W) in respect of 11 freehold and 7 operating leasehold properties. All of the leasehold properties are classified as operating leases and not revalued in the financial statements. The valuation was prepared in accordance with RICS Appraisal and Valuation Standards 6th Edition. The valuation has been provided for accounts purposes, and as such is a Regulated Purpose Valuation as defined in the Red Book. The external valuation methodology provides for a Purchaser acquiring a centre incurring purchase costs of 5.75% initially and sale plus purchaser's costs totalling 7.75% are assumed on the notional sales in the tenth year in relation to the freehold stores. In practice we believe that it is unlikely that the bulk of Lok'nStore's properties would be acquired other than in a corporate structure (see note 11 in the notes to the accounts for a more detailed description of the valuation methodology).

The valuation report indicates a total for properties valued of £72.1 million (NBV £34.2 million) (2007: £75.7 million: NBV £27.9 million). In relation to the existing store at Reading there is a prospect of redevelopment for residential use and the valuation reflects this. Accordingly, the Lok'nStore Reading site across the road which has a planning permission for a store has been valued as an operating self-storage site including an additional uplift to reflect the import of customers from the existing Reading store in due course. The valuations do not account for any further investment in existing stores since 31 July 2008. The sites at Harlow, Maidenhead, Portsmouth-North Harbour and Southampton have not been valued and their asset value (stated at cost) of £14.4 million combined with the C&W valuation provides an aggregate property value of £86.4 million.

This translates into a net asset value of 194 pence per share after making full provision for deferred tax arising on the revaluations (2007: 213 pence).

The deferred tax liability arises on the revaluation of the properties and on the rolled over gain arising from the disposal of the Kingston and Woking sites. In due course the site of the existing Reading store is likely to be sold with the benefit of its permission for residential development and the proceeds will be reinvested in our new store pipeline. It is not the intention of the directors to make any other significant disposals of operational self-storage centres. At present it is not envisaged that any tax will become payable in the foreseeable future due to the trading losses brought forward and the availability of rollover relief.

The Board will continue to commission independent valuations on its trading stores annually to coincide with its year-end reporting.

Our operating leases remain as operating leases under IFRS (Refer section below on the full effect of International Financial Reporting Standards ('IFRS')).

Both historically and currently we have valued our freehold and our leasehold property assets. We have reported this as information but have not previously included their values into the balance sheet although we base our Net Asset Value calculation ('NAV') upon it. Under IFRS, the valuations of our freehold property assets are now formally included in the Balance Sheet at their fair value, but the IFRS rules do not permit the inclusion of any valuation in respect of our leasehold stores to the extent that they are classified as operating leases. The value of our operating leases in the valuation totals £11.57 million (2007: £9.44 million). Instead we have reported by way of a note the underlying value of these leasehold stores in future revaluations and adjusted our Net Asset Value ('NAV') calculation accordingly to include their value. This will ensure comparable NAV calculations.

Analysis of total property value	No. of stores	31 July 2008 Valuation £	No. of stores	31 July 2007 Valuation £
Freehold valued by 'C&W'	11	60,510,000	11	66,275,000
Leasehold valued by 'C&W'	7	11,570,000	6	9,440,000
Sub total	18	72,080,000	17	75,715,000
Sites in development at cost	4	14,366,321	2	4,609,013
Total	22*	86,446,321	19*	80,324,013

* 3 Leasehold stores were not valued (2007: 4) as their remaining unexpired terms were insufficient to yield a value under the Cushman Wakefield valuation methodology.

Adjusted Net Asset Value Per Share (adjusted NAV)	31 July 2008	31 July 2007
	£m	£m
Analysis of net asset value (NAV)
Total non-current assets	80,950,612	76,064,162
Adjustment to include leasehold stores at valuation
Add: C&W leasehold valuation	11,570,000	9,440,000
Deduct: leasehold properties and their fixtures & fittings at NBV	(5,939,842)	(4,806,254)

	86,580,770	80,697,908

Add: current assets	4,864,958	11,188,428
Less: current liabilities	(5,162,205)	(6,000,253)
Less: non-current liabilities (excluding deferred tax provision)	(25,311,225)	(15,492,606)


Adjusted net assets before deferred tax provision	60,972,298	70,393,477
Deferred tax	(12,431,474)	(14,851,644)

Adjusted net assets	48,540,824	55,541,833

Shares in issue	Number	Number
Opening shares	26,731,365	25,091,144

Shares issued for the exercise of options	27,500	1,640,221

Closing shares in issue	26,758,865	26,731,365
Shares held in treasury	(1,142,000)	-
Shares held in EBT	(624,947)	(627,500)

Closing shares for NAV purposes	24,991,918	26,103,865

Adjusted net asset value per share after deferred tax provision	194 pence	213 pence
Adjusted net asset value per share before deferred tax provision	244 pence	270 pence

Net assets per share are net assets adjusted for the valuation of the freehold and operating leasehold stores divided by the number of shares at the year-end. The shares currently held in the Group's employee benefits trust (own shares held) and in treasury are excluded from the number of shares.

The seven leaseholds valued by Cushman & Wakefield are all within the terms of the Landlord and Tenant Act (1954) giving a degree of security of tenure. The average length of the leases on the leasehold stores valued was 12.32 years at the date of the 2008 Valuation (source: C&W) (2007 valuation: 12.1 years) having increased with the addition of the Northampton Central lease.

Treasury

All cash deposits are placed with The Royal Bank of Scotland Plc on treasury deposit utilising either one-day or two-day money funds. The Group's cash position is reviewed daily and cash is transferred daily between these accounts and the Company's operational current accounts as required.

Administration Expenses

Administration expenses are analysed into three categories namely 1) premises costs, 2) staff costs and 3) overhead expenses. Administration expenses amounted to £7.80 million for the year (2007: £7.43 million) an increase of 4.9%. Premises costs accounted for 41.0% of these costs (2007: 41.8%), staff costs 39.4% (2007: 40.8%) and overheads 19.6% (2007: 17.4%).

Interest on Bank Borrowings

Interest on bank borrowings for the year increased to £1,608,587 up from £1,113,201 in 2007 reflecting the increase in net borrowing over the period, coupled with the rise in interest rates. The average cost of borrowing during the year was 7.28% against 6.85% in the prior year. £68,157 of the increase in the interest payments is due to the rise in interest rates and £414,096 due to the increased average borrowings.

The interest cost to the Group is increased by the £14.37 million of development pipeline costs that the Group is currently carrying. The interest against this cost has not been capitalised. If interest had been capitalised, the Group's adjusted profit would have been approximately £795,059 higher for the year. From 1 August 2009 in accordance with changes to International Financial Reporting Standards, we will capitalise interest against our development pipeline.

International Financial Reporting Standards ('IFRS')

These are the first full annual consolidated financial statements that the Group has reported under IFRS. The move to IFRS has not changed the underlying performance and cash flow of the business but has impacted on the way in which results are presented. The main considerations for Lok'nStore are described in detail in note 30..

Ray Davies
Finance Director
6 November 2008

Consolidated Income Statement

For the year ended 31 July 2008

	Notes	Year ended 31 July 2008 £	Year Ended 31 July 2007 £
Continuing operations
Revenue	1	10,827,064	10,665,532
Cost of sales		(298,089)	(328,216)

Gross profit		10,528,975	10,337,316

Administrative expenses		(7,796,343)	(7,433,920)
EBITDA*		2,732,632	2,903,396

Depreciation based on historic cost		(1,210,502)	(1,057,228)
Additional depreciation based on revalued assets		(231,692)	(235,307)
	2	(1,442,194)	(1,292,535)
Impairment of goodwill	2	(310,559)	(24,254)
Share based payments	18	(317,146)	(275,572)
		(2,069,899)	(1,592,361)
Operating profit*		662,733	1,311,035

Costs of relocation of Portsmouth store		(125,814)	-
Profit on sale of properties		-	605,263
Profit on sale of motor vehicle		563	-
		(125,251)	605,263

Profit before interest		537,482	1,916,298
Finance income		329,659	147,461
Finance cost		(1,608,587)	(1,113,201)

(Loss)/profit before taxation		(741,446)	950,558
Income tax expense	4	(98,201)	(315,149)

(Loss)/profit for the financial year attributable to equity shareholders	23	(839,647)	635,409

(Loss)/earnings per share
Basic	6	(3.21p)	2.5p
Fully diluted	6	(3.21p)	2.4p

* EBITDA and operating profit are defined in the accounting policies section of the notes to the financial statements.

Consolidated Statement of Changes in Equity

For the year ended 31 July 2008

	Share capital £	Share premium £	Other reserves £	Revaluation reserve £	Retained earnings £	Total £
1 August 2006	250,911	66,776	12,444,403	27,637,607	(1,956,079)	38,443,618
Effect of change in tax rate	-	-	-	579,513	-	579,513
Increase in asset valuation	-	-	-	13,591,025	-	13,591,025
Current tax recognised in equity	-	-	-	-	128,583	128,583
Deferred tax recognised in equity	-	-	-	(3,494,314)	131,323	(3,362,991)
Income and expense recognised directly in equity	-	-	-	10,676,224	259,906	10,936,130
Profit for the year	-	-	-	-	635,409	635,409
Total recognised income & expense	-	-	-	10,676,224	895,315	11,571,539
Transfer	-	-	-	(7,207,130)	7,207,130	-
Share based remuneration	-	-	275,572	-	-	275,572
Exercise of share options	16,403	600,955	-	-	-	617,358
31 July 2007	267,314	667,731	12,719,975	31,106,701	6,146,366	50,908,087
Decrease in asset valuation	-	-	-	(7,677,505)	-	(7,677,505)
Deferred tax recognised in equity	-	-	-	2,355,296	162,880	2,518,176
Income and expense recognised directly in equity	-	-	-	(5,322,209)	162,880	(5,159,329)
Loss for the year	-	-	-	-	(839,647)	(839,647)
Total recognised income & expense	-	-	-	(5,322,209)	(676,767)	(5,998,976)
Transfer	-	-	-	(166,818)	166,818	-
Share based remuneration	-	-	317,146	-	-	317,146
Exercise of share options	275	30,313	-	-	-	30,588
Purchase of shares for treasury	-	-	-	-	(2,092,902)	(2,092,902)
Movement on EBT (ESOP)	-	-	-	-	3,970	3,970
Dividend paid	-	-	-	-	(257,247)	(257,247)
31 July 2008	267,589	698,044	13,037,121	25,617,674	3,290,238	42,910,666

Company Statement of Changes in Equity

	Share capital £	Share premium £	Other reserves £	Total £
1 August 2006	250,911	66,776	6,149,108	6,466,795
Exercise of share options	16,403	600,955	-	617,358
Share based remuneration (options)	-	-	275,572	275,572
31July 2007	267,314	667,731	6,424,680	7,359,725
Exercise of share options	275	30,313	-	30,588
Share based remuneration (options)	-	-	317,146	317,146
31 July 2008	267,589	698,044	6,741,826	7,707,459

Balance Sheets

31 July 2008

		Group	Group	Company	Company
		31 July	31 July	31 July	31 July
		2008	2007	2008	2007
	Notes	£	£	£	£
Non-current assets
Goodwill	7	-	310,559	-	-
Property, plant and equipment	8	80,950,612	75,753,603	-	-
Investments	9	-	-	1,019,182	702,036
		80,950,612	76,064,162	1,019,182	702,036
Current assets
Inventories	10	92,712	74,544	-	-
Trade and other receivables	11	2,291,420	5,924,750	6,688,277	6,657,689
Cash and cash equivalents		2,480,826	5,189,134	-	-

		4,864,958	11,188,428	6,688,277	6,657,689
					-
Total assets		85,815,570	87,252,590	7,707,459	7,359,725

Current liabilities
Trade and other payables	12	(5,077,541)	(5,935,171)	-	-
Provisions	13	(84,664)	(65,082)	-	-

		(5,162,205)	(6,000,253)	-	-

Non-current liabilities
Bank borrowings	15	(25,311,225)	(15,492,606)	-	-
Deferred tax	16	(12,431,474)	(14,851,644)	-	-

		(37,742,699)	(30,344,250)	-	-

Total liabilities		(42,904,904)	(36,344,503)	-	-

Net assets		42,910,666	50,908,087	7,707,459	7,359,725

Equity
Called up share capital	17	267,589	267,314	267,589	267,314
Share premium		698,044	667,731	698,044	667,731
Other reserves	22	13,037,121	12,719,975	6,741,826	6,424,680
Retained earnings	23	3,290,238	6,146,366	-	-
Revaluation reserve		25,617,674	31,106,701	-	-
Total equity attributable		42,910,666	50,908,087	7,707,459	7,359,725
to equity holders of the parent

Approved by the Board of Directors and authorised for issue on 6 November 2008 and signed on its behalf by:

A Jacobs

Chief Executive

R Davies

Finance Director

Cash Flow Statements

For the year ended 31 July 2008

	Notes	Group Year ended 31 July 2008 £	Group Year ended 31 July 2007 £
Operating activities
Cash generated from operations	25	1,397,710	5,001,126
Income tax paid		(195)	-
Net cash from operating activities		1,397,515	5,001,126
Investing activities
Purchase of property, plant and equipment		(14,318,171)	(10,262,286)
Sale of property, plant and equipment		4,002,025	8,324,768
Interest received		329,659	147,461
Net cash used in investing activities		(9,986,487)	(1,790,057)
Financing activities
Issue of new ordinary shares		30,588	617,357
Increase in borrowings - bank loans		9,818,619	1,425,804
Interest paid		(1,626,682)	(987,024)
Purchase of shares for treasury		(2,084,614)	-
Equity dividends paid		(257,247)	-
Net cash from financing activities		5,880,664	1,056,137
Net (decrease)/increase in cash and cash equivalents in the period		(2,708,308)	4,267,206
Cash and cash equivalents at beginning of the period		5,189,134	921,928
Cash and cash equivalents at end of the period		2,480,826	5,189,134

No cash flow statement is presented for the Company as it had no cash flows in either year.

General information

Lok'nStore plc is an AIM listed company incorporated and domiciled in the United Kingdom under the Companies Act 1985. The address of the registered office is 1 London Wall, London EC2Y 5AB, UK. Copies of this Annual Report and Accounts may be obtained from the Company's head office at 112, Hawley lane, Farnborough, Hants. GU14 8JE,or the investor section of the Company's website at http://www.loknstore.co.uk.

Basis of accounting

The financial information does not constitute statutory accounts as defined in section 240 of the Companies Act 1985. The figures for the year ended 31 July 2008 are an abridged version of the Company's audited accounts. The auditors have reported on the results for the year ended 31 July 2008 and their report was not qualified and did not contain a statement under section 237(2) or (3) of the Companies Act. Statutory accounts for the year ended 31 July 2008 will be delivered to the Registrar of Companies following the Company's Annual General Meeting on 12 December 2008.

The consolidated financial information has been prepared in accordance with the recognition and measurement principles of International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU). The disclosures required by IFRS 1 concerning the transition from UK GAAP to IFRS are given in Note 30 which includes an analysis of how the balance sheet, income statements and cash flow statements prepared under UK GAAP have changed under IFRS.

The accounting policies followed are the same as those published by the Group within its Interim Report for the six months to 31 January 2008 which is available on the group's website.

Comparative figures for the year ended 31 July 2007 have been extracted from the statutory accounts for the Group for that period, amended to conform to the IFRS accounting policies used in the 2008 Lok'nStore Group Plc Annual Report and Accounts. Statutory accounts for the year ended 31 July 2007 were prepared under UK GAAP carried an unqualified audit report, did not contain a statement under section 237(2) or (3) of the Companies Act and have been delivered to the Registrar of Companies.

The Group has applied all accounting standards and interpretations issued by the International Accounting Standards Board and International Financial Reporting Interpretation Committee relevant to its operations and effective for accounting periods beginning on or after 1 August 2007.

Adoption of new and revised standards

In the current year, the Group has adopted IFRS 7 Financial Instruments: Disclosure which is effective for annual reporting periods beginning on or after 1 January 2007, and the related amendment to IAS 1 Presentation of Financial Statements. The impact of the adoption of IFRS7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the Group's financial instruments and management of capital (see note 14). IFRIC 10 Interim Financial Reporting and Impairment issued by the International Financial Reporting Interpretations Committee are effective for the current period but has not led to any changes in the Group's accounting policies. IFRIC 11 IFRS2: Group and Treasury Share Transactions was adopted on transition.

Critical accounting estimates and judgements

The preparation of consolidated financial statements under IFRS requires management to make estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual outcomes may differ from these estimates and assumptions. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

a) Estimate of fair value of trading properties

The Group values its self storage stores using a discounted cash flow methodology which is based on projections of net operating income. Principal assumptions underlying management's estimation of the fair value are those relating to stabilised occupancy levels; expected future growth in storage rents and operating costs, maintenance requirements, capitalisation rates and discount rates. A more detailed explanation of the background and methodology adopted in the valuation of the Group's trading properties is set out in note 8 to the accounts. The carrying value of properties held at valuation at the balance sheet date was £60.5 million (2007: £66.3 million).

Market Uncertainty

Since the middle of September financial markets have been exceptionally volatile in response to concerns over the solvency and credit worthiness of a number of major banks and financial institutions and the wider consequences for the global financial system and economy.

Under these conditions many investment decisions have been put on hold or deferred. In view of the already reduced volume of transactions in the property investment market in the year to date, these latest developments only serve to increase the degree of uncertainty that must attach to any opinion of value given at the present time.

Cushman & Wakefield ('C&W') have valued the properties on the basis of market evidence available as at the date of valuation, although there has been a greatly reduced number of property transactions recently and much relates to transactions completed before the full extent of the current banking crisis manifested itself.

C&W report that in relation to the self storage sector specifically, there have been no significant transactions in 2008 other than the sale of a 51% stake in Shurgard Europe which was announced in January 2008 and completed on 31 March 2008. C&W also believe that due to the current hiatus in the financial markets, it is likely that there will be continued abnormal volatility in the global economy with unpredictable consequences for the UK real estate market. They have therefore endeavoured to reflect market sentiment as at the date of their valuation.

In order to provide a rational opinion of value at the present time it is necessary to assume that the property market will continue to trade in an orderly fashion. In this regard C&W confirm that they are having to exercise a greater degree of judgment than is usual in a more active market. As a result, there is greater uncertainty attached to their opinion of value than during normal market conditions.

The Board concur with this view.

b) Assets in the course of construction and land held for pipeline store development. ('Development property assets')

The Group's development property assets are held in the balance sheet at historic cost and are not valued externally. In acquiring sites for redevelopment into self storage facilities, the Group estimates and makes judgements on the potential net lettable storage space that it can achieve in its planning negotiations, together with the time it will take to achieve maturity occupancy level. In addition, assumptions are made on the storage rent that can be achieved at the store by comparing with other stores within the portfolio and within the local area. These judgements taken together with estimates of operating costs and the projected construction cost, allow the Group to calculate the potential net operating income at maturity, projected returns on capital invested and hence to support the purchase price of the site at acquisition. Following the acquisition, regular reviews are carried out taking into account the status of the planning negotiations, revised construction costs or capacity of the new facility, for example, to make an assessment of the carrying value of the development property at historic cost. Once a store is opened, then it is valued as a trading store in the Group's balance sheet. The carrying value of development property assets at the balance sheet date was £14.4 million (2007: £4.6 million). The Group reviews all development property assets for impairment at each balance sheet date.

c) Goodwill impairment

A number of estimates and judgements are made in the annual impairment review as detailed further in note 7. The carrying value of goodwill previously held in the balance sheet of £310,559 (2007: £310,559) was fully written off following an impairment review.

d) Dilapidations

The Group has a number of stores operating under leasehold tenure. From time to time, in accordance with the Group's stated objective to maximise shareholder value, it may choose not to renew a lease, particularly where alternative premises have been sourced and customers can be moved into the new premises. In these circumstances the Group may incur repairing and decoration liabilities ('dilapidations') based on the tenant's obligation to the landlord to keep the leasehold premises in good repair and decorative condition. Landlords in these circumstances will normally serve a schedule of dilapidations on the tenant setting out a list of items to be remedied. This may also refer to obligations on the tenant to reinstate any alterations works previously undertaken by the tenant under a Licence for Alterations. Such claims will always be negotiated robustly by Lok'nStore and may require legal, valuation and surveyor's expertise, particularly if it can be shown that the landlord's interest in the premises has not been diminished by the dilapidations. As such, evaluations of actual liabilities are always a critical judgement and any sums provided to be set aside can only be an estimate until a settlement is concluded.

The carrying value of the provision for dilapidations at the balance sheet date was £84,664 (2007: £65,082).

Notes to the Financial Statements

for the year ended 31 July 2008

1. Revenue and segmental information

Revenue represents amounts derived from the provision of self-storage accommodation and related services to customers outside the Group which fall within the Group's ordinary activities after deduction of trade discounts and value added tax. The Group's net assets, revenue and profit before tax are attributable to one principal activity, the provision of self-storage accommodation and related services. These all arise in the United Kingdom.

	2008 £	2007 £
Stores trading
Self storage income	9,854,216	9,775,849
Other storage related income	793,343	828,123
Store rental income	5,218	5,218
Management fees	21,374	3,403
Sub-Total	10,674,151	10,612,593
Stores under development
Non-storage income	152,913	52,939

Total revenue	10,827,064	10,665,532

2. (Loss)/profit on ordinary activities before taxation

	2008 £	2007 £
(Loss)/profit before taxation is stated after charging:
Depreciation and amounts written off property, plant and equipment:
– owned assets	1,442,194	1,292,535
Impairment of goodwill	310,559	24,254
Operating lease rentals:
– land and buildings	1,421,888	1,334,780
Amounts payable to Baker Tilly UK Audit LLP and their associates for audit and non-audit services
Audit services
– statutory audit of parent and consolidated accounts	45,000	39,000
– further audit services-IFRS transition	20,000	-
Other services
The auditing of accounts of associates of the company pursuant to legislation
– audit of subsidiaries where such services are provided by Baker Tilly UK Audit LLP or its associates	6,250	-
Other services supplied pursuant to such legislation
– interim review	35,000	10,000
Tax services
– compliance services	11,952	10,210
– advisory services	24,395	43,860
Other services
– work in respect of Company Share Incentive Plan (SIP) / directors’ remuneration	11,348	17,500
– work in respect of share buyback/return of capital to shareholders	-	750
	153,945	121,320

3. Employees

	2008 No.	2007 No.
The average monthly number of persons (including directors) employed by the Group during the year was:
Store management	85	92
Administration	18	19
	103	111

	2008 £	2007 £
Costs for the above persons:
Wages and salaries	2,631,327	2,781,864
Social security costs	228,212	219,612
Pension costs	26,540	22,469
	2,886,079	3,023,945
Share-based remuneration	317,146	275,572
	3,203,225	3,299,517

Share-based remuneration is separately disclosed in the income statement. Wages and salaries of £110,804 (2007: £161,447) have been capitalised as additions to property, plant and equipment as they are directly attributable to the acquisition of these assets. All other employee costs are included in administrative expenses in the income statement.

In relation to pension contributions, there was £3,331 (2007: £3,935) outstanding at the year-end.

4. Taxation

Income Tax Expense	2008 £	2007 £
Current tax:
UK corporation tax at 30% (2007: 30%)	-	128,583
Adjustments in respect of prior periods	195	-
Total current tax	195	128,583
Deferred tax:
Origination and reversal of temporary differences	98,006	223,479
Adjustments in respect of prior periods	-	(36,913)
Total deferred tax	98,006	186,566
Income tax expense for the year	98,201	315,149

The charge for the year can be reconciled to the profit per the income statement as follows:

	2008 £	2007 £
(Loss)/profit before tax	(741,446)	950,558
Tax on ordinary activities at the standard rate of corporation tax in the UK of 30% (2007: 30%)	(222,434)	285,167
Expenses not deductible for tax purposes	183,837	90,948
IFRS 2 charge not recognised in deferred tax	95,144	-
Amount not recognised in deferred tax	41,459	-
Differences between accounting profit on disposal and taxable gain	-	(60,966)
Adjustments in respect of prior periods	195	-
Income tax expense for the year	98,201	315,149
Effective tax rate	(13%)	33%

A tax charge has arisen in the year due to certain expenses which are not deductible for tax purposes and the adjustment described below in relation to the Founder Share Options. Non deductible expenses consist mainly of depreciation charges on the Group's properties which do not qualify for tax allowances and the impairment of goodwill.

In the Group's 2007 tax computations a significant tax deduction arose in respect of the exercise of Founder Share Options. The Group has taken advantage of the exemption available in IFRS 2 - Share Based Payments, to exclude share options granted before November 2002. There has therefore not been a share based remuneration expense in the income statement in respect of the Founder Share Options. Under IAS 12 the tax effects of these options must be recognised directly in equity. At 31 July 2007 a deferred tax asset was recognised in respect of the tax relief for the options in the sum of £259,906 and the credit for this has been recognised directly in equity. At 31 July 2008 a further deferred tax asset of £162,880 has been recognised directly in equity.

A current tax charge arose in 2007 to the extent that this tax deduction was offset against taxable profits arising in the year ended 31 July 2007. There was no actual UK corporation tax liability due to the availability of losses carried forward. The corresponding current tax credit has been recognised in equity.

In addition to the amount charged to the income statement, deferred tax relating to the revaluation of the Group's properties amounting to £2,149,702 (2007: £3,494,314 debit) and deferred tax of £205,594 (2007: £nil) in respect of rolled over gains have been charged directly to equity (refer note 16 - deferred tax).

As a result of the change in UK Corporation Tax rates which was effective from 1 April 2008, deferred tax balances have been remeasured at the tax rate of 28% as this is the rate that will apply when the temporary differences are expected to reverse. See note 16 for further details of deferred tax.

5. Dividends

	2008 £	2007 £
Amounts recognised as distributions to equity holders in the period:
Interim dividend for the six months to 31 January 2008 of 0.33p per share (2007: nil)	86,783	-
Final dividend for the year ended 31 July 2007 of 0.67 pence per share (2006: nil)	170,464	-
	257,247	-

In respect of the current year, the directors propose that a final dividend of 0.67 pence per share will be paid to the shareholders. The total estimated dividend to be paid is £167,446 based on the number of shares currently in issue as adjusted for shares held in the Employee Benefits Trust and for shares held on treasury. This is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. The ex-dividend date will be 19 November 2008; the record date 21 November 2008; with an intended payment date of 17 December 2008.

6. Earnings per Share

The calculations of earnings per share are based on the following profits and numbers of shares.

	2008 £	2007 £
(Loss)/profit for the financial year	(839,647)	635,409

	2008 No. of shares	2007 No. of shares
Weighted average number of shares
For basic earnings per share	26,122,173	25,670,204
Dilutive effect of share options	314,232	542,990
For diluted earnings per share	26,436,405	26,213,194

(Loss)/earnings per share	2008 £	2007 £
Basic	(3.21p)	2.5p
Diluted	(3.21p)	2.4p

There is no dilutive effect of the options in 2008 due to the loss arising in the year.

7. Intangible Assets - Goodwill

Group	Purchased goodwill £
Cost 1 August 2006, 31 July 2007 and 31 July 2008	334,813
Impairment
1 August 2006	-
Impairment charge	24,254
31 July 2007	24,254

Impairment charge	310,559
31 July 2008	334,813

Net book value
31 July 2008	-
31 July 2007	310,559
1 August 2006	334,813

The goodwill is allocated to the Swindon West store as a cash-generating unit. The recoverable amount of the cash-generating unit has been determined using value in use calculations (see initial accounting estimates and judgements in accounting polices section). The Swindon West store remains an under performing store relative to its peer group of stores over 250 weeks. Management has made an assessment of the carrying value of goodwill based on the likely cash flows generated by the Swindon West store over the next five years as recorded in the Groups detailed budgets and forecasts. As part of this assessment the Board have completed a valuation exercise by comparing the latest Cushman & Wakefield, ('CW') valuations achieved for a selection of its established stores (refer note 11 for valuation methodology including discount rates) and expressed this valuation as a multiple of those stores cash earnings at year 9 and compared it to Swindon West cash earnings. It was determined that the carrying value of the goodwill can no longer be justified and accordingly has been written off.

8. Property, plant and equipment

Group Cost or valuation	Land and buildings £	Short leasehold improvements at cost £	Fixtures, fittings and equipment at cost £	Motor vehicles at cost £	Total £
1 August 2006	57,469,917	1,595,576	9,557,776	60,406	68,683,675

Additions	7,862,810	307,738	2,062,740	29,000	10,262,288
Disposals	(11,586,241)	-	(370,580)	-	(11,956,821)
Revaluations	13,220,940	-	-		13,220,940
31 July 2007	66,967,426	1,903,314	11,249,936	89,406	80,210,082

Depreciation
1 August 2006	-	633,054	3,098,619	39,672	3,771,345
Depreciation	381,271	135,954	770,681	4,629	1,292,535
Disposals	(11,187)	-	(226,130)	-	(237,317)
Revaluations	(370,084)	-	-	-	(370,084)
31 July 2007	-	769,008	3,643,170	44,301	4,456,479


Net book value at 31 July 2007	66,967,426	1,134,306	7,606,766	45,105	75,753,603

Net book value at 1 August 2006	57,469,917	962,522	6,459,157	20,734	64,912,330

Cost or valuation
1 August 2007	66,967,426	1,903,314	11,249,936	89,406	80,210,082
Additions	10,659,528	569,779	3,007,329	83,684	14,320,320
Transfers	-	(2,150)	-	-	(2,150)
Disposals	-	-	-	(5,745)	(5,745)
Revaluations	(8,058,809)	-	-	-	( 8,058,809)
31 July 2008	69,568,145	2,470,943	14,257,265	167,345	86,463,698

Depreciation
1 August 2007	-	769,008	3,643,170	44,301	4,456,479
Depreciation	381,304	164,683	886,691	9,516	1,442,194
Transfers	-	-	-	(4,283)	(4,283)
Revaluations	( 381,304)	-	-	-	(381,304)
31 July 2008	-	933,691	4,529,861	49,534	5,513,086

Net book value at 31 July 2008	69,568,145	1,537,252	9,727,404	117,811	80,950,612

The carrying value of land and buildings includes development property assets (assets in course of construction) of £14.4 million (2007: £4.6 million) held at cost and £60.5 million (2007: £66.3 million) held at valuation.

The carrying value of land and buildings includes £2.61 million (2007: £nil) in relation to assets held under finance leases.

Had all assets been valued under the cost model, the carrying value of land and buildings would have been £39.6 million (2007: £27.7 million).

If all property, plant and equipment was stated at historic cost the carrying value would be £45.7 million (2007: £32.5 million).

The additions of £10.7 million to land and buildings include the acquisition of the Portsmouth North Harbour and Maidenhead sites and the development of the Portsmouth Central and Harlow sites.

The additions of £3.0 million to fixtures and fittings include fit-out at the Portsmouth Central and Harlow sites as well as the new leasehold store at Northampton Central. Fit-outs at existing stores included the enlargements of the existing Northampton and Fareham stores.

Property, plant and equipment with a carrying value of £80.8 million (2007: £75.7 million) is pledged as security for bank loans (see note 15).

Market Valuation of Freehold and Operating Leasehold Land and Buildings

On 31 July 2008, a professional valuation was prepared by external valuers Cushman & Wakefield LLP (C&W) in respect of 11 freehold and 7 leasehold properties. All of these leasehold properties are classified as operating leases and not revalued in the financial statements. The valuation was prepared in accordance with RICS Appraisal and Valuation Standards, 6th Edition, published by The Royal Institution of Chartered Surveyors ('the Red Book'). The valuations were prepared on the basis of Market Value or Market Value as a fully equipped operational entity having regard to trading potential as appropriate. The valuation has been provided for accounts purposes and as such, is a Regulated Purpose Valuation as defined in the Red Book. In compliance with the disclosure requirements of the Red Book C&W 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 been the signatories since January 2004.

§ C&W have prepared four 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 valuation for all properties valued of £72.1 million (2007: £75.7 million) of which £60.5 million (2007: £66.3 million) relates to freehold properties, and £11.6 million (2007: £9.4 million) relates to properties held under operating leases.

Land and buildings are carried at valuation in the balance sheet. Short leasehold improvements at properties held under operating leases are carried at cost rather than valuation in accordance with IFRS.

The valuation methodology explained in more detail below, is based on market value as fully equipped operational entities. The total valuation of trading properties has therefore been allocated by the directors between freehold properties and the fixtures, fittings and equipment in the valued properties which are held at cost. Of the £60.5 million valuation of the freehold properties £4.7 million relates to the net book value of fixtures, fittings and equipment, and the remaining £55.8 million relates to freehold properties.

The 2008 valuation includes and reflects movements in value which have resulted from the operational performance of the stores and movements in the investment environment. In relation to the existing store at Reading, although it currently remains an operating self-storage facility, the site has been valued to reflect its residential development potential following the grant of planning permission for 112 apartments with associated car parking and landscaping. Additionally the freehold development land site in Reading situated opposite the existing store, which has the benefit of an appropriate planning consent for a self-storage facility, has been valued accordingly, and reflecting an additional uplift based on the assumption that a substantial number of the existing store's customers will transfer to the new store when built. The valuations do not account for any further investment in existing stores since July 2008.

Valuation Methodology

Background

The USA has over 40,000 self-storage facilities trading in a highly fragmented market with the largest five operators accounting for less than 20% of market share based on net rentable square footage. The vast majority of stores are owned and managed individually or in small portfolios. These properties have a well established track record of being traded and are therefore considered as liquid property assets.

Many valuations of this asset class are undertaken by appraisers in the USA and the accepted valuation approach is to value the properties on the basis of market value as fully equipped operational entities, having regard to trading potential. This approach is recognised in the Red Book and is adopted for other categories of property that are normally bought and sold on the basis of their trading potential. Examples include hotels, licensed properties, marinas and petrol stations.

The UK self-storage sector differs from the USA in that the five larger groups control over 50% of the market by net rentable storage space. The scope for active trading of these property assets is therefore likely to be less, however there has been evidence of an increased number of transactions in 2007, albeit as corporate transactions rather than individual property sales but fewer in 2008 to date.

C&W believe that the valuation methodology adopted in the USA is also the most appropriate for the UK market.

Methodology

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

Freehold property

The valuation is based on a discounted cash flow of the net operating income projected over a 10-year period and a notional sale of the asset at the end of the 10th year.

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 16 trading stores (both freeholds and leaseholds) averages 77.71% (2007: 77.69%). The two Reading properties are excluded from the group of 18 stores. 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, 10-year money rates, inflation and the available evidence of transactions in the sector. On average for the 16 stores the yield (net of purchaser’s costs) arising from the first year of the projected cash flow is 4.77% (2007: 6.14%). This rises to 10.75% (2007: 9.95%) 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 11.37% (2007: 10.9%).

e. Purchaser’s costs of 5.75% have been assumed initially and sale plus purchaser’s costs totalling 7.75% are
assumed on the notional sales in the 10th year in relation to the freehold stores.

The 2007 comparative figures are based on a group of 14 stores which excluded the existing Reading properties and Portsmouth.

Leasehold property

The same methodology has been used as for freehold property, except that no sale of the assets in the 10th year is assumed, but the discounted cash flow is extended to the expiry of the lease. The average unexpired term of the Group's operating leaseholds is approximately 12 years and 4 months as at 31 July 2008 (12 years and 1 month as at 31 July 2007).

Market Uncertainty

Cushman & Wakefield ('C&W') have valued the properties on the basis of market evidence available as at the date of valuation, although there has been a greatly reduced trading volume recently and much relates to transactions completed before the full extent of the current banking crisis manifested itself.

These latest developments only serve to increase the degree of uncertainty that must attach to any opinion of value given at the present time. (Refer also to the note on critical accounting estimates and judgements in relation to fair value of trading properties in the basis of accounting section)

9. Investments

Investment in subsidiary undertakings	£
Cost and net book value
1 August 2006	426,464
Capital contributions arising from share based payments	275,572
1 August 2007	702,036
Capital contributions arising from share based payments	317,146
31 July 2008	1,019,182

The Company holds more than 20% of the share capital of the following companies, all of which are incorporated in England and Wales:

		% of shares and voting rights held
	Class of shareholding	Directly	Indirectly	Nature of business
Lok'nStore Limited	Ordinary	100	-	Self Storage
Lok'nStore Trustee Limited	Ordinary	-	100	Trustee
Southern Engineering and Machinery Company Limited	Ordinary	100	-	Land
Semco Machine Tools Limited*	Ordinary	100	-	Dormant
Semco Engineering Limited*	Ordinary	100	-	Dormant

* These companies are subsidiaries of Southern Engineering and Machinery Company Limited and did not trade during the year.

The fair value of these investments has not been disclosed because it cannot be measured reliably as there is no active market for these equity instruments. The Company currently has no plans to dispose of these investments.

10. Inventories

Group

2008

Group

2007

Company

2008

Company

2007

Consumables and goods for resale

92,712

74,544

The amount of inventories recognised as an expense during the year was £190,377 (2007: £211,852).

11. Trade and other receivables

	Group 2008	Group 2007	Company 2008	Company 2007

Trade receivables	734,431	768,833	-	-
Other receivables	354,841	4,084,169	-	-
Prepayments and accrued income	1,202,148	1,071,748	-	-
Amounts owed by subsidiary undertakings	-	-	6,688,277	6,657,689
	2,291,420	5,924,750	6,688,277	6,657,689

The Directors consider that the carrying amount of trade and other receivables approximates their fair value.

12. Trade and other payables

	Group 2008	Group 2007	Company 2008	Company 2007

Trade payables	2,212,960	1,142,276	-	-
Taxation and social security costs	99,026	1,807,742	-	-
Other payables	879,308	1,001,710	-	-
Accruals and deferred income	1,886,247	1,983,443	-	-
	5,077,541	5,935,171	-	-

The Directors consider that the carrying amount of trade and other payables and accruals and deferred income approximates fair value.

13. Provisions

Following the decision of the Group not to renew its lease at its leasehold store in Portsmouth, the Group may incur repairing and decoration liabilities ('dilapidations') based on the tenant's obligation to the landlord to keep the leasehold premises in good repair and decorative condition. Such claims will always be negotiated robustly by Lok'nStore and may require legal, valuation and surveyor's expertise, particularly if it can be shown that the landlord's interest in the premises has not been diminished by the dilapidations. As such, evaluations of actual liabilities and the timing of their settlement are always a critical judgement and any sums provided to be set aside can only be an estimate until a settlement is concluded. The carrying value of the provision for dilapidations at the balance sheet date was £84,664 (2007: £65,082). These amounts relate exclusively to the Portsmouth leasehold.

Provisions	2008 £	2007 £
Liability at start of year	65,082	46,157
Increase in provision for the year	19,582	18,925
Liability at end of year	84,664	65,082

14 Financial instruments

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximising the return to stakeholders through the optimisation of the debt and equity balance. The capital structure of the Group consists of debts, which includes the borrowings disclosed in note 15, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed in note 23. The Group's banking facilities require that management give regular consideration to interest rate hedging strategy. The Group has complied with this during the year.

The Group's Board reviews the capital structure on an ongoing basis. As part of this review, the Board considers the cost of capital and the risks associated with each class of capital. The Group seeks to have a conservative gearing ratio (the proportion of net debt to equity). The Board considers at each review the appropriateness of the current ratio in light of the above. The Board is currently satisfied with the Group's gearing ratio.

The gearing ratio at the year end is as follows:

	Group 2008 £	Group 2007 £
Debt	(25,433,797)	(15,650,198)
Cash and cash equivalents	2,480,826	5,189,134
Net Debt	(22,952,971)	(10,461,064)
Balance sheet equity	42,910,666	50,908,087
Net debt to equity ratio	53.5%	20.5%

The increase in the Group's gearing ratio arises due to increased bank borrowings to fund additions of £10.7 million to land and buildings, including the acquisition of the Portsmouth North Harbour and Maidenhead sites and the development of the Portsmouth Central and Harlow sites and a further £3.0 million to fixtures and fittings include fit-out at the Portsmouth Central and Harlow sites as well as the new leasehold store at Northampton Central. At 31 July 2008 the Group was carrying £14.4 million of development assets at cost compared to only £4.6 million at 31 July 2007.

Exposure to credit and interest rate risk arises in the normal course of the Group's business. There are no foreign currency risks.

A Derivative financial instruments and hedge accounting

The Group's activities expose it primarily to the financial risks of interest rates. Currently the Group does not undertake any hedging activities or use any derivative financial instruments although the Board keeps hedging policy is respect of interest rates actively under review in order to maintain a balance between flexibility and the hedging of interest rate risk.

B Debt management

Debt is defined as non-current and current borrowings, as detailed in note 18. Equity includes all capital and reserves of the Group attributable to equity holders of the parent. The Group is not subject to externally imposed capital requirements.

The Group borrows through a senior five year term revolving credit facility, secured on its existing store portfolio with a net book value of £80.8 million. Borrowings are arranged to ensure the company fulfils its strategy of growth and development of its store portfolio and to maintain short-term liquidity. Funding is arranged through Royal Bank of Scotland, with whom the Group has a strong working relationship. As at the balance sheet date the Group has a committed revolving credit facility of £40 million (2007: £40 million). This facility expires on 5 February 2012. Undrawn committed facilities at the year-end amounted to £14,566,203 (2007: £24,349,802).

C Interest rate risk management

The Group's policy on interest rate management is agreed at Board level and is reviewed on an ongoing basis. All borrowings are denominated in Sterling and are detailed in note 15. The Group has a number of revolving loans within its overall revolving credit facility and as such is exposed to interest rate risks at the time of renewal arising from any upward movement in the LIBOR rate.

The following interest rates applied:

1 LIBOR plus a 1.25%-1.35% margin for the revolving advances amounting to £25.4 million.

2 0.25% for non-utilisation (i.e. that part of the facility which remains undrawn from time to time).

Cash balances held in current accounts attract no interest but surplus cash is transferred daily to 'one-day' or 'two-day' treasury deposits which attract interest at the prevailing money market rates. All amounts are denominated in Sterling. The balances at 31 July 2008 are as follows:

Group

2008

Group

2007

Variable rate treasury deposits*

2,342,625

5,382,208

* Money market rates as at 31 July 2008 attributable to variable rate deposits were 5.19% to 5.21%.

The Group reviews the current and forecast projections of cash flow, borrowing and interest cover as part of its monthly management accounts review. In addition, an analysis of the impact of significant transactions is carried out regularly, as well as a sensitivity analysis of the impact of movements in interest rates on gearing and interest cover.

The Group is exposed to interest rate risk as entities in the Group borrow funds at floating interest rates. Hedging policy is kept under review to align with interest rate view and defined risk appetite. The Group has no interest rate derivatives in place.

D Interest rate sensitivity analysis

In managing interest rate risk the Group aims to reduce the impact of short-term fluctuations on the Group's earnings, without jeopardising its flexibility. Over the longer term, permanent changes in interest rates may have an impact on consolidated earnings.

At 31 July 2008, it is estimated that an increase of one percentage point in interest rates would have increased the Group's annual loss before tax by £219,110 (2007: £162,605) and conversely a decrease of one percentage point in interest rates would have decreased the Group's annual loss before tax by £219,110 (2007: £162,605). There would have been no effect on amounts recognised directly in equity. The sensitivity has been calculated by increasing by 1 percent the average variable interest rate applying to the variable rate borrowings in the year.

E Cash management and liquidity

Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate liquidity risk management framework for the management of the Group's short, medium and long-term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. Included in note 14B is a description of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk.

Short-term money market deposits are used to manage liquidity whilst maximising the rate of return on cash resources, giving due consideration to risk.

F Foreign currency management

The Group operates solely in the United Kingdom and as such all of the Group's financial assets and liabilities are denominated in Sterling and there is no exposure to exchange risk.

G Credit risk

The Group has no significant concentration of credit risk, with exposure spread across 6,500 customers in our stores.

The credit risk on liquid funds is limited because the counterpart is a bank with high credit ratings assigned by international credit-rating agencies, in line with the Group's policy which is to borrow from major institutional banks when arranging finance.

The Group's maximum exposure to credit risk at 31 July 2008 was £801,580 (2007: £4,845,213).

H Maturity analysis of financial liabilities

The undiscounted contractual cash flow maturities are as follows:

2008 - Group

	Trade and other payables £	Borrowings £	Interest on Borrowings £
From two to five years	-	25,433,797	7,407,848
From one to two years	-	-	1,851,962
Due after more than one year	-	25,433,797	9,259,810
Due within one year	5,077,541	-	-
Total contractual undiscounted cash flows	5,077,541	25,433,797	9,259,810

2007 - Group

	Trade and other payables £	Borrowings £	Interest on Borrowings £
From two to five years	-	15,650,198	4,285,650
From one to two years	-	-	1,071,412
Due after more than one year	-	15,650,198	5,357,062
Due within one year	5,935,171	-	-
Total contractual undiscounted cash flows	5,935,171	15,650,198	5,357,062

The Group's only borrowings are through a senior five year term revolving credit facility of £40 million secured on its existing store portfolio. This facility expires on 5 February 2012.

I Fair values of financial instruments

Categories of financial assets and financial liabilities	2008 £000	2007 £000
Financial assets
Trade and other receivables	2,291,420	5,924,750
Cash and cash equivalents	2,480,826	5,189,134
Financial liabilities
Trade and other payables	(5,077,541)	(5,935,171)
Bank loans	(25,311,225)	(15,492,606)

The fair values of the Group's cash and short-term deposits and those of other financial assets equate to their carrying amounts. The Group's receivables are all classified as loans and receivables and carried at amortised cost. Further details are set out in note 11. The amounts are presented net of provisions for doubtful receivables and allowances for impairment are made where appropriate. Trade and other payables and bank borrowings are all classified as financial liabilities measured at amortised cost.

J Company's financial instruments

The Company's only financial assets are amounts owed by subsidiary undertakings amounting to £6.69 million (2007: £6.66 million) which are classified as loans and receivables. These amounts are denominated in sterling, are non-interest bearing, are unsecured and fall due for repayment within one year. No amounts are past due or impaired. The Company has no financial liabilities.

15. Bank borrowings

	Group 2008	Group 2007	Company 2008	Company 2007
Bank loans repayable in more than two years but not more than five years
Gross	25,433,796	15,650,198	-	-
Deferred financing costs	(122,571)	(157,592)	-	-
Bank loans repayable in more than two years but not more than five years
Net	25,311,225	15,492,606	-	-

The bank loans are secured by legal charges and debentures over the freehold and leasehold properties and other assets of the business with a net book value of £85.8 million together with cross-company guarantees of Lok'nStore Limited. The revolving credit facility is for a five-year term and expires on 5 February 2012. The Group is not obliged to make any repayments prior to expiration. The loans bear interest at the London Inter Bank Offer Rate (LIBOR) plus 1.25%-1.35% Royal Bank of Scotland plc margin.

16. Deferred tax

Deferred tax liability	2008 £	2007 £
Liability at start of year	14,851,644	11,881,601
Effect of reduction in tax rate	-	(579,514)
Income statement charge	98,006	186,566
Tax (credited)/charged directly to equity	(2,518,176)	3,362,991
Liability at end of year	12,431,474	14,851,644

The following are the major deferred tax liabilities and assets recognised by the Group and the movements thereon during the period:

	Accelerated capital allowances £	Tax losses £	Other temporary differences £	Revaluation of properties £	Rolled over gain on disposal £	Total £
At 1 August 2006	1,132,287	(1,094,945)	(429)	11,844,688	-	11,881,601
Change in rate of tax	(75,486)	75,486	-	(579,514)	-	(579,514)
Charge to income for the year	169,896	(100,441)	24,955	(70,597)	162,753	186,566
Charge to equity for the year	-	(131,323)	-	3,494,314	-	3,362,991
Disposals	-	-	-	(2,590,609)	2,590,609	-
At 31 July 2007	1,226,697	(1,251,223)	24,526	12,098,282	2,753,362	14,851,644
Charge to income for the year	299,096	(134,374)	(1,842)	(64,874)	-	98,006
Charge to equity for the year	-	(162,880)	-	(2,149,702)	(205,594)	(2,518,176)
At 31 July 2008	1,525,793	(1,548,477)	22,684	9,883,706	2,547,768	12,431,474

At the balance sheet date, the Group has unused revenue tax losses of approximately £5.7 million (2007: £5.4 million) available to carry forward against future profits of the same trade and unused capital losses in the sum of £nil. (2007: £362,000). A deferred tax asset of £1.5 million (2007: £1.25 million) has been recognised in respect of such losses. This asset offsets against the deferred tax liability position in respect of accelerated capital allowances and other temporary differences. No deferred tax asset has been recognised in respect of the balance of the losses due to the uncertainty of recoverability. The unrecognised deferred tax asset in respect of these losses is £49,000 (2007: £367,000). The credit in respect of this unrecognised deferred tax asset will be a credit direct to equity in the event that the deferred tax asset is recognised in the future. The losses can be carried forward indefinitely.

A deferred tax asset of £72,000 (2007: £295,000) arises in respect of the share options in existence at 31 July 2008. A deferred tax asset has not been recognised in the accounts on the basis that the recoverability of the asset is not considered to be probable.

17. Share Capital

2008

2007

Authorised:

35,000,000 ordinary shares of 1 pence each (2007: 35,000,000)

350,000

2008

2007

Allotted, issued and fully paid ordinary shares

267,589

267,314

	Authorised Number	Called up, allotted and fully paid £
Movement in issued share capital
Number of shares at 1 August 2006	25,091,144	250,911
Exercise of share options - share option scheme	1,640,221	16,403
Number of shares at 31 July 2007	26,731,365	267,314
Exercise of share options - share option scheme	27,500	275
Number of shares at 31 July 2008	26,758,865	267,589

The Company has one class of ordinary shares which carry no right to fixed income.

On 11 December 2007, options were exercised on 27,500 ordinary shares and that number of shares were issued for a consideration of £30,588 of which £30,313 has been credited to share premium.

Following approval by shareholders of a special resolution at the AGM on 7 December 2007, the Company has authority to make market purchases of up to 5,845,299 shares. The authority expires at the conclusion of the next AGM, but is expected to be renewed at the next AGM.

18. Equity settled share-based payment plans

The Group operates 3 equity-settled share based payment plans, an Enterprise Management Initiative Scheme ('EMI'), an approved and an unapproved share option scheme, the rules of which are similar in all material respects.

The Company has the following share options:

Summary	As at 31 July 2007	Granted	Exercised	Lapsed/ surrendered	As at 31 July 2008
Enterprise Management Initiative Scheme (refer note 22)	633,994	–	(27,500)	(104,593)	501,901
Approved Share Options Scheme (refer note 23)	22,377	–	–	(2,919)	19,458
Unapproved Share Options (refer note 24)	1,460,759	433,554	-	(118,407)	1,775,906
Total	2,117,130	433,554	(27,500)	(225,919)	2,297,265

Options held by directors	1,075,000	195,000	-	-	1,270,000
Options not held by directors	1,042,130	238,554	(27,500)	(225,919)	1,027,265
Total	2,117,130	433,554	(27,500)	(225,919)	2,297,265

Summary	As at 31 July 2006	Granted	Exercised	Lapsed/ surrendered	As at 31 July 2007
Enterprise Management Initiative Scheme	662,343	–	–	(28,349)	633,994
Approved Share Options Scheme	22,377	–	–	–	22,377
Unapproved Share Options	1,062,380	412,000	(13,621)		1,460,759
‘Founder’ Share Option Payments	1,641,467	–	(1,641,467)	–	–
Total	3,388,567	412,000	(1,655,088)	(28,349)	2,117,130

Options held by directors	2,495,007	200,000	(1,619,467)	(540)	1,075,000
Options not held by directors	893,560	212,000	(35,621)	(27,809)	1,042,130
Total	3,388,567	412,000	(1,655,088)	(28,349)	2,117,130

The grant of options to executive directors and senior management is recommended by the Remuneration Committee on the basis of their contribution to the Group's success. The options vest after three years. No options have been granted under the EMI approved scheme in the year (2007: nil).

The exercise price of the options is equal to the closing mid-market price of the shares on the trading day previous to the date of the grant. The exercise of options awarded has been subject to the meeting of performance criteria geared primarily to sales growth with the key non-market performance condition being the achievement of annual revenue targets. This condition has now been achieved. Exercise of an option is subject to continued employment. The life of each option granted is seven years. There are no cash settlement alternatives.

The expected volatility is based on a historical review of share price movements over a period of time, prior to the date of grant, commensurate with the expected term of each award. The expected term is assumed to be six years which is part way between vesting (three years after grant) and lapse (10 years after grant). The risk free rate of return is the UK gilt rate at date of grant commensurate with the expected term (i.e. six years).

The total charge for the year relating to employer share-based payment schemes was £317,146 (2007: £275,572), all of which relates to equity-settled share-based payment transactions. In total a 'Share-based payments reserve' at 31 July 2008 of £804,619 results (2007: £487,473).

The Group has taken advantage of the exemption available under IFRS2 to exclude options granted before 7 November 2002 from the share based payment charge so not all of the Group's options are included in the share based payment calculations detailed below.

The total fair value of the options granted in the year was £232,277 (2007: £361,691).

19. Enterprise Management Initiative Scheme

The Company operates a share option scheme under the Enterprise Management Initiative ('EMI').

The share options granted will only be exercisable upon the achievement of one of the following performance criteria:

1. The revenue for any period commencing after the date of grant has exceeded £10 million.

2. The profits for any period commencing after the date of grant has exceeded £3 million.

3. The share price has exceeded £5.

4. Control of the Company changes.

Since the year ended 31 July 2007, revenue has exceeded £10 million.

Movements in the year are shown in the table below.

	Options 2008 Number	Weighted average exercise price 2008 Pence*	Options 2007 Number	Weighted average exercise price 2007 Pence*
Outstanding at 1 August	633,994	114.97	662,243	121.78
Granted during the year	-	-	-	-
Forfeited during the year	(104,593)	106.78	(28,349)	117.02
Exercised during the year	(27,500)	111.23	-	-
Expired during the year	-	-	-	-
Outstanding at 31 July	501,901	116.88	633,994	121.85
Exercisable at 31 July	392,808	103.06	468,613	103.98

*Weighted average price for 2007 excludes options that were granted prior to November 2002

The share price at the date of exercise was 199.0 pence per share. The share price at the year end was 130.5 pence per share. The share price ranged from 117.04 pence per share to 222.00 pence during the year.

The options outstanding at 31 July 2008 had a weighted average contractual life of 6 years (2007: 10 years).

The inputs into the Black-Scholes model used by our remuneration consultants, New Bridge Street Consultants, are as follows:

Date of grant	Expected life (years)	Share price at date of grant (p)	Exercise price (p)	Expected volatility (%)	Expected dividend yield (%)	Risk free interest rate (%)	Fair value charge per award
21 July 03	6	66.50	93.00	26.82	0.00	4.05	14.90
27 Nov 03	6	105.50	93.50	34.48	0.00	4.95	49.81
19 Jan 04	6	100.00	102.00	33.82	0.00	4.60	41.05
20 Jan 04	6	100.00	102.00	33.80	0.00	4.60	41.04
30 Jul 04	6	113.00	113.00	32.31	0.00	5.11	47.20
29 Jul 05	6	150.00	152.00	30.46	0.00	4.24	56.94
24 Apr 06	6	176.50	176.50	29.53	0.00	4.62	68.21
31 Jul 06	6	156.00	156.00	29.18	0.00	4.72	60.22

The following table shows options held by directors under this scheme.

	As at July 2007	Granted	Surrendered	As at July 2008	Exercise Price (pence)	Date from which exercisable	Expiry date
CM Jacobs	25,000	–	–	25,000	102	20/01/07	20/01/14
CM Jacobs	22,759	–	–	22,759	113	30/07/07	30/07/14
CM Jacobs	31,414	–	–	31,414	152	30/07/08	30/07/15
RA Davies	98,039	–	–	98,039	102	19/01/07	19/01/14

20. Approved Share Option Scheme

The Company issues approved share options.

The share options granted will only be exercisable upon the achievement of one of the following performance criteria:

1. Group revenue exceeds £5 million.

2. Share price exceeds 150 pence.

3. Control of the Company changes.

Since year ended 31 July 2002, the Company's revenue has exceeded £5 million.

Movements in the year are shown in the table below.

	Options 2008 Number	Weighted average exercise price 2008 Pence	Options 2007 Number	Weighted average exercise price 2007 Pence
Outstanding at 1 August	22,377	111.35	22,377	111.35
Granted during the year	-	-	-	-
Forfeited during the year	2,919	171.00	-	-
Exercised during the year	-	-	-	-
Expired during the year	-	-	-	-
Outstanding at 31 July	19,458	102.40	22,377	111.35
Exercisable at 31 July	19,458	102.40	22,377	111.35

The options outstanding at 31 July 2008 had a weighted average remaining contractual life of 1 year (2007: 3 years).

All of these options were granted before 7 November 2002 and so have not been valued.

None of these options are held by directors.

21. Unapproved Share Options

The Company issues unapproved share options.

The share options are exercisable from 8 July 2002 and 31 May 2003 will only be exercisable upon the achievement of one of the following performance criteria:

1. Group revenue exceeds £5 million.

2. Share price exceeds 150 pence.

3. Control of the Company changes.

Since year ended 31 July 2002, the Company's revenue has exceeded £5 million.

All other options will only be exercisable upon achievement of one of the following performance criteria:

1. The revenue for any period commencing after the date of grant has exceeded £10 million.

2. The profits for any period commencing after the date of grant has exceeded £3 million.

3. The share price has exceeded £5.

4. Control of the Company changes.

Since year ended 31 July 2007, the Company's revenue has exceeded £10 million.

Movements in the year are shown below:

	Options 2008 Number	Weighted average exercise price 2008 Pence*	Options 2007 Number	Weighted average exercise price 2007 Pence*
Outstanding at 1 August	1,460,759	153.53	1,062,380	140.63
Granted during the year	433,554	130.49	412,000	219.72
Forfeited during the year	(118,407)	165.64	(13,621)	73.00
Exercised during the year	-	-	-	-
Expired during the year	-	-	-	-
Outstanding at 31 July	1,775,906	152.72	1,460,759	219.63
Exercisable at 31 July	578,272	127.62	356,395	107.71

*Weighted average price for 2007 excludes options that were granted prior to November 2002

The options outstanding at 31 July 2008 had a weighted average remaining contractual life of 8 years (2007: 10 years).

The inputs into the Black-Scholes model used by our remuneration consultants, New Bridge Street Consultants, are as follows:

Date of grant	Expected life (years)	Share price at date of grant (p)	Exercise price (p)	Expected volatility (%)	Expected dividend yield (%)	Risk free interest rate (%)	Fair value charge per award
20 Jan 04	6	100.00	102.00	33.80	0.00	4.60	41.04
16 May 05	6	145.00	148.00	30.95	0.00	4.32	55.48
30 Jul 04	6	113.00	113.00	32.31	0.00	5.11	47.20
29 Jul 05	6	150.00	152.00	30.46	0.00	4.24	56.94
24 Apr 06	6	176.50	176.50	29.53	0.00	4.62	68.21
31 Jul 06	6	156.00	156.00	29.18	0.00	4.72	60.22
28 Nov 06	6	203.50	148.00	29.32	0.00	4.75	103.85
24 Apr 07	6	272.00	269.50	29.47	0.40	5.29	105.52
31 Jul 07	6	213.50	213.50	29.96	0.50	5.38	82.24
01 Aug 07	6	211.00	178.15	29.97	0.50	5.36	94.44
01 Aug 07	6	211.00	93.00	29.97	0500	5.36	140.00
01 Aug 07	6	211.00	113.00	29.97	0.50	5.36	127.77
01 Aug 07	6	211.00	152.00	29.97	0.50	5.36	106.64
31 Jul 08	6	130.50	130.50	30.60	0.77	4.77	47.40

The following unapproved share options have been granted to directors of the Company:

	As at 31 July 2007	Granted £	Exercised £	As at 31 July 2008	Price (pence)	Exercise from which exercisable	Date expiry date
A Jacobs	50,000	-	-	50,000	102	20/01/07	20/01/14
A Jacobs	50,000	-	-	50,000	113	30/07/07	30/07/14
A Jacobs	50,000	-	-	50,000	152	30/07/08	30/07/15
A Jacobs	50,000	-	-	50,000	156	31/07/09	31/07/16
A Jacobs	50,000	-	-	50,000	213.5	31/07/10	31/07/17
A Jacobs	-	50,000	-	50,000	130.5	31/07/11	31/07/18
S Thomas	50,000	-	-	50,000	102	20/01/07	20/01/14
S Thomas	50,000	-	-	50,000	113	30/07/07	30/07/14
S Thomas	50,000	-	-	50,000	152	30/07/08	30/07/15
S Thomas	50,000		-	50,000	156	31/07/09	31/07/16
S Thomas	50,000	-	-	50,000	213.5	31/07/10	31/07/17
S Thomas	-	50,000	-	50,000	130.5	31/07/11	31/07/18
R Davies	1,961	-	-	1,961	102	20/01/07	20/01/14
R Davies	50,000	-	-	50,000	113	30/07/07	30/07/14
R Davies	100,000	-	-	100,000	152	30/07/08	30/07/15
R Davies	100,000		-	100,000	156	31/07/09	31/07/16
R Davies	50,000	-	-	50,000	213.5	31/07/10	31/07/17
R Davies	-	50,000	-	50,000	130.5	31/07/11	31/07/18
C Jacobs	2,241	-	-	2,241	113	30/07/07	30/07/14
C Jacobs	25,000	-	-	25,000	148	16/05/08	16/05/15
C Jacobs	18,586	-	-	18,586	152	30/07/08	30/07/15
C Jacobs	25,000	-	-	25,000	205	28/11/09	28/11/16
C Jacobs	25,000		-	25,000	269.5	24/04/10	24/04/17
C Jacobs	-	45,000	-	45,000	130.5	31/07/11	31/07/18

In addition, 50,000 options are held by Value Added Services Limited, a company in which Andrew Jacobs and Simon Thomas have a beneficial interest.

22. Other reserves

Group

	Merger reserve £	Other distributable reserve £	Capital redemption reserve £	Share-based payment reserve £	Total £
1 August 2006	6,295,295	5,903,002	34,205	211,901	12,444,403
Share based remuneration (options)	-	-	-	275,572	275,572
1 August 2007	6,295,295	5,903,002	34,205	487,473	12,719,975
Share based remuneration (options)	-	-	-	317,146	317,146
31 July 2008	6,295,295	5,903,002	34,205	804,619	13,037,121

The merger reserve represents the excess of the nominal value of the shares issued by Lok'nStore Group Plc over the nominal value of the share capital and share premium of Lok'nStore Limited as at 31 July 2001.

The other distributable reserve and the capital redemption reserve arose in the year ended 31 July 2004 from the purchase of the Company's own shares and a cancellation of share premium..

Company

	Other distributable reserve £	Capital redemption reserve £	Share-based payment reserve £	Total £
1 August 2006	5,903,002	34,205	211,901	6,149,108
Share based remuneration (options)	-	-	275,572	275,572
1 August 2007	5,903,002	34,205	487,473	6,424,680
Share based remuneration (options)	-	-	317,146	317,146
31 July 2008	5,903,002	34,205	804,619	6,741,826

23. Retained earnings

Group	Retained earnings before deduction of own shares £	Own shares (Note 24) £	Retained earnings Total £
1 August 2006	(1,446,493)	(509,586)	(1,956,079)
Profit for the financial year	635,409	-	635,409
Income and expense recognised directly in equity	259,906	-	259,906
Transfer from revaluation reserve	7,207,130	-	7,207,130
1 August 2007	6,655,952	(509,586)	6,146,366
Loss for the financial year	(839,647)	-	(839,647)
Income and expense recognised directly in equity	162,880	-	162,880
Transfer from revaluation reserve	166,818	-	166,818
Transfer to employee leaver	-	3,970	3,970
Dividends	(261,565)	4,318	(257,247)
Purchase of shares	-	(2,092,902)	(2,092,902)
31 July 2008	5,884,438	(2,594,200)	3,290,238

The Own Shares Reserve represents the cost of shares in Lok'nStore Group Plc purchased in the market and held in the Employee Benefit Trust to satisfy awards made under the Groups share incentive plan and shares purchased separately by Lok'nStore Limited for Treasury Account. These treasury shares have not been cancelled and were purchased at an average price considerably lower than the company's adjusted net asset value. These shares may in due course be released back into the market to assist liquidity of the company's stock and to provide availability of a reasonable line of stock to satisfy investor demand as and when required.

The Company has taken advantage of the exemption available under the Companies Act 1985 not to present the company income statement. The Company profit for the year was £nil (2007: £nil).

24. Own shares

Group	ESOP Shares Number	ESOP Shares £	Treasury Shares Number	Treasury Shares £	Own shares Total £
1 August 2006 and 2007	627,500	509,586	-	-	509,586
Transfer out of scheme	(2,553)	(3,970)	-	-	(3,970)
Purchase of shares	-	-	1,142,000	2,092,902	2,092,902
Dividends received	-	(4,318)	-	-	(4,318)
31 July 2008	624,947	501,298	1,142,000	2,092,902	2,594,200

During the year Lok'nStore Limited purchased in several tranches a total of 1,142,000 of its own ordinary shares of 1p each for treasury with an aggregate nominal value of £11,420 for an aggregate cost of £2,092,902 at an average price of £1.818 per share (2007: £nil). These shares represent 4.27% of the Company's called-up share capital. The maximum number of shares held by the company in the year was 1,142,000. No shares were disposed of or cancelled in the year.

Distributable reserves have been reduced by £2,092,902 for the purchase cost of these shares. (see Note 26)

The Group operates an Employee Benefit Trust ('EBT') under a settlement dated 8 July 1999 between Lok'nStore Limited and Lok'nStore Trustee Limited, constituting an employees' share scheme.

Funds are placed in the trust by way of deduction from employees' salaries on a monthly basis as they so instruct for purchase of shares in the Company. Shares are allocated to employees at the prevailing market price when the salary deductions are made.

As at 31 July 2008, the Trust held 624,947 (2007: 627,500) ordinary shares of 1 pence each with a market value of £815,556 (2007: £1,339,713). In accordance with the scheme rules, 2,553 shares (2007: nil) were transferred out of the scheme due to a leaver in the year.

No dividends were waived during the year. No options have been granted under the EBT.

25. Cash flows

(a) Reconciliation of profit before tax to net cash inflow from operating activities

	2008 £	2007 £
Profit/(loss) before tax	(741,446)	950,558
Depreciation	1,442,194	1,292,535
Impairment of goodwill	310,559	24,254
Share-based employee remuneration	317,146	275,572
Profit on sale of fixed assets	(563)	(605,263)
Interest receivable	(329,659)	(147,461)
Interest payable	1,608,587	1,113,201
Decrease in inventories	(18,168)	3,124
(Increase / decrease in receivables	(302,787)	98,018
(Decrease) / Increase in creditors	(888,153)	1,996,588
Net cash inflow from operating activities	1,397,710	5,001,126

(b) Reconciliation of net cash flow to movement in net debt

Net debt is defined as debt on non-current and current borrowings, as detailed in note 18 less cash balances held in current accounts and surplus cash transferred daily to 'one-day' or 'two-day' treasury deposits.

	31 July 2008 £	31 July 2007 £
(Decrease)/Increase in cash in the period	(2,708,308)	4,267,206
Change in net debt resulting from cash flows	(9,783,599)	(1,525,954)
Movement in net debt in period	(12,491,907)	2,741,252
Net debt brought forward	(10,461,064)	(13,202,316)
Net debt carried forward	(22,952,971)	(10,461,064)

26. Commitments under operating leases

At 31 July 2008 the total future minimum lease payments under non-cancellable operating leases were as follows:

The Group as a lessee:

The minimum lease payments under non-cancellable operating lease rentals are in aggregate as follows:

	Group 2008 £	Group 2007 £	Company 2008 £	Company 2007 £
Land and buildings Amounts due:
Within one year	1,389,692	1,352,592	-	-
Between 2 and 5 years	5,338,768	4,910,384	-	-
After 5 years	6,981,973	4,651,468	-	-
	13,710,433	10,914,444	-	-

Operating lease payments represent rentals payable by the Group for certain of its properties.

Leases are negotiated for a typical term of 20 years and rentals are fixed for an average of 5 years.

The Group as lessor:

Property rental income earned during the year was £152,913 (2007: £10,221). This income is considered as ancillary and relatively short-term to the Group's trading activities as these properties are sites held for their development potential as self storage centres and the rental income ceases when the buildings are demolished. These tenancies are therefore of a short term nature since tenants are served notice to vacate pending redevelopment off the site or if very short the leases run off to the end of their term.

At the balance sheet date, the Group had contracted with tenants, under non cancellable leases, for the following future minimum lease payments:

	Group 2008 £	Group 2007 £	Company 2008 £	Company 2007 £
Within one year	86,078	152,913	-	-
Between one and five years	11,383	97,461	-	-
After five years	-	-	-	-
	97,461	250,374	-	-

27. Events after the balance sheet date

The Group secured a planning permission, dated 30 September 2008, on its Southampton Third Avenue Site for the development of a new store. The corresponding S106 Agreement has been executed.

28. Related party transactions

The following balances existed between the Company and its subsidiaries at 31 July.

	2008 £	2007 £
Lok'nStore Limited	6,688,277	6,657,689
Southern Engineering and Machinery Company Limited	-	-
Net amounts due to the Company from Subsidiaries	6,688,277	6,657,689

The Company provides share options for the employees of Lok'nstore Limited. The capital contributions arising from these share based payments are separately disclosed under investments in Note 12.

The remuneration of the Executive Directors, who are the key management personnel of the Group, is set out below in aggregate. Further information on the remuneration of individual directors is found in Note 6 of the Notes to the Financial Statements.

	2008 £	2007 £
Short term employee benefits	482,432	516,465
Post employment benefits	3,233	3,000
Share-based payments	99,651	145,238
Total	585,316	664,703

The Company maintains a service agreement for strategic services with Value Added Services Limited, a company in which Andrew Jacobs and Simon Thomas have a beneficial interest. Fees are settled monthly and there were no outstanding amounts due to Value Added Services Limited at the year-end (2007: £nil). The maximum balance outstanding at any time during the year was £24,100 (ex VAT) (2007: £24,100).

The Company uses Trucost PLC, an environmental research company, to provide information and undertake performance assessment of the environmental effect of its business activities. Trucost PLC is a company in which Andrew Jacobs and Simon Thomas have a beneficial interest. The total fees payable to Trucost PLC in respect of its environmental assessment and reporting for the year was £5,525 (2007: £5,525). The balance outstanding to Trucost PLC at year-end was £nil (2007: £nil).

The Company maintains a retainer agreement for investor relations services with h2glenfern Consulting Limited, a company in which Robert Jackson has a beneficial interest. The total fees payable to h2glenfern Consulting Limited are £2,000 per month (2007: £1,500 per month). There were no outstanding amounts due to h2glenfern Consulting Limited at the year-end. The maximum balance outstanding at any time during the year was £4,500 (ex VAT) (2007: £4,500 (ex VAT).

29. Capital commitments and guarantees

The Group has capital expenditure contracted for but not provided for in the financial statements of £1,464,885 (2007: £4,924,934). The outstanding commitments relate principally to the remaining building and fitting-out costs of the Portsmouth, Harlow and Northampton Central stores as well as the fit-out costs relating to the existing Luton Northampton and Eastbourne stores.

The Company has guaranteed the bank borrowings of Lok'nStore Limited. As at the year-end, that company had gross bank borrowings of £25.43 million (2007: £15.65 million).

30. Explanation of the transition to IFRS

The first full annual consolidated financial statements of the Group under IFRS are presented for the year ended 31 July 2008. Our interim results for the period to 31 January 2008 were presented under IFRS.

IFRS comparative figures have been prepared for the year ended 31 July 2007. The date of transition to IFRS was 1 August 2006. Reconciliations of equity at 1 August 2006 and 31 July 2007 and profit for the year ended 31 July 2007 between UK GAAP and IFRS are shown below. This move to IFRS has not changed the underlying performance and cash flow of the business but has significantly impacted on the way in which the results are presented.

The main changes for Lok'nStore are as follows:

· Freehold trading stores are now held in the balance sheet at fair value, having previously been held at historic
cost less accumulated depreciation.

· Our operating leases remain as operating leases under IFRS. Both historically and currently we have used externalindependent valuers to value our freehold and our leasehold trading stores and we base our Net Asset Value calculation (‘NAV’) upon it. IFRS does not permit the inclusion of any valuation in respect of our stores to the extent that they are classified as operating leases. The value of our stores held under operating leases in the current valuation totals £11.57 million. We have reported in the Financial Review the underlying value of these stores and adjusted our Net Asset Value (‘NAV’) calculation accordingly to include them at their value rather than at net cost. This will ensure comparable NAV calculations.

· The goodwill in our balance sheet is no longer subject to an amortisation charge for each period, but instead is been subject to an annual impairment review. No adjustment has been made to the carrying value of goodwill as at 31 July 2007 as the amortisation charge under UK GAAP was not materially different from the impairment charge determined from our impairment review.

· There are three main areas of deferred tax we have identified that are impacted by our adoption of IFRS:

1) Deferred Tax on Rolled Over Gains

Lok'nStore has realised significant gains on the disposal of the Kingston and Woking stores and the proceeds are and will continue to be reinvested in new operating properties. As such rollover relief will be claimed in respect of the entire gain. The tax liability deferred as a result of this is approximately £2.75 million at 28%. Under UK GAAP this need only be disclosed by way of a note in the accounts. However, under IFRS this balance is provided for as a deferred tax liability.

2) Deferred Tax on Revaluation Gains

Under IFRS a deferred tax liability is recognised on the difference between cost and the revalued amount of our freehold properties at tax rates enacted and substantively enacted at the balance sheet date (28% using current rates).

3) Deferred Tax on Share-based Payments

Under UK GAAP deferred tax is recognised on share based payment charges to the extent that they give rise to a timing difference. Under IFRS, the potential tax relief should be calculated by reference to the share price at the balance sheet date, and then spread over the vesting period. Also under IFRS deferred tax should be recognised on all share based payments whereas under UK GAAP deferred tax on options issued prior to November 2002 or which vested prior to application of the standard is not recognised. This has resulted in the recognition of a deferred tax asset as explained further in note 4.

This annual report is therefore prepared under IFRS and includes the Group's IFRS accounting policies together with further details on key performance measures in the notes to the accounts.

Reconciliation of equity previously reported under UK GAAP to equity under IFRS

	Group 31 July 2007	Group 1 August 2006	Company 31 July 2007	Company 1 August 2006

Equity shareholders' funds under UK GAAP	22,551,039	10,806,011	6,872,252	6,254,894

Measurement and recognition IFRS adjustments
Revaluation of trading properties	43,208,692	39,482,295	-	-
Goodwill amortisation	-	-	-	-
Deferred tax	(14,851,644)	(11,844,688)	-	-
Share based payments (IFRIC 11)	-	-	487,473	211,901

NET IFRS adjustments	28,357,048	27,637,607	487,473	211,901

Equity shareholders' funds under IFRS	50,908,087	38,443,618	7,359,725	6,466,795

Reconciliation of profit previously reported under UK GAAP to profit under IFRS

	31 July 2007 (Unaudited) £

Profit for the year under UK GAAP	10,852,098

Measurement and recognition IFRS adjustments
Goodwill amortisation / impairment	-
Deferred tax charges	(223,479)
Current tax charge	(128,583)
Reduction to profit on disposal of land and buildings carried at valuation	(9,629,320)
Additional depreciation arising on revaluation of land and buildings	(235,307)

Net IFRS adjustments	(10,216,689)

Profit for the year under IFRS	635,409

The consolidated cash flow statements are not affected by the transition from UK GAAP to IFRS other than presentational and formatting differences.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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