Preliminary Results

RNS Number : 5190U

Lok'n Store Group PLC

18 October 2010

18^th October 2010

LOK'NSTORE GROUP PLC

("Lok'nStore" or "the Group")

Preliminary results

for the year ended 31 July 2010

Lok'nStore Group Plc, a leading company in the UK self-storage market announces results for the year ended 31 July 2010.

Financial Highlights

§ Revenue £10.42 million up 4.1% (2009: £10.01 million)

§ Group EBITDA £2.93million up 19.9% (2009: £2.45 million)

§ Operating Profit £920,232 up 196% (2009: £311,269)

§ Net profit £221,124 up from £597,959 loss last year

§ Adjusted NAV* £2.24●per share up 8.2% (2009: £2.07 per share)

§ Final dividend proposed 0.67 pence per share (2009: 1 pence per share**)

§ Cash position £5.36 million up £2.13 million (2009: £3.23 million)

§ Net debt down £2.1 million to £22.7 million

§ Interest charge £0.5 million down 52% (2009: £1.1 million)

§ Capital Expenditure £0.55 million (2009: £2.35 million)

* refer to Financial Review for detailed calculation

** 2009 interim dividend waived but a final dividend of 1 pence per share paid to maintain total annual dividend at 1 pence per share

Operational Highlights

§ Occupancy 583,531sq ft up 4%

§ Prices for self-storage space up 4.9%

§ Ancillary income up 11.6%

§ Operating Costs £7.3 million down by 0.2%

§ Cost of Sales down 20.4%

§ Store EBITDA £4.42 million up 12.9% (2009: £3.9 million)

§ Store EBITDA margins ('same stores' over 100 weeks) up to 44.2% (2009: 42.9%)

§ Overall Store EBITDA margins up to 42.6% (2009: 39.6%)

Key Measures

§ Interest cover 5.99 x ¹

§ Loan to value ratio of 28.1% ² (2009: 31.7%)

§ FFO ³ £2.64 million = 10.6 pence per share

§ Dividend cover 10.6x ⁴

¹Calculation based on EBITDA / Net Finance Cost
²Calculation based on net debt of £22.7 million (2009: 24.9 million)
³ Funds From Operations ('FFO') calculated as EBITDA minus Net Finance Cost on operating assets
⁴ Calculated as FFO/dividend

Andrew Jacobs, CEO commented:

"Lok'nStore has performed strongly this year. We have increased turnover and reduced operating costs, cost of sales and interest costs. Margins, profits and cash flow have all increased. EBITDA (Earnings before interest, tax and depreciation) has improved to a record level and we have converted a loss before tax last year into a profit before tax.

"Over the year occupancy is up 4% and prices are up 4.9% demonstrating that self-storage continues to perform well even in a weak economy. This success also reflects the quality of Lok'nStore's assets and operating business."

"We continue to keep a tight lid on capital expenditure so cash has increased and net debt has been reduced. Asset values have been increased further reducing gearing and loan to value ratios."

"Lok'nStore's business has proven to be resilient against a background of volatile conditions in the property and financial markets. While economic conditions appear to have stabilised we do not expect the economy to show any sustained growth in the medium term. Nevertheless we believe the Group is well positioned to grow occupancy and pricing against tightly controlled costs, and this will provide future momentum to EBITDA. We will continue to focus on driving the cash flow from the existing portfolio and we are continually reviewing our building and acquisition strategy in light of market and economic conditions. In addition to this we are working on asset management opportunities that will provide further incremental profit growth."

- Ends -

Press Enquiries:

Andrew Jacobs, CEO	Lok'nStore	Tel: 01252 521010
Ray Davies, Finance Director	Lok'nStore
Billy Clegg/ Oliver Winters/ Latika Shah	Financial Dynamics	Tel: 020 7831 3113
Nick Tulloch/Ben Wells	Arbuthnot	Tel: 020 7597 4000

Chairman's Review

Strong Performance

Lok'nStore has performed strongly this year. We have increased turnover and reduced operating costs, cost of sales and interest costs and therefore margins, profits and cash flow have all increased. Capital expenditure remains tightly controlled so cash has increased and net debt has been reduced. Asset values have been increased further reducing gearing and loan to value ratios.

Over the period occupancy is up 4% and prices achieved for self-storage units are up 4.9% to a record level demonstrating that self-storage can continue to perform well even in a weak economy. This also reflects the quality of Lok'nStore's operating business.

Store EBITDA and Group EBITDA are sharply higher and we have converted a loss before tax last year into a profit before tax. Operating costs are down 0.2%, cost of sales are down 20.4% and debt financing costs are down 52%.

During the year the Group complied comfortably with all banking covenants on our existing bank facility which runs until February 2012. We currently have £11.9 million of the facility undrawn and £5.4 million of cash. (2009: £3.2 million).

Properties and Net Asset Value

In addition to the emphasis on operating efficiency, the Board continues to examine the portfolio for asset management opportunities as demonstrated by its recent agreement to extend the leases on two of the Company's stores on significantly improved terms. Our property team remains alert to the opportunities that can appear in the current volatile property market.

With the value of our properties increasing the adjusted net asset value per share has increased 8.2% from £2.07 last year to £2.24 this year (see Financial Review). Of the total increase in property values 59.8% of the movement is due to operational gain and 40.2% is due to yield shift. The value is also up 6.7% from the £2.10 per share from the management valuation in January 2010. The year end valuation equates to a total value of properties held of £81.0 million (2009: £78.4 million).

Conditions in the Economy and Self-storage Market

During the year under review self-storage in the UK in general, and Lok'nStore in particular, has clearly demonstrated its resilience with occupancy, prices and profits growing despite an economy which is still very weak. We expect this weak economic growth to continue for the foreseeable future.

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 2008 UK Self-Storage Association Industry report prepared by Mintel estimated that the industry had grown by between 8% and 15% annually over the past five years. In its 2009 update Mintel reported that despite the tough economic climate, the industry had grown by around 4% over the past year in terms of available rentable space.

In the UK there are now about 800 primary facilities (not including container self-storage facilities) and around 28 million rentable square feet; nevertheless there is still only 0.5 sq ft of rentable space for each person in the UK. This compares with the more mature US market which grew from 2.9 sq ft per head of population in 1994 to 7.4 sq ft in 2009 with over 50,000 facilities throughout the US. There are also 1,300 facilities in Australia and New Zealand representing around 1.1 sq ft per member of the population. The lower penetration in the UK contrasts with the difference in population density which is only 32 persons per sq km in the US against 246 persons per sq km in the UK. This creates far more pressure to use property resources efficiently in the UK, which is a notable 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.

There are over 300 separate companies operating self-storage facilities in the UK with around 45% of the available space in the hands of the larger operators. Lok'nStore is the fourth largest and one of three quoted storage operators in the UK. The industry in the UK generates revenues of about £360 million per annum and has over 235,000 customers currently storing.

Dividend

In respect of the current year the Board recommends, that a final dividend of 0.67 pence per share be paid on 17 December 2010 to shareholders on the register on 19 November 2010, making a full year payout of 1 pence per share. This maintains the level of the 2009 total dividend payout and demonstrates our confidence in the future of the business.

Going forward, the Directors anticipate that the Group's dividend policy will be consistent with its policy in previous years with the interim dividend being paid in, or about, June and the final paid in, or about, December of each year. The interim dividend will represent approximately one third of the expected total annual dividend.

The total estimated final dividend to be paid in the current financial year is £168,125 based on the number of shares currently in issue as adjusted for shares held in the Employee Benefit Trust and for shares held on treasury. This dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

Outlook

Lok'nStore's business has proven to be resilient against a background of unprecedented conditions in the property and financial markets, and continues to be steady since the year-end.

Lok'nStore is well positioned to continue to grow revenue against tightly controlled costs, and this will provide momentum to EBITDA. In addition to this we are working on asset management opportunities that will provide incremental profit growth.

Our loan-to-value ratio is low at 28.1% and capital expenditure remains curtailed for the time being. We will continue to manage the business on a conservative basis retaining the flexibility to respond quickly in line with a recovery in the wider economy.

When we see sustained economic growth we plan to build out our new stores and look for new opportunities. All of our development sites now have planning permissions.

Lok'nStore's efficient operating business, strong cash flow and secure asset base leaves it well positioned within the growing UK self-storage market and we are confident of the future.

Simon G Thomas

Chairman

15 October 2010

Chief Executive's Operating Review

Sales and Earnings Up, Costs Down

In the 12 months to 31 July 2010 we increased occupancy by 4% and prices by 4.9%.

Revenue for the year was £10.42 million up 4.1% year on year (2009: £10.01 million) and with costs firmly under control this translated into strong profit growth. Total store EBITDA, a key performance indicator of the profitability and cash flow of the operating business has increased 12.9% to £4.42 million (2009: £3.9 million). Operating profit for the year was up 196% to £920,232 (2009: £311,269). Pre-tax profit for the year was £430,524 compared with a loss of £656,051 for 2009.

Direct cost of sales expenditure (related to insurance, boxes and packaging materials) was down £57,615 from £282,664 to £225,049 an improvement of 20.4%.

Performance of Stores

During the year we increased occupancy and pricing against lower costs increasing the EBITDA margins of all stores from 39.6% to 42.6%. The EBITDA margins of the freehold stores were 56.6% and the leasehold stores achieved 25.2% (2009: 54% and 22.2% respectively). Notably the margins on the store from 100 to 250 weeks old were 51.2%, rather higher than the stores over 250 weeks old. This is due to the fact that the more recently opened stores are larger and more weighted towards freeholds, combined with a strong sales performance. This effect is also evident in the 38.1% EBITDA margin achieved by stores less than 100 weeks old.

At the end of July 2010 36.8% of Lok'nStore's revenue was from business customers (2009: 38.1%) and 63.2% was from household customers, (2009: 61.9%). By number of customers this breakdown was 22.4% business customers (2009: 23.4 %) and 77.6% household customers (2009: 76.6%).

Operational Performance of Stores
	July 2010
Store analysis	Over	100 to	Under
Weeks old	250	250	100	Pipeline	Total
Year-ended 31 July 2010
Revenue* (£'000)	8,481	1,510	391	-	10,382
Stores EBITDA (£'000)	3,502	772	149	-	4,423
EBITDA margin (%)	41.3	51.2	38.1	-	42.6
As at 31 July 2010
Maximum Area ('000 sq ft)	846	168	69	143	1,226
Freehold and long leasehold ('000 sq ft)	439	128	69	143	779
Short leasehold ('000 sq ft)	407	40	-	-	447
No. of Stores
Freehold and long leasehold	8	2	1	2	13
Short leasehold	9	1	-	-	10
Total stores	17	3	1	2	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.

Pricing

Lok'nStore takes an active approach to yield management balancing price increases with occupancy growth as we evaluate various customer offers. This has proved to be an effective strategy with occupancy still growing as pricing has been increased. We are confident that with our yield management system we will be able to increase prices by more than inflation over the medium term, while retaining our competitive pricing position in the market.

Our average price achieved for self-storage space was £18.47 per sq ft per annum at 31 July 2010 up 4.9% (2009: £17.60 per sq ft per annum). This compares with the average of £20.49 for the UK industry and £18.82 for the southern region (source Self-Storage Association Survey 2009). This positions Lok'nStore as the price competitive operator in a value conscious market, but with room to continue increasing prices as economic conditions continue to stabilise.

Management has responded to the economic circumstances with a series of measures. One element of this was an emphasis on our ancillary sales As a result packing materials, insurance and other sales increased by 11.6% over the year (2009:16.9%) accounting for 10.1% of storage revenues (2009: 9.5%).

We continue to heavily promote our insurance to new customers with the result that over 80% of new customers over the year took our insurance. This compares with 66.5% of our total customer base who buy our insurance, and this provides us with built-in growth in our insurance sales as the customer base rolls over.

Our central sales team continue to run frequent 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 directly to revenue growth and consistently high quality customer service.

Marketing

During the year our marketing budget was increasingly focused on the internet with approximately 3.6% of revenue spent on advertising and marketing (including postage, printing and stationery) (2009: 4.25%). The Internet produces an increasing proportion of our enquiries (31% in the year) and printed directories a decreasing proportion. We continue to allocate more of our marketing budget towards the Internet with 31% of marketing spend now internet based (2009: 21%). For this year Internet enquiries were up 42% year on year and total enquiries up 12%. We will continue to manage our marketing budget with a strong focus on cost control and value for money.

Around 44% (2009: 43%) of our business comes from passing traffic, so work on the visibility of our stores is also important in our marketing effort. With prominent positions, distinctive design and orange elevations, our stores help the profile of the whole Lok'nStore brand.

Our store personnel are closely involved with sales and marketing initiatives 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.

We continue to enhance our systems, analysis and reporting. Our stores and head office are connected via a web-enabled system to deliver more automated and integrated processes and this has delivered cost efficiencies particularly in areas such as petty cash and expenses handling as well as invoice processing and stock reporting. We continue to increase the penetration of our internal audits which is effective in terms of improved security, credit control and store presentation and is continually monitored and upgraded to ensure its effectiveness.

Security

The safety and security of our customers and their goods remains our highest priority. We invest in CCTV, intruder and fire alarm systems and the remote monitoring of our stores out of hours. We also have rigorous security procedures in relation to customers.

Corporate and Social Responsibilities

Lok'nStore conducts its business in a manner that reflects honesty, integrity and ethical conduct. We believe 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 Group's managers with principal accountability lying with the Board of Directors. We look actively for opportunities to address our responsibility to the environment, and we pay close attention to our energy use, carbon dioxide emissions, water use and waste production. Each year Lok'nStore commissions a full assessment of the Group's environmental impact and this is included elsewhere in the Director's Report.

Customers

We believe in clarity and transparency. 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 and do not employ pressure selling techniques or attempt to take advantage of any vulnerable groups. If we make a mistake we acknowledge it, deal with the problem quickly, and learn from our error. We listen to our customers as we know that they can help us improve our service to them. In return 21% (2009: 22%) of our business comes from previous customers, existing customers taking more space, and customer referrals.

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.

Employees

At 31 July 2010, we had 102 employees (2009: 103).

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 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. 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 Group supports employees undertaking National Vocational Qualifications.

All employees are eligible to participate in share ownership plans and 17% of our employees have Employee Benefit Trust shares (scheme now closed) (2009: 20%) and 19% hold options (2009: 21%). 46% of the personnel are members of the contributory pension scheme (2009: 37%). Lok'nStore operates a Share Incentive Plan with 72% of employees participating in the Scheme (2009: 67%). 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 and efforts over the year to which the Group owes its continuing success..

Andrew Jacobs

Chief Executive Officer

15 October 2010

Property Review

Strong Cash Flows Underpin Opportunities

Given current economic and financial uncertainty, the property market remains in a volatile state. Lok'nStore's strong cash flow and tactical approach to its property portfolio provides opportunities to take advantage of these conditions. Lok'nStore has both freehold and leasehold properties, and the leasehold stores have a range of maturities of leases. Previously Lok'nStore has benefited from its freehold properties with successful projects to buy in freeholds, gain planning permissions and sell properties.

Asset management

Given current circumstances and Lok'nStore's strong covenant, some landlords are keen to extend their lease terms providing them with greater future security on their income stream. Further opportunities to negotiate improved rental terms on other leases may exist.

During the year we extended the leases on two of our existing stores. The agreements to extend the two leases resulted in an immediate cash inflow of around £169,500 and additional cash savings of £113,000 spread evenly over the next eight months. The agreements also cap any future rental increases. Further, one of the agreements provides Lok'nStore with an option to extend the lease for another 10 years at maturity and this results in an increase in the average maturity of valued leases by approximately 2 years to 13 years 2 months.

In accordance with current International Accounting Standard ('IAS') rules the total benefit of £282,500 will be evenly spread in the Statement of Comprehensive Income over the next 15 years corresponding to the extended lease terms. 9 out of the10 leasehold stores, of which 7 are valued, are inside the Landlord and Tenant Act providing us with a strong degree of security of tenure. The leasehold sites produced 26.3% of the store EBITDA in the year to July 2010.

Our property team will continue to pursue further such value creating asset management opportunities to secure our trading operations, to improve cash flow and to lock in lower or to cap property costs.

Development sites

Lok'nStore owns four development sites, two of which are for replacement stores and two for new locations. These sites all have the relevant planning permissions.

New location stores:

North Harbour, Portsmouth is a freehold site extending to almost two acres with planning permission to build a new self-storage centre of around 60,000 sq ft. The site fronts the A27 to the north of Portsmouth, is opposite a busy retail area and is prominent to the M27.

Maidenhead is a long leasehold site of 1.6 acres 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.

The exact timing of future store openings will largely depend on the recovery of the economy and the availability of sites. We will retain our disciplined but flexible approach to site acquisition and view the current property investment market as a potential opportunity to acquire new stores. However with the current uncertain economic environment we are monitoring conditions carefully before making further capital expenditures.

Replacement stores

On 8 January 2008, Lok'nStore obtained planning permission for high-density residential development on the freehold site of its existing Reading store. The permission is for 112 flats on the 0.66 hectare site.

The Group also 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 will be sold with the benefit of its permission for residential development and the proceeds will be reinvested in the new store. The two properties in Reading were valued by Cushman & Wakefield ('C&W') at £4.84 million (NBV £2.35 million).

We also own a freehold site on Third Avenue, Millbrook, in 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 we secured planning permission on this new site and it can provide up to 100,000 sq ft of self-storage space.

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, increasing both the volume of space rented and the rates achieved on those rentals. The store 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 strategy of continually reviewing and actively managing our operating portfolio, to ensure we are maximising its value for shareholders. 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

We currently have 21 stores open with capacity of around 1.08 million sq ft of storage space when fully fitted. Eleven stores are held freehold and ten are leasehold. With the new freehold sites at Portsmouth North Harbour, Southampton and Maidenhead total capacity rises to around 1.23 million sq ft. Of this 64% will be held freehold and 36% leasehold. By valuation 87% of the total property portfolio is freehold. We prefer to acquire freeholds if possible, and where opportunities arise we will seek to acquire the freehold of our leasehold stores. However as discussed above we are happy to take leases on appropriate terms and benefit from the advantages of a lower entry cost, with further options to create value later in the store's development.

Given the current property market we are carefully monitoring land prices. Transactions are few and far between and prices may come down further. We will adapt 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.

Property Assets and Net Asset Value

Lok'nStore's freehold and operating leasehold properties have been independently valued by Cushman & Wakefield ('C&W') at £70.2 million as of 31 July 2010 (July 2009: £67.6 million) compared to a historic cost value of £33.9 million (2009: £34.8 million). This is referred to further in the Financial Review and is detailed in note 9 of the notes to the financial statements. Adding our stores under development at cost, our total property valuation of £81.0 million (historic cost value £44.7 million) (2009: £45.6 million) translates into an adjusted net asset value of £2.24 per share, an increase of 8.2% compared to last year. The value of all properties valued showed an increase of 3.9%. Excluding the two Reading stores which have a residential valuation component the increase in property valuation for other stores is 4.26% year on year. This represents a 1.71% increase in capital growth (yield decrease) and 2.55% increase from operational cash flow performance.

Andrew Jacobs

Chief Executive Officer

15 October 2010

Financial Review

Trading

Total revenue for the year was £10.42 million (2009: £10.01 million), an increase of 4.1%. Our key measure of profitability and value driver for the business is group EBITDA which was £2.93 million up 19.9% over the previous year. (2009: £2.45 million).

Total store EBITDA was £4.42 million, up 12.9% from last year (2009: £3.92 million). Operating profit for the year was £920,232, up 196% compared with £311,269 in 2009. Pre-tax profit for the year was £430,524 compared to a 2009 pre-tax loss of £656,051.

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 £4.2 million.

Basic earnings per share were 0.88 pence (2009: loss: 2.39 pence per share). Diluted earnings per share were 0.88 pence (2009: loss: 2.39 pence per share).

Cash Flow Up, Borrowing and Interest Costs Down

At 31 July 2010, the Group had cash balances of £5.36 million, up £2.13 million over the last year (2009: £3.23 million) showing the benefit of the increased turnover and reduced costs and capital expenditure. This also resulted in net debt decreasing from £24.9 million to £22.7 million.

There was £28.1 million of gross borrowings (2009: £28.1 million) representing gearing of 58.1% on net debt of £22.7million (2009: 67.2%). After adjusting for the uplift in value of leaseholds which are stated at depreciated historic cost in the balance sheet, gearing is 50.3% (2009: 59.8%). After adjusting for the deferred tax liability carried at year-end of £10.8 million gearing drops to 40.6% (2009: 48%).

Cash inflow from operating activities before interest and capital expenditure was £3.47 million (2009: £1.73 million). As well as using cash generated from operations to fund some capital expenditure, the Group has a five year revolving credit facility with Royal Bank of Scotland Plc. This provides sufficient liquidity for the Group's current needs. 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 year-end amounted to £11.9 million (2009: £11.9 million). The facility is secured on the existing property portfolio. The loan facility runs until February 2012 and during the year the Group comfortably complied with all debt covenants.

Lok'nStore's business model is strong with customers paying four weekly in advance in addition to an initial four weeks rental deposit. We retain a legal lien over customers' goods which can then be sold to cover any unpaid bills. Credit control remains tight with only £12,758 of bad debts written off during the year representing around 0.13% of revenue (2009: 0.45%). There was £4,669 of additional costs associated with recovery (2009: £6,138). Given the tight credit conditions in the wider economy our own credit control indicators are resilient showing no signs of weakening during the year with the number of late letters declining and bad debts remaining at very low levels.

Prevailing economic conditions caused LIBOR rates to fall significantly and these remain at low levels. Lok'nStore has managed its debt aggressively and the average interest rate paid since July 2009 was 1.81% compared to 3.37% for the year to 31 July 2009. Interest on bank borrowings for the year decreased to £508,687 from £1,055,283 in 2009. The net interest charge, defined as total finance costs less total finance income, decreased from £990,957 to £489,708. This will result in a similarly low charge for our next financial year and beyond if these rates are sustained.

From 1 August 2009 under IAS 23 ('Borrowing Costs') we are required to capitalise interest against our development pipeline in accordance with changes to International Financial Reporting Standards. The Group's date of adoption was 1 August 2009, (the first annual year commencing after the IAS 23 effective date of 1 January 2009). All of the Group's current qualifying assets predate the date of adoption and accordingly under the transitional adoption arrangements no borrowing costs have been capitalised against them in the year. A component of the interest cost incurred by the Group arises from the £10.8 million of development sites that the Group is currently carrying. The interest against this cost has not been capitalised but if it was the Group's adjusted profit would have been approximately £198,307 higher for the year on the assumption that the £10.8 million is fully funded by borrowings.

By excluding the interest costs of carrying the development sites from the total net interest charge of £489,708 this means that the interest on the operating portfolio is £291,401 for the year. Funds from operations ('FFO') represented by (EBITDA minus interest on the operating portfolio) is therefore £2.64 million equating to 10.6 pence per share.

While the Group has grown its business through a combination of new site acquisition, existing store improvements and relocations, it has placed any further site acquisition and development on hold while the current economic conditions persist. Consequently, capital expenditure during the year totalled only £0.55 million, which relates to minor works at some stores and planning and preparatory expenditures for the development sites. The Company has no further capital commitments beyond minor works to existing properties. We will consider conditions in the wider economy and the UK self-storage market in particular before acquiring new sites or committing to any new developments.

Balance Sheet

Balance sheet net assets at the year-end increased to £39.1 million (2009 £37.0 million) as a result of the profits earned during the year, and an increase in property values. Freehold property values were up at £59.4 million compared to £57.6 million at 31 July 2009. This valuation, after also adjusting for the uplift in the valuation of leasehold properties translates into an adjusted net asset value per share of £2.24 before deferred tax provision (July 2009: £2.07) as reported above.

The Employee Benefit Trust owns 623,212shares (2009: 623,212), the costs of which are shown as a deduction from shareholders' funds. The Company is holding in Treasury a total of 1,142,000 of its own Ordinary Shares of 1 pence each with an aggregate nominal value of £11,420 for an aggregate cost of £2,092,902. At 31 July 2010 these treasury shares represent 4.27% of the Company's issued share capital (2009: 4.27%). The total number of Ordinary Shares in issue is 26,758,865 (2009: 26,758,865).

During the year the Group responded to economic circumstances by curtailing capital expenditure which totalled £0.55 million, down from £2.4 million in 2009. The expenditure includes the costs of continued fit-out at Harlow, planning and other professional costs incurred in maximising the potential of the existing planning permissions and the refit of the reception area at the Poole store.

Share Buy-back Authority

At the Company's AGM on 11 December 2009 shareholders approved renewal of the existing share buyback 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.

Market Valuation of Freehold and Operating Leasehold Land and Buildings

Our 12 freehold properties are held in the balance sheet at fair value, and have been valued externally by Cushman and Wakefield. (Refer to note 9a - property, plant and equipment and also to the accounting policies 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 adjusted net asset value position of the Group

On 31 July 2010, professional valuations were prepared by external valuers Cushman & Wakefield (C&W) in respect of twelve freehold and seven operating 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. 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 in which case transaction costs would likely be lower (see note 9 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 £70.2 million (NBV £33.9 million) (2009: £67.6 million: NBV £34.8 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 planning permission for a store has been valued as an operating self-storage site including an additional uplift to reflect the move 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 2010. The sites at Maidenhead, Portsmouth North Harbour and Southampton have not been valued and their asset value (stated at cost) of £10.8 million (2009: £10.8 million) combined with the C&W valuation provides an aggregate property value of £81.0 million (2009: £78.4 million).

This translates into a net asset value of £1.81 per share after making full provision for deferred tax arising on the revaluations (2009: £1.66).

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.

Both historically and currently we have valued our freehold and our leasehold property assets. 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 £10.8 million (2009: £9.97 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

	31 July 2010		31 July 2009
	No. of	Valuation	No. of	Valuation
	stores	£	stores	£
Freehold valued by C&W	12**	59,390,000	12**	57,610,000
Leasehold valued by C&W	7	10,800,000	7	9,970,000
Sub total	19	70,190,000	19	67,580,000
Sites in development at cost	3	10,794,943	3	10,779,948
Total	22*	80,984,943	22*	78,359,948

* Three Leasehold stores were not valued (2009: three) as their remaining unexpired terms were insufficient to yield a value under the Cushman & Wakefield valuation methodology.

** Includes both the current Reading store with residential planning permission and the Reading site with planning permission for a new store.

Adjusted Net Asset Value per Share

	31 July 2010	31 July 2009
Analysis of net asset value (NAV)	£	£
Total non-current assets	75,040,880	73,867,028
Adjustment to include leasehold stores at valuation
Add: C&W leasehold valuation	10,800,000	9,970,000
Deduct: leasehold properties and their fixtures and fittings at NBV	(4,765,871)	(5,357,762)
	81,075,009	78,479,266

Add: current assets	6,624,872	4,496,731
Less: current liabilities	(3,674,438)	(3,141,589)
Less: non-current liabilities (excluding deferred tax provision)	(28,036,885)	(28,001,865)


Adjusted net assets before deferred tax provision	55,988,558	51,832,543
Deferred tax	(10,846,123)	(10,248,297)

Adjusted net assets	45,142,435	41,584,246

Shares in issue	Number	Number
Opening shares	26,758,865	26,758,865

Shares issued for the exercise of options	-	-

Closing shares in issue	26,758,865	26,758,865
Shares held in treasury	(1,142,000)	(1,142,000)
Shares held in EBT	(623,212)	(623,212)

Closing shares for NAV purposes	24,993,653	24,993,653

Adjusted net asset value per share after deferred tax provision	£1.81	£1.66

Adjusted net asset value per share before deferred tax provision	£2.24	£2.07

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 13 years 2 months at the date of the 2010 Valuation (source: C&W) (2009 valuation: 11 years 4 months).

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 Group's operational current accounts as required.

Administration Expenses

Administrative expenses amounted to £7.26 million for the year (2009: £7.28 million) a decrease of 0.2%. Premises costs which are the least variable cost accounted for 47.8% of these costs (2009: 46.9%), staff costs 37.2% (2009: 37.3%) and overheads 15.0% (2009: 15.8%).

	Increase /(decrease) in costs	2010 £	2009 £
Property costs	1.48%	3,467,011	3,416,305
Staff costs	(0.5%)	2,702,965	2,715,381
Overheads	(4.8%)	1,090,818	1,146,415
	(0.2%)	7,260,794	7,278,101

Summary

Lokn'Store has a flexible business model with relatively low credit risk, and tightly controlled operating costs. The business generates increasing cash from a strong and growing asset base which further reduces gearing and improves loan to value ratios.

Ray Davies

Finance Director

15 October 2010

Consolidated Statement of Comprehensive Income

For the year ended 31 July 2010

		Year ended	Year ended
		31 July 2010	31 July 2009
	Notes	£	£
Revenue	1a	10,420,440	10,008,678
Cost of sales	2a	(225,049)	(282,664)

Gross profit		10,195,391	9,726,014
Administrative expenses	2b	(7,260,794)	(7,278,101)
EBITDA*		2,934,597	2,447,913

Depreciation based on historic cost		(1,574,470)	(1,571,658)
Additional depreciation based on revalued assets		(258,007)	(267,800)
	3	(1,832,477)	(1,839,458)
Loss on sale of motor vehicle		(452)	(7,322)
Equity settled share based payments	19	(181,436)	(289,864)
		(2,014,365)	(2,136,644)

Operating profit*		920,232	311,269

Settlement of Harlow build costs		-	23,637

Profit before interest		920,232	334,906

Finance income		18,979	64,326
Finance cost		(508,687)	(1,055,283)

Profit/(loss) before taxation		430,524	(656,051)
Income tax (expense) / credit	5	(209,400)	58,092
Profit/(loss) for the financial year
Attributable to owners of the parent	21	221,124	(597,959)
Other Comprehensive income

Increase / (decrease) in asset valuation		2,454,580	(7,589,590)
Deferred tax relating to increase / decrease in asset valuation		(388,426)	2,125,085

Other comprehensive income for the year net of tax		2,066,154	(5,464,505)

Total comprehensive income for the year
Attributable to owners of the parent		2,287,278	(6,062,464)

Earnings/(loss) per share
Basic	7	0.88p	(2.39p)
Fully diluted	7	0.88p	(2.39p)

*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 2010

	Share	Share	Other	Revaluation	Retained
	capital	premium	reserves	reserve	earnings	Total
	£	£	£	£	£	£
1 August 2008	267,589	698,044	13,037,121	25,617,674	3,290,238	42,910,666
Decrease in asset valuation	-	-	-	(7,589,590)	-	(7,589,590)
Deferred tax relating to decrease in asset valuation	-	-	-	2,125,085	-	2,125,085
Other comprehensive income	-	-	-	(5,464,505)	-	(5,464,505)
Loss for the year	-	-	-	-	(597,959)	(597,959)

Total comprehensive income	-	-	-	(5,464,505)	(597,959)	(6,062,464)

Dividend paid	-	-	(167,446)	-	-	(167,446)
Total transactions with owners	-	-	(167,446)	-	-	(167,446)

Transfer	-	-	-	(394,855)	394,855	-
Share based remuneration	-	-	289,864	-	-	289,864
Movement on EBT (ESOP)	-	-	-	-	1,388	1,388
31 July 2009	267,589	698,044	13,159,539	19,758,314	3,088,522	36,972,008
Increase in asset valuation	-	-	-	2,454,580	-	2,454,580
Deferred tax relating to increase in asset valuation	-	-	-	(388,426)	-	(388,426)
Other comprehensive income	-	-	-	2,066,154	-	2,066,154
Profit for the year	-	-	-	-	221,124	221,124

Total comprehensive income	-	-	-	2,066,154	221,124	2,287,728

Dividend paid	-	-	(332,416)	-	-	(332,416)
Total transactions with owners	-	-	(332,416)	-	-	(332,416)

Transfer	-	-	-	(188,346)	188,346	-
Share based remuneration	-	-	181,436	-	-	181,436

31 July 2010	267,589	698,044	13,008,559	21,636,122	3,497,992	39,108,306

Company Statement of Changes in Equity

For the year ended 31 July 2010

	Share	Retained	Share	Other
	capital	earnings	premium	reserves	Total
	£	£	£	£	£
1 August 2008	267,589	-	698,044	6,741,826	7,707,459

Dividend paid	-	-	-	(167,446)	(167,446)
Total transactions with owners	-	-	-	(167,446)	(167,446)
Share based remuneration (options)	-	-	-	289,864	289,864
31 July 2009	267,589	-	698,044	6,864,244	7,829,877
Loss for the year	-	(168,652)	-	-	(168,652)

Dividend paid	-	-	-	(332,416)	(332,416)
Total transactions with owners	-	-	-	(332,416)	(332,416)

Share based remuneration (options)	-	-	-	181,436	181,436
31 July 2010	267,589	(168,652)	698,044	6,713,264	7,510,245

Balance Sheets

31 July 2010

Company Registration No. 4007169

		Group	Group	Company	Company
		31 July	31 July	31 July	31 July
		2010	2009	2010	2009
	Notes	£	£	£	£
Non-current assets
Property, plant and equipment	9a	72,180,099	71,040,829	-	-
Property lease premiums	9b	2,860,781	2,826,199	-	-
Investments	10	-	-	1,490,482	1,309,046
Amounts due from subsidiary		-	-	6,019,763	6,520,831
		75,040,880	73,867,028	7,510,245	7,829,877
Current assets
Inventories	11	70,085	67,104	-	-
Trade and other receivables	12	1,190,756	1,200,896	-	-
Cash and cash equivalents		5,364,031	3,228,731	-	-

		6,624,872	4,496,731	-	-
Total assets		81,665,752	78,363,759	7,510,245	7,829,877

Current liabilities
Trade and other payables	13	(3,674,438)	(3,141,589)	-	-
Provisions	14	-	-	-	-

		(3,674,438)	(3,141,589)	-	-
Non-current liabilities
Bank borrowings	16	(28,036,885)	(28,001,865)	-	-
Deferred tax	17	(10,846,123)	(10,248,297)	-	-

		(38,883,008)	(38,250,162)	-	-

Total liabilities		(42,557,446)	(41,391,751)	-	-

Net assets		39,108,306	36,972,008	7,510,245	7,829,877

Equity
Called up share capital	18	267,589	267,589	267,589	267,589
Share premium		698,044	698,044	698,044	698,044
Other reserves	20	13,008,559	13,159,539	6,713,264	6,864,244
Retained earnings	21	3,497,992	3,088,522	(168,652)	-
Revaluation reserve		21,636,122	19,758,314	-	-
Total equity attributable to owners of the parent		39,108,306	36,972,008	7,510,245	7,829,877

Approved by the Board of Directors and authorised for issue on 15 October 2010 and signed on its behalf by:

A Jacobs	R Davies
Chief Executive	Finance Director

Cash Flow Statements

For the year ended 31 July 2010

		Group	Group
		Year ended	Year ended
		31 July	31 July
		2010	2009
	Notes	£	£
Operating activities
Cash generated from operations	23a	3,466,294	1,729,068

Net cash from operating activities		3,466,294	1,729,068
Investing activities
Purchase of property, plant and equipment and property lease premiums		(555,104)	(2,354,541)
Sale of property, plant and equipment		2,900	1,755
Interest received		18,979	64,326
Net cash used in investing activities		(533,225)	(2,288,460)
Financing activities
Increase in borrowings - bank loans		-	2,690,639
Interest paid		(465,353)	(1,215,896)
Equity dividends paid		(332,416)	(167,446)
Net cash from financing activities		(797,769)	1,307,297
Net increase in cash and cash equivalents in the year		2,135,300	747,905
Cash and cash equivalents at beginning of the year		3,228,731	2,480,826
Cash and cash equivalents at end of the year		5,364,031	3,228,731

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

Accounting Policies

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 One London Wall, London EC2Y 5AB, UK. This financial information does not constitute statutory accounts as defined in section 434 of the Companies Act 2006. The above figures for the year ended 31 July 2010 are an abridged version of the Company's accounts which will be reported on by the Company's auditors before dispatch to the shareholders and filing with the Registrar of Companies.

The statutory accounts for the year ended 31 July 2009 have been lodged with the Registrar of Companies. These accounts received an audit report which was unqualified and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying their report or a statement under section 498(2) or section 498(3) of the Companies Act 2006.

Significant Accounting Policies

Basis of accounting

The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) Interpretations as adopted by the European Union and comply with those parts of the Companies Act 2006 that are applicable to companies reporting under IFRS. 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 2009.

The financial statements have been prepared on the historic cost basis except that certain trading properties are stated at fair value. The principal accounting policies adopted are set out below.

Adoption of New and Revised Standards

Standards effective for the current year

Presentation: IAS 1 Presentation of Financial Statements (revised). This revision requires some amendments to the structure and presentation of the primary statements.

IAS 23 (Revised): The Group has considered the impact of IAS 23 (Revised) Borrowing Costs (effective for accounting periods beginning on or after 1 January 2009). The principal change to the Standard is to eliminate the previously available option to expense all borrowing costs as incurred. The Group did not previously capitalise interest on its development properties, which has become compulsory under the Standard for new development properties. The Group has adopted this accounting policy for the year ended 31 July 2010.

There were no other Standards or Interpretations, which were in issue but not yet effective at the date of authorisation of these financial statements, that the Directors anticipate will have a material impact on the financial statements of the Group.

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 9a to the accounts. The carrying value of properties held at valuation at the balance sheet date was £59.4 million (2009: £57.6 million).

Market Uncertainty

Cushman & Wakefield's ('C & W's') valuation report comments on valuation uncertainty resulting from the recent global banking crisis coupled with the economic downturn which have caused a low number of transactions in the market for self storage property.

C& W note that although there were a number of transactions in 2007, the only two significant transactions since 2007 are the sale of a 51% share in Shurgard Europe which was announced in January 2008 and completed on 31 March 2008 and the sale of the former Keepsafe portfolio by Macquarie to Alligator Self Storage which was completed in January 2010. C& W observe that in order to provide a rational opinion of value at the present time it is necessary to assume that the self storage sector will continue to perform in a way not greatly different from that being anticipated prior to the "credit crunch". However, ('C&W') have reflected negative sentiment in their capitalisation rates and they have reflected current trading conditions in their cashflow projections for each property. C&W state that there is therefore greater uncertainty attached to their opinion of value than would be anticipated during more active 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. The Group reviews all development property assets for impairment at each balance sheet date in the light of the results of these reviews. Once a store is opened, then it is valued as a trading store. Freehold stores are carried at valuation in the Group's balance sheet. Stores with short leasehold properties are held under operating leases and are carried at cost rather than valuation in accordance with IFRS.

The Group holds planning permissions on all of its pipeline sites as a result of the painstaking and detailed work undertaken to complete the pre-planning and planning phases required on each site. During this year it has been engaged with the four sites to see how the potential of the existing permissions could be further maximised. The movement in costs is as a result of this work.

c) 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 £nil (2009: £nil).

Notes to the Financial Statements

For the year ended 31 July 2010

1a Revenue

Analysis of the Group's operating revenue is shown below:

	2010	2009
	£	£
Stores trading
Self-storage revenue	9,259,949	8,879,536
Other storage related revenue	1,034,889	927,498
Ancillary store rental revenue	5,217	5,217
Management fees	21,622	20,795
Sub-Total	10,321,677	9,833,046
Stores under development
Non-storage income	98,763	175,632
Total revenue per statement of comprehensive income	10,420,440	10,008,678

1b Segmental information

IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Board to allocate resources to the segments and to assess their performance. There remains one business segment as 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 after deduction of trade discounts and value added tax. These all arise in the United Kingdom. No individual customer accounts for more than 1% of Total Revenue and no group of entities under common control (e.g. Government) account for more than 10% of total revenues.

2a Cost of sales

Cost of sales represents the direct costs associated with the sale of retail products (boxes, packaging etc), the ancillary sales of insurance cover for customer goods and the provision of van hire services, all of which fall within the Group's ordinary activities.

	2010	2009
	£	£
Retail	144,337	181,725
Insurance	21,190	31,080
Van Hire	59,522	69,859
	225,049	282,664

2b Administrative expenses

	2010	2009
	£	£
Property/premises costs	3,467,011	3,416,305
Staff costs	2,702,965	2,715,381
General overheads	1,090,818	1,146,415
	7,260,794	7,278,101

3 Profit before taxation

	2010	2009
	£	£
Profit before taxation is stated after charging:
Depreciation and amounts written off property, plant and equipment:
- owned assets	1,832,477	1,839,458
Operating lease rentals:
- land and buildings	1,427,264	1,369,587

Amounts payable to Baker Tilly UK Audit LLP and their associates for audit and non-audit services
Audit services
- UK statutory audit of the Company and consolidated accounts	45,000	47,250
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	5,000	6,250
Other services supplied pursuant to such legislation
- interim review	7,000	22,500
Tax services
- compliance services	16,000	25,150
- advisory services	55,290	46,131
Other services
- work in respect of Company Share Incentive Plan (SIP)/CSOP	5,093	-

	133,383	147,281
Comprising
Audit services	50,000	53,500
Non-audit services: Company and UK subsidiaries	83,383	93,781

	133,383	147,281

4 Employees

	2010	2009
	No.	No.
The average monthly number of persons (including Directors) employed by the Group during the year was:
Store management	83	84
Administration	19	19
	102	103

	2010	2009
	£	£
Costs for the above persons:
Wages and salaries	2,160,026	2,159,425
Social security costs	200,439	206,769
Pension costs	25,563	27,245
	2,386,028	2,393,439
Share based remuneration (options)	181,436	289,864
	2,567,464	2,683,303

Share based remuneration is separately disclosed in the statement of comprehensive income. Wages and salaries of £104,259 (2009: £103,899) 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 statement of comprehensive income.

In relation to pension contributions, there was £4,167 (2009: £3,765) outstanding at the year-end.

5 Taxation

	2010	2009
	£	£
Income Tax Expense / (Credit)
Current tax:
UK corporation tax at 28%	-	-
Deferred tax:
Origination and reversal of temporary differences	310,269	14,128
Impact of change in tax rate on closing balance	(102,742)	-
Adjustments in respect of prior year	1,873	(72,220)
Total deferred tax	209,400	(58,092)
Income tax expense /(credit) for the year	209,400	(58,092)

The charge for the year can be reconciled to the profit / (loss for the year) as follows:

	2010	2009
	£	£
Profit/(loss) before tax	430,524	(656,051)
Tax on ordinary activities at the standard rate of corporation tax in the UK of 28%	120,547	(183,694)
Expenses not deductible for tax purposes	7,823	8,193
Depreciation of non-qualifying assets	94,367	108,467
Share based payment charges in excess of corresponding tax deduction	50,802	81,162
Impact of change in tax rate on closing balance	(102,742)	-
Amounts not recognised in deferred tax	36,730	-
Adjustments in respect of prior periods - deferred tax	1,873	(72,220)
Income tax expense /(credit) for the year	209,400	(58,092)
Effective tax rate	49%	9%

Non deductible expenses consist mainly of depreciation charges on the Group's properties which do not qualify for tax allowances.

In addition to the amount charged to profit or loss for the year, deferred tax relating to the revaluation of the Group's properties amounting to £388,426 (2009: £2,125,085 credit) has been charged directly to other comprehensive income (refer note 17 deferred tax).

6 Dividends

	2010	2009
	£	£
Amounts recognised as distributions to equity holders in the year:
Final dividend for year ended 31 July 2008 (0.67 pence per share)	-	167,446
Interim dividend for the six months to 31 January 2009	-	-
Final dividend for the year ended 31 July 2009 (1 pence per share)	249,937	-
Interim dividend for the six months to 31 January 2010 (0.33 pence per share)	82,479	-
	332,416	167,446

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 £168,125 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 17 November 2010; the record date 19 November 2010; with an intended payment date of 17 December 2010.

7 Earnings/(loss) per Share

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

	2010	2009
	£	£
Profit/(loss) for the financial year	221,124	(597,959)

	2010	2009
	No. of shares	No. of shares
Weighted average number of shares
For basic earnings per share	24,993,653	24,993,653
Dilutive effect of share options	49,502	-
For diluted earnings per share	25,043,155	24,993,653

623,212 shares held in the Employee Benefit Trust and 1,142,000 treasury shares are excluded from the above.

	2010	2009
	£	£
Earnings/(loss) per share
Basic	0.88p	(2.39p)
Diluted	0.88p	(2.39p)

There is no dilutive effect of the options in 2009 due to the loss arising in the year.

8 Intangible Assets - Goodwill

	Purchased	Purchased
	goodwill	goodwill
	2010	2009
Group	£	£
Cost
1 August and 31 July	-	334,813

Impairment
1 August and 31 July	-	334,813

Net book value	-	-

9 (a) Property, plant and equipment

	Development property assets	Land and buildings	Short leasehold improvements	Fixtures, fittings and equipment	Motor vehicles
	at cost	at valuation	at cost	at cost	at cost	Total
Group	£	£	£	£	£	£
Cost or valuation
1 August 2008	11,754,487	55,201,824	2,470,943	14,257,265	167,345	83,851,864
Additions	1,730,597	222,838	21,395	122,438	42,908	2,140,176
Transfers	(5,446,295)	4,494,448	-	951,847	-	-
Reclassification	(85,040)	85,040	-	-	-	-
Disposals		-	-	-	(48,279)	(48,279)
Revaluations	-	(8,058,101)	-	-	-	(8,058,101)
31 July 2009	7,953,749	51,946,049	2,492,338	15,331,550	161,974	77,885,660

Depreciation
1 August 2008	-	-	933,691	4,529,861	49,534	5,513,086
Depreciation	-	468,510	222,867	1,117,508	30,573	1,839,458
Revaluations	-	(468,510)	-	-	-	(468,510)
Disposals		-	-	-	(39,203)	(39,203)
31 July 2009	-	-	1,156,558	5,647,369	40,904	6,844,831
Net book value at 31 July 2009	7,953,749	51,946,049	1,335,780	9,684,181	121,070	71,040,829
Cost or valuation
1 August 2009	7,953,749	51,946,049	2,492,338	15,331,550	161,974	77,885,660
Additions	36,114	161,297	47,231	275,329	550	520,521
Reclassification	(55,700)	55,700	-	-	-	-
Disposals	-	-	-	-	(5,000)	(5,000)
Revaluations	-	1,967,897	-	-	-	1,967,897
31 July 2010	7,934,163	54,130,943	2,539,569	15,606,879	157,524	80,369,078

Depreciation
1 August 2009	-	-	1,156,558	5,647,369	40,904	6,844,831
Depreciation	-	486,683	193,475	1,125,870	26,449	1,832,477
Revaluations	-	(486,683)	-	-	-	(486,683)
Disposals	-	-	-	-	(1,646)	(1,646)
31 July 2010	-	-	1,350,033	6,773,239	65,707	8,188,979
Net book value at 31 July 2010	7,934,163	54,130,943	1,189,536	8,833,640	91,817	72,180,099

If all property, plant and equipment was stated at historic cost the carrying value would be £42.5 million (2009: £43.6 million).

The additions of £0.2 million to land and buildings include the costs of completing Harlow, other professional costs incurred in maximising the potential of existing planning permissions on the Portsmouth North Harbour, Southampton and Reading sites.

The additions of £0.28 million to fixtures and fittings relate principally to the fit-out at Harlow as well as refit of the reception at the Poole store.

Property, plant and equipment (non-current assets) with a carrying value of £72.2 million (2009: £71.0 million) is pledged as security for bank loans (see note 16). The Maidenhead property (see note 9b) is also pledged as security for the bank loans.

The Swindon East and Swindon West units are leasehold stores, under common management, and are held at a combined carrying cost of £206,861 (2009: £299,732).The Swindon East / West stores remain under-performing relative to its peer group of stores over 250 weeks and all goodwill attaching to these stores was fully written off in 2008. Management has made an assessment of the current carrying value of its leasehold assets based on the likely cash flows generated by the stores over the next twenty years (the recoverable amount of a leasehold cash-generating unit based on a typical occupational lease term) as recorded in the Group's budgets and forecasts and based on a discount rate of 8% and an annual growth rate of 3%. Revenue and cost inflation was ignored. Accordingly it was determined that the carrying value of the Swindons' property plant & equipment is not impaired. Management will continue to keep this matter under review.

Market Valuation of Freehold and Operating Leasehold Land and Buildings

On 31 July 2010, a professional valuation was prepared by external valuers Cushman & Wakefield LLP (C&W) in respect of twelve freehold and seven 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 the RICS 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 was 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 six 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 £70.2 million (2009: £67.6 million) of which £59.4 million (2009: £57.6 million) relates to freehold properties, and £10.8 million (2009: £10.0 million) relates to properties held under operating leases.

Freehold 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.

For the trading properties, the valuation methodology explained in more detail below is based on market value as fully equipped operational entities, having regard to trading potential. 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 £59.4 million valuation of the freehold properties £5.2 million relates to the net book value of fixtures, fittings and equipment, and the remaining £54.2 million relates to freehold properties.

The 2010 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 reflects 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 2010.

Valuation Methodology

Background

The USA has around 50,000 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, student accommodation, licensed properties, marinas and petrol stations.

The UK self-storage sector differs from the USA in that the larger multiples control in the region of 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 was evidence of an increased number of transactions in 2007, albeit as corporate transactions rather than individual property sales. However, there have been very few transactions in 2008 and 2009 although there has been a renewal in activity in 2010 as referred to below.

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 subject to a cap and a collar. 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 17 trading stores (both freeholds and leaseholds) averages 72.14% (2009: 75.49%). The two Reading properties are excluded from the group of 19 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, yields for other trading property types such as hotels and student housing, bank base rates, 10-year money rates, inflation and the available evidence of transactions in the sector. On average for the 17 stores the yield (net of purchaser's costs) arising from the first year of the projected cash flow is 5.68% (2009: 5.15%). This rises to 11.81% (2009: 12.47%) 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 12.20% (2009: 12.46%).

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.

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 13 years and 2 months as at 31 July 2010 (11 years and 4 months as at 31 July 2009). Valuations for stores held under operating leases are not reflected in the balance sheet and the assets in relation to these stores are carried at cost less accumulated depreciation.

Market Uncertainty

Prudent lotting

C&W have assessed the value of each property individually. However, with regard to those stores with negative or low initial cashflow C&W have prepared their valuation on the assumption that were these properties to be brought to the market then they would be lotted or grouped for sale with other more mature assets of a similar type owned by the Company in such a manner as would most likely be adopted in the case of an actual sale of the interests valued. This lotting assumption has been made in order to alleviate the issue of negative or low short term cashflow. C&W have not assumed that the entire portfolio of properties owned by the Group would be sold as a single lot and the value for the whole portfolio in the context of a sale as a single lot may differ significantly from the aggregate of the individual values for each property in the portfolio, reflecting prudent lotting as described above.

9 b) Property lease premiums

The carrying value of development property assets at the balance sheet date was £10.8 million (2009: £10.8 million) of which £2.86 million relating to the long lease at Maidenhead is classified as a non-current asset in the balance sheet (2009: £2.83m). This represents a lease premium paid on entering the lease and other related costs. The lease runs until 31 March 2076. A peppercorn rent is payable until 2027 and a market rent thereafter.

	2010	2009
Group	£	£

Property lease premiums	2,860,781	2,826,199

10 Investments

Investment in subsidiary undertakings	£
1 August 2008
Capital contributions arising from share-based payments	289,864
31 July 2009	1,309,046
1 August 2009
Capital contributions arising from share-based payments	181,436
31 July 2010	1,490,482

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.

11 Inventories

	Group	Group	Company	Company
	2010	2009	2010	2009
	£	£	£	£
Consumables and goods for resale	70,085	67,104	-	-

The amount of inventories recognised as an expense during the year was £144,337 (2009: £181,725).

12 Trade and other receivables

	Group	Group	Company	Company
	2010	2009	2010	2009
	£	£	£	£
Trade receivables	794,131	684,630	-	-
Other receivables	47,483	78,073	-	-
Prepayments and accrued income	349,142	438,193	-	-

	1,190,756	1,200,896	-	-

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

13 Trade and other payables

	Group	Group	Company	Company
	2010	2009	2010	2009
	£	£	£	£
Trade payables	460,527	460,917	-	-
Taxation and social security costs	391,743	245,449	-	-
Other payables	957,352	932,319	-	-
Accruals and deferred income	1,864,816	1,502,904	-	-
	3,674,438	3,141,589	-	-

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

14 Provisions

In 2008, following the decision of the Group not to renew its lease at its leasehold store in Portsmouth, it provided for potential 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. These were all settled in the previous financial year.

	2010	2009
	£	£
Provisions
Provision at start of year	-	84,664
Amounts paid during the year	-	(47,404)
Release of provision for the year	-	(37,260)
Provision at end of year	-	-

15 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 16, cash and cash equivalents and equity attributable to the owners of the parent, comprising issued capital, reserves and retained earnings as disclosed in the Consolidated Statement of Changes in Equity. 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	Group
	2010	2009
	£	£
Debt	(28,089,416)	(28,089,416)
Cash and cash equivalents	5,364,031	3,228,731
Net Debt	(22,725,385)	(24,860,685)
Balance sheet equity	39,108,306	36,972,008
Net debt to equity ratio	58.1%	67.2%

The decrease in the Group's gearing ratio arises through the combined effect of a decrease in net debt as a result of cash generated from operations and an increase in the valuation of its freehold properties. At 31 July 2010 the Group was carrying £10.8 million of development assets at cost compared to £10.8 million at 31 July 2009.

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 16. Equity includes all capital and reserves of the Group attributable to the owners 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 and other Group assets with a net book value of £81.7 million. Borrowings are arranged to ensure the Group fulfils its strategy of growth and development of its store portfolio and to maintain short-term liquidity. Funding is arranged through The Royal Bank of Scotland plc, 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 (2009: £40 million). This facility expires on 5 February 2012. Undrawn committed facilities at the year-end amounted to £11,910,584 (2009: £11,910,584).

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 16. 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 £28.1 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 2010 are as follows:

	Group	Group
	2010	2009
	£	£
Variable rate treasury deposits*	5,185,624	3,128,243

* Money market rates for the Group's variable rate treasury deposit track RBS base rate minus 0.05%. The rate attributable to the variable rate deposits at 31 July 2010 was 0.45%.

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 2010, it is estimated that an increase of one percentage point in interest rates would have reduced the Group's annual profit before tax by £281,339 (2009: £312,691) and conversely a decrease of one percentage point in interest rates would have increased the Group's annual profit before tax by £281,339 (2009: £312,691). There would have been no effect on amounts recognised directly in other comprehensive income. The sensitivity has been calculated by increasing by 1% the average variable interest rate applying to the variable rate borrowings in the year, namely 1.81% (2009: 3.37%).

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 B above 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 credit risk management policies of the Group with respect to trade receivables are discussed in note 12. The Group has no significant concentration of credit risk, with exposure spread across 6,900 customers in our stores and no individual customer accounts for more than 1% of revenue.

The credit risk on liquid funds is limited because the counterparty 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 2010 was £833,185 (2009: £754,519) on receivables and £5,364,031 (2009: £3,228,731) on cash and cash equivalents.

H Maturity analysis of financial liabilities

The undiscounted contractual cash flow maturities are as follows:

2010 - Group

	Trade
	and other		Interest on
	payables	Borrowings	borrowings
	£	£	£
From two to five years	-	-	-
From one to two years	-	28,089,416	770,870
Due after more than one year	-	28,089,416	770,870
Due within one year	2,037,007	-	507,884
Total contractual undiscounted cash flows	2,037,007	28,089,416	1,278,754

2009 - Group

	Trade
	and other		Interest on
	payables	Borrowings	borrowings
	£	£	£
From two to five years	-	28,089,416	490,869
From one to two years	-	-	947,961
Due after more than one year	-	28,089,416	1,438,830
Due within one year	1,729,921	-	947,961
Total contractual undiscounted cash flows	1,729,921	28,089,416	2,386,791

The Group's only borrowings are through a senior five year term revolving credit facility of £40 million secured by legal charges and debentures over the freehold and leasehold properties and other assets of the business with a net book value of £81.7 million together with cross-company guarantees of Lok'nStore Limited.

I Fair values of financial instruments

	2010	2009
Categories of financial assets and financial liabilities	£000	£000
Financial assets
Trade and other receivables	833,185	762,703
Cash and cash equivalents	5,364,031	3,228,731
Financial liabilities
Trade and other payables	(2,037,007)	(1,729,921)
Bank loans	(28,036,885)	(28,001,865)

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 and cash and cash equivalents are all classified as loans and receivables and carried at amortised cost. Further details are set out in note 12. 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 £6.02 million (2009: £6.52 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.

16 Bank borrowings

	Group	Group	Company	Company
	2010	2009	2010	2009
	£	£	£	£
Bank loans repayable in more than two years
but not more than five years
Gross	28,089,416	28,089,416	-	-
Deferred financing costs	(52,531)	(87,551)	-	-
Bank loans repayable in more than two years
but not more than five years
Net	28,036,885	28,001,865	-	-

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 £81.7 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.

17 Deferred tax

	2010	2009
Deferred tax liability	£	£
Liability at start of year	10,248,297	12,431,474
charge/(credit) to income for the year	209,400	(58,092)
Tax credited directly to other comprehensive income	388,426	(2,125,085)
Liability at end of year	10,846,123	10,248,297

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

	Accelerated capital allowances	Tax losses	Other temporary differences	Revaluation of properties	Rolled over gain on disposal	Total
	£	£	£	£	£	£
At 1 August 2008	1,525,793	(1,548,477)	22,684	9,883,706	2,547,768	12,431,474
(Credit)/charge to income for the year	(64,393)	85,144	(3,859)	(74,984)	-	(58,092)
Credit to other comprehensive income	-	-	-	(2,125,085)	-	(2,125,085)
At 31 July 2009	1,461,400	(1,463,333)	18,825	7,683,637	2,547,768	10,248,297
Charge/(credit) to income for the year	18,271	370,607	(18,825)	(69,662)	(90,991)	209,400
Charge to other comprehensive income	-	-	-	388,426	-	388,426
At 31 July 2010	1,479,671	(1,092,726)	-	8,002,401	2,456,777	10,846,123

At the balance sheet date, the Group has unused revenue tax losses of approximately £4.18 million (2009: £5.23 million) available to carry forward against future profits of the same trade. A deferred tax asset of £1.09 million (2009: £1.46 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. The losses can be carried forward indefinitely.

A potential deferred tax asset of £8,000 (2009: £nil) arises in respect of the share options in existence at 31 July 2009 but has not been recognised in the accounts. No deferred tax asset arises in relation to the remainder of the share options as at 31 July 2010 as the share price at the year end is below the exercise price of the options.

18 Share Capital

	2010	2009
	£	£
Authorised:
35,000,000 ordinary shares of 1 pence each (2009: 35,000,000)	350,000	350,000

	£	£
Allotted, issued and fully paid ordinary shares	267,589	267,589


		Called up, allotted and fully paid
Movement in issued share capital	Number	£
Number of shares at 31 July 2009 and 31 July 2010	26,758,865	267,589

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

Following approval by shareholders of a special resolution at the AGM on 11 December 2009, 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.

19 Equity settled share-based payment plans

The Group operates 2 equity-settled share-based payment plans, an approved and an unapproved share option scheme, the rules of which are similar in all material respects. The Enterprise Management Initiative Scheme ('EMI') is closed to new grants of options as the Company no longer meets the HMRC small company criteria. On 28 June 2010 the Group obtained HMRC approval for a new Company Share Option Plan ('CSOP').

The Company has the following share options:

	As at				As at
	31 July			Lapsed/	31 July
Summary	2009	Granted	Exercised	surrendered	2010
Enterprise Management Initiative Scheme	491,901	-	-	-	491,901
Approved Share Options Scheme	5,837	-	-	(5,837)	-
Unapproved Share Options	2,086,906	126,981	-	(21,674)	2,192,213
Approved CSOP Share Options	-	179,019	-	-	179,019
Total	2,584,644	306,000	-	(27,511)	2,863,133
Options held by Directors	1,490,000	175,000	-	(10,000)	1,655,000
Options not held by Directors	1,094,644	131,000	-	(17,511)	1,208,133
Total	2,584,644	306,000	-	(27,511)	2,863,133

	As at				As at
	31 July			Lapsed/	31 July
Summary	2008	Granted	Exercised	surrendered	2009
Enterprise Management Initiative Scheme	501,901	-	-	(10,000)	491,901
Approved Share Options Scheme	19,458	-	-	(13,621)	15,837
Unapproved Share Options	1,775,906	343,000	-	(32,000)	2,086,906
Total	2,297,265	343,000	-	(55,621)	2,584,644
Options held by Directors	1,270,000	220,000	-	-	1,490,000
Options not held by Directors	1,027,265	123,000	-	(55,621)	1,094,644
Total	2,297,265	343,000	-	(55,621)	2,584,644

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 (2009: 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 a key non-market performance condition being the achievement of an annual revenue target of £10 million. 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 £181,436 (2009: £289,864), all of which relates to equity-settled share-based payment transactions. In total a 'Share-based payments reserve' at 31 July 2010 of £1,275,925 results (2009: £1,094,483).

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 £90,652 (2009: £70,291).

20 Other reserves

	Merger reserve	Other distributable reserve	Capital redemption reserve	Share-based payment reserve	Total
Group	£	£	£	£	£
1 August 2008	6,295,295	5,903,002	34,205	804,619	13,037,121
Share based remuneration (options)	-	-	-	289,864	289,864
Dividend paid	-	(167,446)	-	-	(167,446)
1 August 2009	6,295,295	5,735,556	34,205	1,094,483	13,159,539
Share based remuneration (options)	-	-	-	181,436	181,436
Dividend paid	-	(332,416)	-	-	(332,416)
31 July 2010	6,295,295	5,403,140	34,205	1,275,919	13,008,559

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.

	Other distributable reserve	Capital redemption reserve	Share-based payment reserve	Total
Company	£	£	£	£
1 August 2008	5,903,002	34,205	804,619	6,741,826
Share based remuneration (options)	-	-	289,864	289,864
Dividend paid	(167,446)	-	-	(167,446)
1 August 2009	5,735,556	34,205	1,094,483	6,864,244
Share based remuneration (options)	-	-	181,436	181,436
Dividend paid	(332,416)	-	-	(332,416)
31 July 2010	5,403,140	34,205	1,275,919	6,713,264

21 Retained earnings

	Retained earnings before deduction of own shares	Own shares (note 22)	Retained earnings Total
Group	£	£	£
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)
1 August 2008	5,884,438	(2,594,200)	3,290,238
Loss for the financial year	(597,959)	-	(597,959)
Transfer from revaluation reserve	394,855	-	394,855
Transfer to employee leaver	-	1,388	1,388
1 August 2009	5,681,334	(2,592,812)	3,088,522
Profit/(loss) for the financial year	221,124	-	221,124
Transfer from revaluation reserve	188,346	-	188,346
31 July 2010	6,090,804	(2,592,812)	3,497,992

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 Group's 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 Group'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 2006 not to present the Company income statement. The Company loss for the year was £168,652 (2009: £nil).

22 Own Shares

	ESOP	ESOP	Treasury	Treasury	Own shares
	shares	shares	shares	shares	total
	Number	£	Number	£	£
1 August 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
Transfer out of scheme	(1,735)	(1,388)	-	-	(1,388)
31 July 2009	623,212	499,910	1,142,000	2,092,902	2,592,812
Transfer out of scheme	-	-	-	-	-
31 July 2010	623,212	499,910	1,142,000	2,092,902	2,592,812

Lok'nStore Limited holds a total of 1,142,000 of its own ordinary shares of 1p each for treasury with an aggregate nominal value of £11,420 purchased for an aggregate cost of £2,092,902 at an average price of £1.818 per share. 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 are reduced by £2,092,902 reflecting the purchase cost of these shares (See note 22).

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 2010, the Trust held 623,212 (2009: 623,212) ordinary shares of 1 pence each with a market value of £529,730 (2009: £352,115). No shares were transferred out of the scheme during the year (2009: 1,388).

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

23 Cash flows

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

	2010	2009
	£	£
Profit/(loss) before tax	430,524	(656,051)
Depreciation	1,832,477	1,839,458
Share-based employee remuneration	181,436	289,864
Loss on sale of fixed assets	452	7,322
Interest receivable	(18,979)	(64,326)
Interest payable	508,687	1,055,283
(Increase)/decrease in inventories	(2,980)	25,607
Decrease in receivables	10,140	1,095,138
Increase/(decrease) in payables	524,537	(1,778,563)
Decrease in provisions	-	(84,664)
Net cash inflow from operating activities	3,466,294	1,729,068

(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 16 less cash balances held in current accounts and surplus cash transferred daily to 'one-day' or 'two-day' treasury deposits.

	31 July	31 July
	2010	2009
	£	£
Increase in cash in the year	2,135,300	747,905
Change in net debt resulting from cash flows	-	(2,655,619)
Movement in net debt in year	2,135,300	(1,907,714)
Net debt brought forward	(24,860,685)	(22,952,971)
Net debt carried forward	(22,725,385)	(24,860,685)

24 Commitments under operating leases

At 31 July 2010 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	Group	Company	Company
	2010	2009	2010	2009
	£	£	£	£
Land and buildings
Amounts due:
Within one year	1,287,352	1,399,692	-	-
Between two and five years	4,709,408	5,378,768	-	-
After five years	7,018,703	5,886,795	-	-
	13,015,463	12,665,255	-	-

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 five years.

The Group as lessor:

Property rental income earned during the year was £98,763 (2009: £175,632). 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 of 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	Group	Company	Company
	2010	2009	2010	2009
	£	£	£	£
Within one year	57,413	91,185	-	-

25 Events after the balance sheet date

Acquisition of Property Option

On 24 September 2010 the Group announced the acquisition of an option to acquire a site in Southend. The site extends to 1.2 acres and fronts the busy Eastern Avenue near the town centre. When developed the site will provide up to 60,000 square feet of storage space in a prominent, modern building. The project is subject to planning permission.

26 Related party transactions

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

	2010	2009
	£	£
Net amount due from Lok'nStore Limited	6,019,763	6,520,831

The amount due from Lok'nStore Limited is interest free. The balance is repayable on demand, however the Company has no present intention to demand repayment within one year and so the amount has been presented as a non-current asset as at 31 July 2010.

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 10.

The aggregate remuneration of the Directors, who are the key management personnel of the Group, is set out below. Further information on the remuneration of individual Directors is found in note 4 of the Notes to the Financial Statements.

	2010	2009
	£	£
Short term employee benefits	479,169	453,479
Post employment benefits	8,944	3,255
Share-based payments	99,318	138,571
Total	587,431	595,305

The Group 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. The total fees payable to Value Added Services Limited are as shown in note 4. Fees are settled monthly and there were no outstanding amounts due to Value Added Services Limited at the year-end (2009: £nil). The maximum balance outstanding at any time during the year was £24,252 (ex VAT) (2009: £24,100).

The Group 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 £6,000 (2009: £6,000). The balance outstanding to Trucost PLC at year-end was £nil (2009: £nil).

The Group has an agreement with Keith Jacobs, a brother of Andrew Jacobs and Colin Jacobs, for the provision of marketing services and support on a consultancy basis. The fees payable to Keith Jacobs during the year under this arrangement were £21,434 (2009: £19,790). There was £1,791 outstanding due to Keith Jacobs at the year-end (2009:£138). The maximum balance outstanding at any time during the year is £1,791 (ex VAT) (2009: £nil).

27 a) Capital commitments and guarantees

The Group has capital expenditure contracted but not provided for in the financial statements of £84,984 (2009: £49,020) relating to minor works.

27 b) Bank borrowings

The Company has guaranteed the bank borrowings of Lok'nStore Limited. As at the year-end, that company had gross bank borrowings of £28.1 million (2009: £28.1 million).

27 c) Contingent Liability - Value added tax

As an ancillary activity, Lok'nStore acts as an intermediary in relation to supplies of exempt insurance to customers for which it receives a commission. In November 2007, Lok'nStore originally approached HMRC, on a purely voluntary and unprompted basis, to request the implementation of a Partial Exemption Special Method (PESM). Lok'nStore, advised by Baker Tilly Tax & Accounting Limited, maintained that the standard partial exemption method, i.e. one based on the values of the various different income streams, resulted in a wholly distortive restriction of input tax. Lok'nStore remains of the view that revenue is a poor proxy for the 'use' of the majority of the input tax incurred by Lok'nStore and, as a consequence, the standard method does not provide a fair result.

Current Dealings with HMRC

On 25 February 2008, HMRC determined that it was appropriate to raise an assessment in the amount of £140,902.95 in respect of Lok'nStore's partial exemption calculations, under the Standard Partial Exemption Method ("standard method") for the VAT periods April 2005 through April 2007. Lok'nStore rejected the basis of this assessment and has advanced a number of other proposals and arguments in a bid to resolve this now long-running dispute. Again, these have been rejected. Following the formal rejection of the various proposals which were submitted for a PESM, a local review of the decision was requested which upheld the rejection of a PESM. This decision was appealed by Lok'nStore to the Tax Tribunal in September 2009. Counsel also confirmed that Lok'nStore should carry out a Standard Method Override Calculation ("SMO") and that this should be calculated on the same basis as the proposed mixed floor space and values based method.

Position at Year End

There are two appeals lodged at the Tax Tribunal; one in respect of the proposed PESM going forward and the other in respect of the SMO calculations for the past VAT periods. It has been agreed with the Tribunal and HMRC that the second appeal (i.e. the SMO appeal) will be stood over pending the outcome of the first appeal in respect of the proposed PESM.

On a range of outcomes, on a worst case scenario, the overall liability in relation to input tax claimed up to the end of July 2010 which may become repayable to HMRC totals £327,765 (2009: £294,975) based on the standard method restriction. Of this £192,830 (2009: £187,947) relates to capital expenditure inputs (Balance Sheet) and £134,935 (2009: £107,028) relates to income statement items. Alternatively, If a special method is agreed, this may give a restriction of around 1%, in which case the total amount of VAT (plus interest) to be assessed by HMRC would on the figures above give a special method restriction of £77,005 (2009: £71,540). On a pro rata basis this potential liability between restricted inputs gives a liability of £51,472 (2009: £48,248) relating to capital expenditure inputs (Balance Sheet) and £25,533 (2009: £23,291) relating to income statement items. Interest would be added to both totals.

It is not impossible that there should be no restriction of input tax incurred as calculations indicate that the proposed PESM, using a mixed floor space and values based method, gives a minimal restriction. As a result, no restriction of input tax will be required under this method on the basis that the de minimis limits are not breached.

While this remains an ongoing dispute with HMRC and while the outcome at present remains uncertain it is not considered that any material provision is necessary.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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