Preliminary Results

RNS Number : 5736R

Lok'n Store Group PLC

07 November 2011

 



7^th November 2011

LOK'NSTORE GROUP PLC

 ("Lok'nStore" or "the Group")

Preliminary Results

for the year ended 31 July 2011

Lok'nStore Group Plc, a leading company in the UK self-storage market announces results for the year ended 31 July 2011.

Financial Highlights

·      Revenue £10.85 million up 4.1% (2010: £10.42 million)  

·      Group EBITDA £3.28 million up 11.8% (2010: £2.93 million)

·      Net profit £0.89 millionup 301% (2010: £0.22 million)

·      Adjusted NAV £2.29 per share up 2.4% to (2010: £2.24 per share) 

·      Final dividend proposed 2.67 pence per share up 250% (2010: 0.67 per share)

·      Successful refinancing of £40 million bank facility after the reporting date through to 2016

Operational Highlights

·      Store EBITDA £4.85 million up 9.7% (2010: £4.42million)

·      Acquisition of document storage business for £3.7 million

·      Store EBITDA profit margins up to 45.5% (2010: 42.6%)

Property Highlights

·      Planning permissions renewed at Reading, Southampton and Portsmouth

·      Lease extended - saving costs and extending average portfolio lease length to over 15 years

·      Agreement with Lidl to share Lok'nStore's Maidenhead site (subject to planning)

Key Metrics

·      Loan to value ratio of 30.7% 1 (2010: 28.1%)

·      FFO 2 £2.97million = 11.0 pence per share  (2010: 10.6 pence per share)

1Calculation based on net debt of £24.4 million (2010: £22.7 million) and total property value of £79.5 million  

2 Funds from Operations ('FFO') calculated as EBITDA minus Net Finance Cost on operating assets

Andrew Jacobs CEO of Lok'nStore Group said, 

"I am delighted to report this period of strong profit growth against the challenging economic background, the third year in a row of double digit profit growth. Lok'nStore has proved again that it can thrive through these difficult economic times and we are looking forward to delivering future increases in profit in the coming years".

"Our attractive new banking facility through to 2016 allows us to plan with more certainty and as a sign of our confidence the Board are recommending increasing the annual dividend to 3 pence from 1 penny a share in previous years"

Press Enquiries Andrew Jacobs, CEO	Lok'nStore	Tel: [phone]
Ray Davies, Finance Director	Lok'nStore
Billy Clegg/ Oliver Winters/ Latika Shah	FTI Consulting	Tel: [phone]
Dominic Morley/Fred Walsh	Panmure Gordon	Tel: [phone]

Chairman's Review

Strong Performance

Economic conditions remain challenging; however we have planned accordingly and are pleased to report robust results for the financial year to July 2011. Lok'nStore has increased revenue, and reduced operating costs in the self-storage business again.  Margins, profits and cash flow have all increased as a result and we have now doubled Group EBITDA (earnings before interest, depreciation, tax and amortisation) since 2006.  Store EBITDA and Group EBITDA are sharply higher to record levels demonstrating that self-storage can continue to perform well even in a weak economy.

Capital expenditure remains tightly controlled and interest costs remain low so cash continues to grow.  Our loan to value ratio is low and our interest coverage is high which has helped us secure attractive new funding through to 2016.

New £40 million five year facility with Lloyds TSB plc

Underlining the strength of the cash flow and the statement of financial position, after the reporting date the Group has signed a new five year £40 million revolving credit facility with Lloyds TSB plc. The facility is effective from 20 October 2011 and runs until 19 October 2016. The new facility is flexible and does not require any amortisation prior to maturity.  The loans bear interest at the London Inter-Bank Offer Rate (LIBOR) plus 2.35%-2.65% margin based on a loan to value covenant test (2.35% at Lok'nStore's current LTV level).  The interest cover and loan to value covenants are broadly in line with the previous facility.  The net interest charge in the coming year will rise to reflect the increase in the margin on this facility which is initially 1.1%.

During the year the Group complied comfortably with all banking covenants. At 31 July, we had £11.9 million of the facility undrawn and £3.8 million of cash. (2010: £5.4 million). This new banking facility allows us to plan with certainty for the next five year period.

Expansion of document storage business 

Another notable achievement in the year was the purchase of Saracen Datastore Limited, a serviced document storage company.  Lok'nStore has for some years been achieving around 10% of its revenue from self-serviced document storage, and has been keen to grow this area of its business. On 30 June 2011 Lok'nStore acquired 90.6% of the issued share capital of Saracen Datastore Limited ('Saracen'), a serviced archive and records management company to help with this objective. The price was £3.7 million paid from existing cash resources.  Leo Kane, the Managing Director of Saracen who has been with the business since 1995, retains a 9.4% stake in Saracen and will continue in his current role. Andrew Jacobs and Ray Davies of the Lok'nStore Group will join the Saracen Board.  

Based in Leatherhead, Saracen was established in 1991 and has four sites across the South East of England providing over 100,000 sq ft. of offsite records, document and tape storage. For the year ended 31 December 2010, Saracen achieved turnover of £1.6 million and adjusted EBITDA of £0.4 million. The acquisition broadens the offering to our customers and the purchase of Saracen is an excellent entry point to a wider market segment complimenting Lok'nStore's existing self-storage activities. This acquisition extends our existing self-serve archive service which we provide to around 500 customers and Saracen adds over 300 document storage customers.

Properties and Net Asset Value

The year-end property valuation equates to a total value of properties held of £79.5 million, down 1.8% on the year (2010: £81.0 million). This small decline in property values was offset by the cash inflow of the business so the adjusted net asset value per share has increased to £2.29 from £2.24 last year (see Financial Review).

The Board continues to examine the portfolio for asset management opportunities as demonstrated by its recent agreement to extend the leases on another of the Group's stores, the third such transaction over the last two years. Our property team remains alert to the opportunities that can appear in the current volatile property market and an update of the current property opportunities is set out in the Property Review and in Note 26, Events after the reporting date.

Conditions in the UK self-storage market

The Drivers Jonas Deloitte 2011 report for the Self-Storage Association says "demand drivers have allowed the sector to remain in relatively good health". Despite this "New development has slowed right down: only 15% of operators expanded their portfolios in 2010, and less than 10% expect to open more than one store before 2014  Operators have paused their expansion plans whilst they concentrate on growing income from their existing outlets."  This reduction in the rate of increased supply is beneficial to incumbent operators such as Lok'nStore, which is the fourth largest operator in the UK.

Dividend

Over the past few years we have maintained a steady, if modest dividend payout of one penny per share.  Given the strength and the growth of the cash flow the directors feel it is appropriate to implement a rather more substantial dividend payout.  In respect of the current year the Board recommends that a final dividend of 2.67 pence per share be paid on 16 December 2011 to shareholders on the register on 18 November 2011, making a full year pay-out of 3 pence per share

Going forward, the dividend policy will be to pay a progressive dividend with reference to the growth in EBITDA and the capital expenditure requirements of the business.  The interim will be 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 £667,331 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 is a robust business with a strong and consistent record of both profit growth and cash generation and has opportunities for growth from several areas.  With Group EBITDA of £3.3m up 11.8% on the previous year, the strength of the Group's business model has been proven in the face of a severe economic downturn. Increasing the annual dividend by 200% and initiating a progressive dividend policy demonstrates the Board's confidence that the Group will continue to generate a growing cash flow.  We will continue to grow revenue against tightly controlled costs, and this will provide momentum to EBITDA.

Turning to the future the Board's target is to continue the increase of EBITDA over the coming years whilst anticipating no significant improvement in the operating environment. We have carefully evaluated the opportunities and believe there is significant further growth to pursue focused on five key areas:         

1.   Developing new stores on a self-funded basis as at Reading and Maidenhead

2.   Developing the other new sites we already own when appropriate

3.   Opportunistic site acquisitions (as some banks look to reduce their exposure to property in the future)  

4.   Increasing the number of stores we manage for third parties

5.   Building our document storage offering

These areas represent tangible growth opportunities that we can fund from our existing cash flow and debt facility and where we have the operating experience to execute effectively.

Lok'nStore's efficient operating business, strong cash flow, secure asset base and its new £40 million bank facility leaves it well placed to grow and prosper within the UK self-storage market.

Simon G Thomas

Chairman

4 November 2011

Chief Executive's Operating Review

Sales and Earnings Up, Costs Down

Revenue for the year was £10.85 million, up 4.1% year on year (2010: £10.42 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 9.7% to £4.85 million (2010: £4.42 million). Operating profit for the year is up 70.2% to £1.57 million (2010: £0.92 million) and pre-tax profit for the year was up 118% to £938,280 (2010: £430,524).

Performance of Stores

During the year we increased pricing by 1.9% against lower costs increasing the overall EBITDA margin across all stores from 42.6% to 45.5%.  The EBITDA margins of the freehold stores were 58.8% and the leasehold stores achieved 29.0% (2010: 56.6% and 25.2% respectively). The occupancy of the stores was down 2.8% to 56.4% of currently lettable area.

At the end of July 2011 36.2% of Lok'nStore's revenue was from business customers (2010: 36.8%) and 63.8% was from household customers, (2010: 63.2%). By number of customers this breakdown was 22.5% business customers (2010: 22.4%) and 77.5% household customers (2010: 77.6%).

Operational Performance of Stores

Store analysis Weeks old at 31 July 2011	July 2011 Over 250	100 to 250	Under 100	Pipeline	Total
Year-ended 31 July 2011
Revenue* (£'000)	9,932	729	-	-	10,661
Stores EBITDA (£'000)	4,635	218	-	-	4,853
EBITDA margin (%)	46.7	29.9	-	-	45.5
As at 31 July 2011
Maximum Area ('000 sq. ft.)	972	111	-	143	1,226
Freehold and long leasehold ('000 sq. ft.)	565	69	-	143	777
Short leasehold ('000 sq. ft.)	407	42	-	-	449
Number of stores
Freehold and long leasehold	10	1	-	2	13
Short leasehold	9	1	-	-	10
Total stores	19	2	-	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 and 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 £18.82 per sq. ft. per annum at 31 July 2011, up 1.9% (2010: £18.47 per sq. ft. per annum). This compares with the average of £21.97 for the UK industry and £21.87 for the South East region (source Self-Storage Association Survey 2011). 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.  We have increased pricing by 3.3% per annum compound over the last 6 years - a great result through a difficult economic period.  By this careful management of prices we have managed to increase self-storage turnover by 2.6% despite the small decline in physical occupancy.

Ancillary sales, namely packing materials, insurance and other sales, increased by 1.2% over the year (2010: 11.6%) accounting for 9.9% of storage revenues (2010: 10.1%). These ancillary sales are increasingly focused on insurance, which increases the overall margin of these sales.

We continue to heavily promote our insurance to new customers with the result that over 86% (2010: 80%) of new customers over the year took our insurance.  This compares with 68% (2010: 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.

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) (2010: 3.6%). The internet produces an increasing proportion of our enquiries (38% in the year) and printed directories a decreasing proportion. We continue to allocate more of our marketing budget towards the internet with 46.5% of marketing spend now internet based (2010: 34.5%).  For this year, internet enquiries were up 22.8% year on year and total enquiries up 0.2%.  We will continue to manage our marketing budget with a strong focus on cost control and value for money. 

Around 41% (2010: 44%) of our business still 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 team 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 and over the coming year we will be integrating Saracen into our existing reporting systems.  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, 22% (2010: 21%) 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 2011 we had 128 employees (2010: 102). This increase is largely due to the acquisition of Saracen and we welcome these new personnel to the Lok'nStore Group.

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 13% of our employees have Employee Benefit Trust shares (scheme now closed) (2010: 17%) and 20% hold options (2010: 19%). 33% of the personnel are members of the contributory pension scheme (2010: 46%). Lok'nStore operates a Share Incentive Plan with 73% of employees participating in the Scheme (2010: 72%). 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

4 November 2011

Property Review

Strong Cash Flows Underpin Opportunities

Given the 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 by improving planning permission and selling the properties.  Leaseholds provide the opportunity to buy in freeholds, and to renegotiate leases on more favourable terms.

Asset Management

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

During the year we extended the leases on one of our existing stores while reducing the rent. The agreement, backdated to 25 March 2010, extends the leases to 24 March 2026 with an option to extend it for a further 10 years. It resulted in an immediate cash inflow of £40,000 and will produce additional annual cash savings of £40,000 annually until 24 March 2015 for the Group.

The average length of the 7 leases which have been valued in this period is 15 years and 2 months, an increase of 2 years over last year.  9 out of the 10 leasehold stores are inside the Landlord and Tenant Act providing us with a strong degree of security of tenure. The leasehold sites produced 28.3% of the store EBITDA in the year to July 2011 (2010: 26.3%).

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 and three of these have recently been renewed.

New location stores:

Portsmouth North Harbour: This 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. The planning permission is for a six-storey building to capitalise on the high level of visibility of the site.

Maidenhead: This is a long leasehold site of 1.6 acres for which there is a current planning permission for a store up to 83,000 sq. ft. of self-storage space when completed. The lease term runs until April 2076.

During the year the Group executed an agreement, subject to planning permission, for the shared use of this site with Lidl, a major international supermarket retailer.  The substantial proceeds of the lease sale will help finance the development of the store.

Subject to receiving the required planning permission, Lok'nStore will build a new state of the art self-storage centre which also provides space on the ground floor for Lidl's store. The new self-storage centre will have around 58,000 sq. ft. of self-storage space, taking Lok'nStore's total space to 1.2 million sq. ft.

Lok'nStore will create a new lease to Lidl concurrent with Lok'nStore's own lease. Lidl will share the ground floor space with Lok'nStore's operation, increasing the footfall by an estimated 1,000 cars a day. Lok'nStore will occupy and trade from its share of the ground floor and the entirety of the three floors above.

The site is close to Maidenhead town centre and railway station and will be very prominent to the retail park on the main road joining the town centre with the M4 motorway. The store will be of similar style and appearance to other recently opened Lok'nStore centres, with Lok'nStore's strong branding along with Lidl's brand adding to the visual attractiveness of the site. This collaboration will increase the visual prominence, brand recognition, passing traffic and footfall of the storage centre which are key criteria for success.

Replacement stores:

Reading: 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. This permission has recently been renewed providing a further 3 years to execute on this project.

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. 

Southampton: 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. This planning permission has also recently been renewed.

Option to acquire a site in Southend

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. On 2 March 2011 Planning permission was refused by the Local Authority and a planning appeal against that decision is awaited. The Option remains live pending the determination of the Planning Appeal.

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 or decreasing the size and number of our stores and moving or selling stores or sites when it will increase shareholder value.

Portfolio

We currently own 21 stores with capacity of around 1.1 million sq. ft. of storage space when fully fitted. Eleven stores are held freehold and ten are leasehold, and one further store is run on a management contract. With the new freehold sites at Portsmouth North Harbour, Southampton and Maidenhead total capacity rises to around 1.2 million sq. ft. Of this 64% will be held freehold and 36% leasehold. By valuation 85% 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 can add to shareholder value.

Property Assets and Net Asset Value

Lok'nStore's freehold and operating leasehold properties have been independently valued by C&W at £68.0 million as of 31 July 2011 (July 2010: £70.2 million) compared to a historic cost value of £32.5 million (2010: £33.9 million). This is referred to further in the Financial Review and is detailed in note 11 of the notes to the financial statements. Adding our stores under development at cost, our total property valuation of £79.5 million (historic cost value £44.8 million) (2010: £81.0 million; historic cost value £45.2 million) translates into an adjusted net asset value of £2.29 per share (2010: £2.24 per share), an increase of 2.4% compared to last year. The value of all properties valued showed a decrease of 3.1%.

Andrew Jacobs

Chief Executive Officer  

4 November 2011

Financial Review 

Trading

Total revenue for the year was £10.85 million (2010: £10.42 million), an increase of 4.1%. Group EBITDA was £3.28 million, up 11.8% over the previous year (2010: £2.93 million).

Operating profit for the year was £1.57 million, up 70.2% compared with £0.92 million in 2010 and pre-tax profit for the year was £938,280 up 118% (2010: £430,524).

There is no current 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 £2.63 million.

Basic earnings per share were 3.57 pence (2010: 0.88 pence per share). Diluted earnings per share were 3.54 pence (2010: 0.88 pence per share).

Operating Costs

Operating costs (excluding cost of sales of retail products) amounted to £7.34 million for the year including the post-acquisition expenses of Saracen Datastore acquired on 30 June 2011.  Excluding Saracen costs, operating costs (excluding cost of sales of retail products) amounted to £7.17 million for the year (2010: £7.26 million) a decrease of 1.3%. Property costs are the least variable cost and accounted for 47.3% of these costs (2010: 47.8%). Staff costs accounted for 38.6% (2010: 37.2%) and overheads for 14.1% (2010: 15.0%) of the total. This is the third consecutive year in which costs have been reduced.

	Increase /(decrease) in costs %		2011 £	Increase /(decrease)  in costs %		2011 £ Excluding Saracen costs		2010 £
Property costs	0.1		3,434,558	(2.2)		3,392,281		3,467,011
Staff costs	0.7		2,885,424	2.4		2,766,792		2,702,965
Overheads	(0.7)		1,017,030	(7.7)		1,007,128		1,090,818
Total administration expenses	(0.1)		7,337,012	(1.3)		7,166,201		7,260,794

Cash Flow, Interest and Financing

At 31 July 2011, the Group had cash balances of £3.78 million (2010: £5.36 million) after spending £3.7 million of cash on the purchase of Saracen Datastore Limited. Net debt increased from £22.7 million to £24.4 million so the majority of the cost of Saracen was met from operating cash flow.

There was £28.1 million of gross borrowings (2010: £28.1 million) representing gearing of 62.8% on net debt of £24.4 million (2010: 58.1%). After adjusting for the uplift in value of leaseholds which are stated at depreciated historic cost in the statement of financial position, gearing is 52.1% (2010: 50.3%). After adjusting for the deferred tax liability carried at year-end of £11.0 million gearing drops to 42.5% (2010: 40.6%).

Cash inflow from operating activities before interest and capital expenditure was £3.6 million (2010: £3.47 million). As well as using cash generated from operations to fund some capital expenditure, the Group has a five year revolving credit facility. This provides sufficient liquidity for the Group's current needs.  Undrawn committed facilities at the year-end amounted to £11.9 million (2010: £11.9 million).

The Group has agreed a new five year £40 million revolving credit facility with Lloyds TSB plc. The revolving credit facility is for a five-year term is effective from 20 October 2011 and expires on 19 October 2016. The facility will be used to repay the existing RBS facility and provide working capital for the development of the business over the medium term. 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 2.35%-2.65% margin based on a loan to value covenant test (2.35% at Lok'nStore's current LTV level). The interest cover and loan to value covenants are broadly in line with the previous facility.

Prevailing economic conditions have caused LIBOR rates to remain at very low levels. Lok'nStore has managed its debt aggressively and the average interest rate paid since July 2010 was 1.84% compared to 1.81% for the year to 31 July 2010. Interest on bank borrowings for the year increased slightly to £522,513 from £508,687 in 2010. The net interest charge, defined as total finance costs less total finance income, increased from £489,708 to £498,450.

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 £10.9 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 £212,330 higher for the year on the assumption that the £10.9 million is fully funded by borrowings.

By excluding the interest costs of carrying the development sites from the total net interest charge of £498,450 this means that the interest on the operating portfolio is £286,120 for the year. Funds from operations ('FFO') represented by EBITDA minus interest on the operating portfolio is therefore £2.97 million equating to 11.0 pence per share, up 12.5% on last year (2010: 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 ("capex") during the year totalled only £0.7 million (excluding the acquisition of Saracen Datastore Limited), including limited capex at existing stores, roof renovation with solar power at the Poole store and planning and other professional costs incurred in maximising the potential of the existing planning permissions. 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.

Statement of Financial Position

Net assets at the year-end were £38.8 million (2010: £39.1 million).  The movement was mainly as a result of the profits earned during the year offset by a decrease in property values. Freehold property values at 31 July 2011 were £55.7 million compared to £59.4 million at 31 July 2010. 

Market Valuation of Freehold and Operating Leasehold Land and Buildings

Our eleven freehold properties are held in the statement of financial position at fair value, and have been valued externally by Cushman and Wakefield ("C&W"). Refer to note 11(b) - property, plant and equipment and also to the accounting policies for details of the fair value of trading properties.. The leasehold stores are held as 'operating leases' and the valuations of these are not taken onto the statement of financial position. 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 2011, professional valuations were prepared by external valuers Cushman & Wakefield (C&W) in respect of eleven freehold and seven operating leasehold properties.  The valuation was prepared in accordance with RICS Appraisal and Valuation Standards Global and the UK 7th 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 11(b) in the notes to the financial statements for a more detailed description of the valuation methodology).

The valuation report indicates a total for properties valued of £68.0 million (NBV £32.5 million) (2010: £70.2 million: NBV £33.9 million). In relation to the existing store at Reading there is a prospect of redevelopment for residential use although it has been valued as a trading store.   The valuations do not account for any further investment in existing stores since 31 July 2011. The development sites at Reading, Maidenhead, Portsmouth North Harbour and Southampton have not been valued and their asset value (stated at cost) of £11.5 million combined with the C&W valuation provides an aggregate property value of £79.5 million (2010: £81.0 million).

During the year we extended the leases on one of our existing stores while reducing the rent. The property comprises four leases on FRI terms and was to expire on 24 March 2015.  A reversionary lease was negotiated and granted in December 2010 extending the lease term by 10 years to 24 March 2026. The reversionary lease also includes an option to renew the lease for a further 10 years to 24 March 2036 providing all four units are renewed. This option is personal to Lok'nStore and any successor provided the successor is a major self-storage operator. This leasehold store has therefore been valued including this special assumption and on the basis of a lease term extending to 24 March 2036.

A 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 Statement of Financial Position 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 £12.3 million (2010: £10.8 million). Instead we have reported by way of a note the underlying value of these leasehold stores in future revaluations and adjusted our Net Asset Value ('NAV') calculation accordingly to include their value. This will ensure comparable NAV calculations.

Analysis of Total Property Value

	No. of stores	31 July 2011 Valuation £	No. of stores	31 July 2010 Valuation £
Freehold valued by C&W	11 ***	55,670,000	12**	59,390,000
Leasehold valued by C&W	7	12,310,000	7	10,800,000
Subtotal	18	67,980,000	19	70,190,000
Sites in development at cost	4	11,531,582	3	10,794,944
Total	22*	79,511,582	22*	80,984,944

*     Three Leasehold stores were not valued (2010: 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.

***  Includes the current Reading store at its trading store valuation. The Reading site with planning permission for a new store is stated at cost and is included in sites in development at cost.

Adjusted Net Asset Value per Share   

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.

	31 July 2011 £	31 July 2010 £
Analysis of net asset value (NAV)
Total non-current assets	76,537,206	75,040,880
Adjustment to include leasehold stores at valuation
Add: C&W leasehold valuation*	12,310,000	10,800,000
Deduct: leasehold properties and their fixtures and fittings at NBV	(4,338,607)	(4,765,871)
	84,508,762	81,075,009
Add: current assets	5,709,940	6,624,872
Less: current liabilities	(32,839,442)	(3,674,438)
Less: non-current liabilities (excluding deferred tax provision)	(26,342)	(28,036,885)
	(27,155,844)	(25,086,451)
Adjusted net assets before deferred tax provision	57,352,918	55,988,558
Deferred tax	(10,555,101)	(10,846,123)
Deferred tax arising on revaluation of leasehold properties **	(1,992,848)	(1,629,215)
Adjusted net assets	44,804,969	43,513,220
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	£1.79	£1.74
Adjusted net asset value per share before deferred tax provision	£2.29	£2.24

* 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 15 years and 2 months at the date of the 2011 valuation (2010 valuation: 13 years and 2 months).

** A deferred tax adjustment in respect of the uplift in the value of the leasehold properties has been included. Although this is a memorandum adjustment as leasehold properties are included in the Group's financial statements at cost and not at valuation, this deferred tax adjustment is included in the adjusted Net asset value calculation in order to maintain a consistency of treatment between freehold and leasehold properties.

Summary

Lok'nStore has a flexible business model with relatively low credit risk, and tightly controlled operating costs which generates increasing cash from a strong asset base.

Ray Davies

Finance Director

4 November 2011

Consolidated Statement of Comprehensive Income

For the year ended 31 July 2011

	Notes	Year ended 31 July 2011 £	Year ended 31 July 2010 £
	1a	10,845,926	10,420,440
Revenue
Cost of sales of retail products	2a	(227,469)	(225,049)
Property and premises costs	2b	(3,434,558)	(3,467,011)
Staff costs	2b	(2,885,424)	(2,702,965)
General overheads	2b	(1,017,030)	(1,090,818)
EBITDA*		3,281,445	2,934,597
Depreciation based on historic cost		(1,354,088)	(1,574,470)
Additional depreciation based on revalued assets		(261,780)	(258,007)
		(1,615,868)	(1,832,477)
Loss on sale of motor vehicle		-	(452)
Equity settled share based payments	20	(99,639)	(181,436)
		(1,715,507)	(2,014,365)
Operating profit*		1,565,938	920,232
Professional costs of acquisition of Saracen Datastore Limited	2c	(129,208)	-
Profit before interest		1,436,730	920,232
Finance income	3	24,063	18,979
Finance cost	4	(522,513)	(508,687)
Profit before taxation	5	938,280	430,524
Income tax expense	7	(51,977)	(209,400)
Profit for the financial year		886,303	221,124
Profit/(loss) attributable to:
Owners of the parent	22	892,514	221,124
Non-controlling interest		(6,211)	-
		886,303	221,124
Other Comprehensive Income
(Decrease) / increase in asset valuation		(2,494,416)	2,454,580
Deferred tax relating to decrease / (increase) in asset valuation		1,216,374	(388,426)
Other comprehensive income for the year net of tax		(1,278,042)	2,066,154
Total comprehensive income for the year Attributable to:
Owners of the parent		(385,528)	2,287,278
Non-controlling interest		(6,211)	-
		(391,739)	2,287,278
Earnings per share
Basic	9	3.57p	0.88p
Diluted	9	3.54p	0.88p

*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 2011

	Share capital £	Share premium £	Other reserves £	Revaluation reserve £	Retained earnings £	Attributable to owners of the parent £	Non controlling interest £	Total equity £
1 August 2009	267,589	698,044	13,159,539	19,758,314	3,088,522	36,972,008	-	36,972,008
Profit for the year	-	-	-	-	221,124	221,124	-	221,124
Other comprehensive income:
Increase in asset valuation	-	-	-	2,454,580	-	2,454,580	-	2,454,580
Deferred tax relating to increase
in asset valuation	-	-	-	(388,426)	-	(388,426)	-	(388,426)
	-	-	-	2,066,154	-	2,066,154	-	2,066,154
Total comprehensive income	-	-	-	2,066,154	221,124	2,287,278	-	2,287,278
Transactions with owners:
Dividend paid	-	-	(332,416)	-	-	(332,416)	-	(332,416)
	-	-	(332,416)	-	-	(332,416)	-	(332,416)
Transfer additional dep'n on revaluation
net of deferred tax	-	-	-	(188,346)	188,346	-	-	-
Equity settled share based payments	-	-	181,436	-	-	181,436	-	181,436
31 July 2010	267,589	698,044	13,008,559	21,636,122	3,497,992	39,108,306	-	39,108,306
Profit/(loss) for the year	-	-	-	-	892,514	892,514	(6,211)	886,303
Other comprehensive income:
Decrease in asset valuation	-	-	-	(2,494,416)	-	(2,494,416)	-	(2,494,416)
Deferred tax relating to decrease
in asset valuation	-	-	-	1,216,374	-	1,216,374	-	1,216,374
	-	-	-	(1,278,042)	-	(1,278,042)	-	(1,278,042)
Total comprehensive income	-	-	-	(1,278,042)	892,514	(385,528)	(6,211)	(391,739)
Transactions with owners:
Non-controlling interest arising on
acquisition of subsidiary	-	-	-	-	-	-	260,154	29,991
Dividend paid	-	-	(249,936)	-	-	(249,936)	-	(249,936)
	-	-	(249,936)	-	-	(249,936)	253,943	(10,218)
Transfer additional dep'n on revaluation
net of deferred tax	-	-	-	(196,335)	196,335	-	-	-
Equity settled share based payments	-	-	99,639	-	-	99,639	-	99,639
31 July 2011	267,589	698,044	12,858,262	20,161,745	4,586,841	38,572,481	253,943	38,826,424

Company Statement of Changes in Equity

For the year ended 31 July 2011

	Share capital £	Retained earnings £	Share premium £	Other reserves £	Total £
1 August 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)
Equity settled share based payments	-	-	-	181,436	181,436
31 July 2010	267,589	(168,652)	698,044	6,713,264	7,510,245
Loss for the year	-	(168,886)	-	-	(168,886)
Dividend paid	-	-	-	(249,936)	(249,936)
Total transactions with owners	-	-	-	(249,936)	(249,936)
Equity settled share based payments	-	-	-	99,639	99,639
31 July 2011	267,589	(337,538)	698,044	6,562,967	7,191,062

Statements of Financial Position

31 July 2011

Company Registration No. 4007169

	Notes	Group 31 July 2011 £	Group 31 July 2010 £	Company 31 July 2011 £	Company 31 July 2010 £
Assets
Non-current assets
Intangible assets	11a	4,418,718	-	-	-
Property, plant and equipment	11b	69,174,548	72,180,099	-	-
Property lease premiums	11c	2,944,103	2,860,781	-	-
Investments	12	-	-	1,590,121	1,490,482
Amounts due from subsidiary undertakings	27	-	-	5,600,941	6,019,763
		76,537,369	75,040,880	7,191,062	7,510,245
Current assets
Inventories	13	110,414	70,085	-	-
Trade and other receivables	14	1,821,002	1,190,756	-	-
Cash and cash equivalents		3,778,524	5,364,031	-	-
		5,709,940	6,624,872	-	-
Total assets		82,247,309	81,665,752	7,191,062	7,510,245
Liabilities
Current liabilities
Trade and other payables	15	(4,655,796)	(3,674,438)	-	-
Current tax liabilities		(59,605)	-	-	-
Borrowings	17	(28,124,041)	-	-	-
		(32,839,442)	(3,674,438)	-	-
Non-current liabilities
Borrowings	17	(26,342)	(28,036,885)	-	-
Deferred tax	18	(10,555,101)	(10,846,123)	-	-
		(10,581,443)	(38,883,008)	-	-
Total liabilities		(43,420,885)	(42,557,446)	-	-
Net assets		38,826,424	39,108,306	7,191,062	7,510,245
Equity
Equity attributable to owners of the parent
Called up share capital	19	267,589	267,589	267,589	267,589
Share premium		698,044	698,044	698,044	698,044
Other reserves	21	12,858,262	13,008,559	6,562,967	6,713,264
Retained earnings	22	4,586,841	3,497,992	(337,538)	(168,652)
Revaluation reserve		20,161,745	21,636,122	-	-
Total equity attributable to owners of the parent		38,572,481	39,108,306	7,191,062	7,510,245
Non-controlling interests		253,943	-	-	-
Total equity		38,826,424	39,108,306	7,191,062	7,510,245

Approved by the Board of Directors and authorised for issue on 4 November 2011 and signed on its behalf by:

A Jacobs                               R Davies

Chief Executive Officer           Finance Director

Consolidated Statement of Cash Flows

For the year ended 31 July 2011

	Notes	Year ended 31 July 2011 £	Year ended 31 July 2010  £
Operating activities
Cash generated from operations	24a	3,599,559	3,466,294
Net cash from operating activities		3,599,559	3,466,294
Investing activities
Purchase of property, plant and equipment and property lease premiums		(786,678)	(555,104)
Acquisition of subsidiary (net of cash acquired)	10	(3,563,254)	-
Proceeds from disposal of property, plant and equipment		-	2,900
Interest received		24,063	18,979
Net cash used in investing activities		(4,325,869)	(533,225)
Financing activities
Repayment of borrowings - subsidiary bank loan		(39,458)	-
Interest paid		(569,803)	(465,353)
Equity dividends paid		(249,936)	(332,416)
Net cash used in financing activities		(859,197)	(797,769)
Net (decrease) / increase in cash and cash equivalents in the year		(1,585,507)	2,135,300
Cash and cash equivalents at beginning of the year		5,364,031	3,228,731
Cash and cash equivalents at end of the year		3,778,524	5,364,031

No statement of cash flows 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 England and Wales. The address of the registered office is One London Wall, London EC2Y 5AB, UK. Copies of this Annual Report and Accounts may be obtained from the Company's head office at 112, Hawley Lane, Farnborough, Hants, GU14 8JE, or the investor section of the Company's website at http://www.loknstore.com. 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 2011 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.

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 2010.

The financial statements have been prepared on the historic cost basis except that certain trading properties are stated at fair value.

Adoption of new and revised standards

Standards effective for the current year

The adoption of the following standards and amendments has not had any significant impact on the financial statements of the Group:

IFRS 1	First-time Adoption of IFRS - Amendment; Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters
IAS 24	Revised IAS 24 Related Party Disclosures
IFRIC 19	Extinguishing Financial Liabilities with Equity Instruments
IFRIC 14	Amendment - Prepayments of a Minimum Funding Requirement

Annual improvements projects April 2009 and May 2010.

Standards in issue but not yet effective

At the date of approval of these financial statements, the following Standards and Interpretations which were in issue but not yet effective:

IFRS 7* Financial Instruments: Disclosures - Amendments; Disclosures - Transfers of Financial Assets.  Effective for accounting periods commencing on or after 1 July 2011. IFRS 1* First-time Adoption of IFRS - Amendment; Severe Hyperinflation and Removal of Fixed Dates for First-Time Adopters.  Effective for accounting periods commencing on or after 1 July 2011. IAS 12* Income Taxes - Amendment; Deferred Tax: Recovery of Underlying Assets.   Effective accounting periods commencing on or after 1 January 2012. IFRS 9* Financial Instruments.  Effective accounting periods commencing on or after 1 January 2013. IFRS 10* Consolidated Financial Statements.  Effective accounting periods commencing on or after 1 January 2013. IFRS 11* Joint Arrangements.  Effective accounting periods commencing on or after 1 January 2013.  IFRS 12* Disclosure of Interests in Other Entities.  Effective accounting periods commencing on or after 1 January 2013.  IFRS 13* Fair Value Measurement.  Effective accounting periods commencing on or after 1 January 2013. IAS 27* Separate Financial Statements (as amended 2011).  Effective accounting periods commencing on or after 1 January 2013.  IAS 28* Investments in Associates and Joint Ventures (as amended 2011).  Effective accounting periods commencing on or after 1 January 2013.

*Not yet endorsed by the EU.

The Directors do not anticipate that the adoption of these Standards will have a significant impact on the financial statements of the Group.

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.

earnings. Earnings per share are calculated on the net shares in issue.

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 11b. The carrying value of freehold properties held at valuation at the reporting date was £55.7 million (2010: £59.4 million) as shown in the table in the Financial Review.

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 cash flow 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 statement of financial position 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 comparison 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, and 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 reporting 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 statement of financial position. Stores in 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.

The carrying value of development property assets at the reporting date was £11.5 million (2010: £10.8 million) of which £2.94 million relating to the long lease at Maidenhead was classified as a property lease premium in the reporting (2010: £2.86 million).

c) Estimate of fair value of intangible assets acquired in business combination

The relative size of the Group's intangible assets, excluding goodwill, makes the judgements surrounding the estimated useful lives important to the Group's financial position and performance. At 31 July 2011 intangible assets, excluding goodwill, amounted to £3.3 million (2010: £ nil) and represented 4.3% of the Group's total reported assets.

The valuation method used and key assumptions are described in Note 11(b).

The useful life used to amortise intangible assets relates to the expected future performance of the assets acquired and management's judgement of the period over which economic benefit will be derived from the asset.  The estimated useful life of customer relationships of 20 years principally reflects management's view of the average economic life of the customer base and is assessed by reference to customer churn rates. Typically, the customer base for a serviced archive business is very inert. Corporate customers do not tend to switch service providers and indeed they incur box withdrawal charges should they do so. An increase in churn rates may lead to a reduction in the estimated useful life and an increase in the amortisation charge.

d) Dilapidations

The Group has a number of stores operating under leasehold tenure. From time to time, in accordance with the Group's stated objective to maximise shareholder value, it may choose not to renew a lease, particularly where alternative premises have been sourced and customers can be moved into the new premises. In these circumstances the Group may incur repairing and decoration liabilities ('dilapidations') based on the tenant's obligation to the landlord to keep the leasehold premises in good repair and decorative condition. Landlords in these circumstances will normally serve a schedule of dilapidations on the tenant setting out a list of items to be remedied. This may also refer to obligations on the tenant to reinstate any alterations works previously undertaken by the tenant under a Licence for Alterations. Such claims will always be negotiated robustly by Lok'nStore and may require legal, valuation and surveyors' 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 reporting date was £nil (2010: £nil). 

Notes to the Financial Statements

For the year ended 31 July 2011

1a        Revenue

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

	2011	2010
Stores trading	£	£
Self-storage revenue	9,522,818	9,259,949
Other storage related revenue	1,059,990	1,034,889
Ancillary store rental revenue	5,217	5,217
Management fees	21,220	21,622
Sub-total	10,609,245	10,321,677
Stores under development
Non-storage income	92,450	98,763
Sub-total	10,701,695	10,420,440
Serviced archive and records management revenue	144,231	-
Total revenue per statement of comprehensive income	10,845,926	10,420,440

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. Historically, there has been one business segment as the Group's net assets, revenue and profit before tax were attributable to one principal activity, the provision of self-storage accommodation and related services.

Following the purchase of Saracen Datastore Limited on 30 June 2011, the Group also provides offsite records storage and document and tape archiving services.   The acquisition broadens the offering to clients and is seen as an excellent entry point to a wide market segment complimenting Lok'nStore's existing self-storage activities.

All of the Group's activities occur in the United Kingdom.

Financial information is reported to the Board with revenue and profit analysed between self-storage activity and serviced archive and records management activity.

Segment revenue comprises of sales to external customers and excludes gains arising on the disposal of assets and finance income. Segment profit reported to the Board represents the profit earned by each segment before acquisition costs, finance income, finance costs and tax.  For the purposes of assessing segment performance and for determining the allocation of resources between segments, the Board uses a measure of adjusted EBITDA (as defined in the accounting policies) and reviews the non-current assets attributable to each segment as well as the financial resources available. All assets are allocated to reportable segments.  Assets that are used jointly by segments are allocated to the individual segments on a basis of revenues earned.  All liabilities are allocated to individual segments other than borrowings and tax. Information is reported to the Board of Directors on a product basis as management believe that the activity of self-storage and the activity of serviced archive and records management exposes the Group to differing levels of risk and rewards due to the length, nature seasonality and  customer base  of their respective operating cycles.

The segment information for the year ended 31 July 2011 is as follows:

	Self-storage 2011 £	Serviced archive & records management 2011 £	Total 2011 £
Total segment revenue	10,701,695	144,231	10,845,926
Revenue from external customers	10,701,695	144,231	10,845,926
Adjusted EBITDA	3,324,938	(43,493)	3,281,445
Depreciation	(1,608,652)	(7,216)	(1,615,868)
Equity settled share based payments	(99,639)	-	(99,639)
Segment profit	1,616,647	(50,729)	1,565,938
Central costs not allocated to segments:
Acquisition costs			(129,208)
Finance income			24,063
Finance costs			(522,513)
Income tax expense			(51,977)
Consolidated profit for the financial year			886,303

Sales between segments are carried out at arm's length. The serviced archive segment with over 300 customers has a greater customer concentration with its ten largest corporate customers accounting for 40% of revenue and its top 50 delivering 71.1% of revenue. The self-storage segment with over 6,700 customers has no individual self-storage customer accounting for more than 1% of total revenue and no group of entities under common control (e.g. Government) accounts for more than 10% of total revenues.

	Self-Storage 2011 £	Serviced archive & records management 2011 £	Total 2011 £
Segment and total assets	77,020,006	5,517,363	82,537,369
Segment liabilities	(14,503,317)	(767,185)	(15,270,502)
Borrowings (not allocated to segment liabilities)	(28,071,905)	(78,478)	(28,150,383)
Total liabilities	(42,395,222)	(845,663)	(43,420,885)
Capital expenditure	624,460	78,895	703,355

The amounts presented to the Board with respect to total assets and total liabilities are measured in a manner consistent with the financial statements and are allocated based on the operations of the segment.

The Group's interest bearing liabilities are not considered to be segment liabilities but rather are managed by the treasury function.

2a        Cost of sales of retail products

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.

	2011 £	2010 £
Retail	132,936	144,337
Insurance	21,639	21,190
Van hire	55,980	59,522
	210,555	225,049
Serviced archive consumables	16,914	-
	227,469	225,049
2b        Other costs
	2011 £	2010 £
Property and premises costs	3,434,558	3,467,011
Staff costs	2,885,424	2,702,965
General overheads	1,017,030	1,090,818
	7,337,012	7,260,794

The presentation of these costs in the Consolidated Statement of Comprehensive Income has been amended.  These costs were previously grouped in a single line called "administrative expenses".  The Directors consider the amended presentation to provide more useful information and to be more appropriate to the business.

 2c        Costs of acquisition of Saracen Datastore Limited

	2011 £	2010 £
Legal and professional fees	129,208	-
	129,208	-

3          Finance income

	2011 £	2010 £
Bank interest	24,063	15,456
Other interest	-	3,523
	24,063	18,979

All interest receivable arises on cash and cash equivalents (see note 16).

4          Finance costs

	2011 £	2010 £
Bank interest	520,599	508,687
Other interest	1,914	-
	522,513	508,687

All interest payable arises on bank loans classified as financial liabilities measured at amortised cost (see note 17).

5          Profit before taxation

	2011 £	2010 £
Profit before taxation is stated after charging:
Depreciation and amounts written off property, plant and equipment:
- owned assets	1,615,868	1,832,477
Operating lease rentals:
- land and buildings	1,397,032	1,427,264

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	41,000	45,000
Other services
The auditing of accounts of associates of the Company pursuant to legislation
- audit of subsidiaries where such services are provided by Baker Tilly UK Audit LLP or its associates	16,000	5,000
Other services supplied pursuant to such legislation
- interim review	7,000	7,000
Tax services
- compliance services	16,290	16,000
- advisory services	33,383	55,290
Other services
- work in respect of Company Share Incentive Plan (SIP)/CSOP	1,000	5,093
- acquisition and due diligence services	40,750	-
	155,423	133,383
Comprising
Audit services	57,000	50,000
Non-audit services: Company and UK subsidiaries	98,423	83,383
	155,423	133,383

6          Employees

	2011 No.	2010 No.
The average monthly number of persons (including Directors) employed by the Group during the year was:
Store management	87	83
Administration	21	19
	108	102

	2011 £	2010 £
Costs for the above persons:
Wages and salaries	2,260,115	2,160,026
Social security costs	207,881	200,439
Pension costs	36,891	25,563
	2,504,887	2,386,028
Share based remuneration (options)	99,639	181,436
	2,604,526	2,567,464

Share based remuneration is separately disclosed in the statement of comprehensive income. Wages and salaries of £105,066 (2010: £104,259) 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 £3,408 (2010: £4,167) outstanding at the year-end.

Directors' remuneration

2011	Emoluments £	Bonuses £	Benefits £	Sub total £	Gains on share options £	Total £
Executive
A Jacobs	200,000	14,000	2,562	216,562	-	216,562
SG Thomas	50,000	3,500	2,674	56,174	-	56,174
RA Davies	96,750	10,000	1,732	108,482	-	108,482
CM Jacobs	54,500	4,500	2,182	61,182	-	61,182
Non-Executive
RJ Holmes	20,000	-	-	20,000	-	20,000
ETD Luker	25,000	-	-	25,000	-	25,000
C P Peal	20,000	-	-	20,000	-	20,000
I Wright	-	-	-	-	-	-
	466,250	32,000	9,150	507,400	-	507,400
					Gains on
	Emoluments	Bonuses	Benefits	Sub total	share options	Total
2010	£	£	£	£	£	£
Executive
A Jacobs	190,000	8,000	2,157	200,157	-	200,157
SG Thomas	47,500	2,000	2,321	51,821	-	51,821
RA Davies	96,750	4,000	1,499	102,249	-	102,249
CM Jacobs	51,775	2,000	1,917	55,692	-	55,692
Non-Executive
RJ Holmes	19,000	-	-	19,000	-	19,000
RW Jackson	7,500	-	-	7,500	-	7,500
ETD Luker	23,750	-	-	23,750	-	23,750
C P Peal	19,000	-	-	19,000	-	19,000
	455,275	16,000	7,894	479,169	-	479,169

During the year services totalling £302,896 (2010: £276,920) were provided by Value Added Services Limited (VAS), a company in which Andrew Jacobs and Simon Thomas have a beneficial interest. The amount paid to Value Added Services Limited which is directly attributable to Andrew Jacobs and Simon Thomas is shown in the Directors' emoluments table above but not included in the total employee costs above. There were performance bonuses earned and payable to VAS for the year of £17,500 (2010: £10,000). See note 27 on 'Related party transactions' for further information.

Pension contributions of £14,663 (2010: £8,944) were paid by the Group on behalf of RA Davies. The highest paid Director did not accrue any pension rights during the year. The benefits in kind all relate to medical insurance premiums paid on behalf of the Directors.

The number of Directors to whom retirement benefits are accruing under money purchase pension schemes in respect of qualifying service is one (2010: one).

7          Taxation

	2011 £	2010 £
Current tax:
UK corporation tax at 27% (2010: 28%)	(13,054)	-
Deferred tax:
Origination and reversal of temporary differences	451,412	310,269
Impact of change in tax rate on closing balance	(230,580)	(102,742)
Adjustments in respect of prior periods	(155,802)	1,873
Total deferred tax	65,031	209,400
Income tax expense for the year	51,977	209,400

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

	2011 £	2010 £
Profit before tax	938,280	430,524
Tax on ordinary activities at the standard rate of corporation tax in the UK of 27% (2010:28%)	253,336	120,547
Expenses not deductible for tax purposes	3,263	7,823
Depreciation of non-qualifying assets	87,736	94,367
Share based payment charges in excess of corresponding tax deduction	26,903	50,802
Impact of change in tax rate	(230,580)	(102,742)
Amounts not recognised in deferred tax	44,104	36,730
Utilisation of loss against pre-acquisition profits	27,653	-
Adjustments in respect of prior periods - deferred tax	(155,802)	1,873
Other	(4,638)	-
Income tax expense for the year	51,977	209,400
Effective tax rate	6%	49%

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 £1,216,374 (2010: £388,426 debit) has been recognised as a credit directly in other comprehensive income (see note 18 on deferred tax).

8          Dividends

	2011 £	2010 £
Amounts recognised as distributions to equity holders in the year:
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
Final dividend for the year ended 31 July 2010 (0.67 pence per share)	167,457	-
Interim dividend for the six months to 31 January 2011 (0.33 pence per share)	82,479	-
	249,936	332,416

In respect of the current year, the Directors propose that a final dividend of 2.67 pence per share will be paid to the shareholders. The total estimated dividend to be paid is £667,331 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 14 November 2011; the record date 18 November 2011; with an intended payment date of 16 December 2011.

9          Earnings per share

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

	2011 £	2010  £
Profit for the financial year attributable to owners of the parent	892,514	221,124
	2011 No. of shares	2010 No. of shares
Weighted average number of shares
For basic earnings per share	24,993,653	24,993,653
Dilutive effect of share options	201,741	49,502
For diluted earnings per share	25,195,394	25,043,155

623,212 (2010: 623,212) shares held in the Employee Benefit Trust and 1,142,000 (2010: 1,142,000) treasury shares are excluded from the above.

	2011	2010
Earnings/ (loss) per share
Basic	3.57p	0.88p
Diluted	3.54p	0.88p

10   Acquisition of subsidiary 

On 30 June 2011, Lok'nStore Limited acquired 90.6% of the issued share capital of Saracen Datastore Limited ('Saracen'), a company incorporated in England & Wales. Saracen provides serviced archive and records management solutions. The cash consideration was £3.7 million.  Leo Kane, the incumbent Managing Director of Saracen who has been with the business since 1995, retains a 9.4% stake in Saracen and will continue in his current role. Andrew Jacobs and Ray Davies have joined the Saracen Board to provide the majority of the directors of the board of Saracen Datastore Limited which, together with Lok'nStore's majority shareholding, gives it control.

Saracen, which is headquartered in Leatherhead, was established in 1991 and has four sites across the South East of England providing over 100,000 sq.ft. of offsite records storage and document and tape archiving space.  For the year ended 31 December 2010, Saracen achieved turnover of £1.6 million and adjusted EBITDA of £0.4 million. The acquisition broadens the offering to clients and the acquisition of Saracen is seen as an excellent entry point to a wide market segment complimenting Lok'nStore's existing self-storage activities. This acquisition extends our existing self-serve archive service which we provide to around 500 customers.  The acquisition will add over 300 customers and the Directors believe that this will enhance the Group's focus on increasing cash generation from the business and value to shareholders. 

The transaction has been accounted for using the acquisition method of accounting.  The goodwill is attributable to the synergies that are expected to arise in the post-acquisition period and the skilled labour force of the acquired business.  The contractual customer relationships have been separately valued and included an assessment of the value of the skilled labour force.

None of the goodwill is expected to be deductible for income tax purposes. The following table summarises the consideration paid for Saracen and the amounts of assets and liabilities assumed recognised at the acquisition date, as well as the fair value at the acquisition date of the non-controlling interest in Saracen.

Net assets acquired

	Book Value £	Fair Value Adjustments £	31 July 2011 £
Assets
Property, plant and equipment	401,377	-	401,377
Intangible assets - customer relationships	-	3,308,839	3,308,839
Inventories	8,956	-	8,956
Trade and other receivables	596,000	-	596,000
Cash and cash equivalents	87,156	-	87,156
Total assets	1,093,489	3,308,839	4,402,328
Liabilities
Trade and other payables	(528,833)	-	(528,833)
Other payables	(20,682)	-	(20,682)
Current tax liabilities	(69,485)	-	(69,485)
Deferred tax liabilities (Note 18)	(33,111)	-	(33,111)
Deferred tax liabilities arising on initial recognition of intangible assets (Note 18)	-	(827,210)	(827,210)
Bank loan	(39,458)	-	(39,458)
Finance leases	(82,864)	-	(82,864)
Total liabilities	(774,433)	(827,210)	(1,601,643)
Fair value of identifiable assets and liabilities	319,056	2,481,629	2,800,685
Non-controlling interest	(29,991)	(230,163)	(260,154)
Goodwill	-	1,109,879	1,109,879
Total consideration	289,065	3,361,345	3,650,410

All of the gross contractual trade receivables at the acquisition date are expected to be collected.

Saracen Datastore Limited contributed £144,231 of revenue and £66,075 net loss for the period between the date of acquisition and the reporting date. Had the Saracen acquisition occurred on 1 August 2010 the Group's consolidated statement of comprehensive income would show revenue of £12.5 million and the Group's profit before tax would be £1.2 million.

11 a)        Intangible assets

Group	Goodwill £	Contractual customer relationships £	Total £
Net book value at 1 August 2009 and 1 August 2010	-	-	-
Acquisition of subsidiary - Saracen Datastore Limited (See note 10)	1,109,879	3,308,839	4,418,718
Amortisation charge *	-	-	-
Net book value at 31 July 2011	1,109,879	3,308,839	4,418,718

All goodwill is allocated to the serviced archive cash-generating units (CGUs) identified as a separate business segment. 

* Due to the proximity of the acquisition to the reporting date, no amortisation was provided for in these financial statements. Amortisation for financial year 2012 will be charged based on a 20 year amortisation profile on cost less any impairment.

The fair value of the contractual customer relationships was estimated by using an income based approach and applying principles set down by the International Valuation Standards Council in Guidance Note 4 (Valuation of Intangible Assets).

The fair value estimates are based on:-

-     an assumed discount rate of 11%

-     estimated useful lives of customer relationships of 20 years based on a substantially inert and contractually committed customer base. Customer relationship assets are/shall be subject to impairment if specific relationships with individual customers cease.

-     long term sustainable growth rates of 2.75%

-     an application of contributory asset charges (CAC) recognising the contributions to cash flow from tangible assets, working capital and the workforce.

-     a corporation tax rate of 26%

11 b)     Property, plant and equipment

Group	Development property assets at cost £	Land and buildings at valuation £	Short leasehold  improvements at cost £	Fixtures, fittings and equipment at cost £	Motor vehicles at cost £	Total £
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
Cost or valuation
1 August 2010	7,934,163	54,130,943	2,539,569	15,606,879	157,524	80,369,078
Additions	261,329	278,101	57,018	77,365	29,543	703,356
Assets acquired on acquisition of subsidiary	-	-	-	343,739	57,639	401,378
Reclassification	391,987	(391,987)	-	-	-	-
Disposals	-	-	-	-	-	-
Revaluations	-	(2,986,700)	-	-	-	(2,986,700)
31 July 2011	8,587,479	51,030,357	2,596,587	16,027,983	244,706	78,487,112
Depreciation
1 August 2010	-	-	1,350,033	6,773,239	65,707	8,188,979
Depreciation	-	492,284	116,671	984,088	22,826	1,615,869
Revaluations	-	(492,284)	-	-	-	(492,284)
Disposals	-	-	-	-	-	-
31 July 2011	-	-	1,466,704	7,757,327	88,533	9,312,564
Net book value at 31 July 2011	8,587,479	51,030,357	1,129,883	8,270,656	156,173	69,174,548

If all property, plant and equipment was stated at historic cost the carrying value would be £44.8 million (2010: £45.2 million).

Additions of £0.3 million to development property assets includes professional costs incurred in maximising the potential of existing planning permissions on the Portsmouth North Harbour and Reading sites and additions of £0.3m to land and buildings includes the costs of roof renovation with new solar power to the Poole store.

Property, plant and equipment (non-current assets) with a carrying value of £69.2 million (2010: £72.2 million) is pledged as security for bank loans (see note 17). The Maidenhead property (see note 11c) 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 £132,983 (2010: £206,861).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 12% 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.

The net book value of assets held under finance leases at 31 July 2011 was £136,674 (2010: £nil) and the depreciation charge includes £2,908 (2010: £nil) in relation to these assets.

Market Valuation of Freehold and Operating Leasehold Land and Buildings

On 31 July 2011, a professional valuation was prepared by external valuers Cushman & Wakefield LLP (C&W) in respect of eleven 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, Global and the UK, 7th 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 seven 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 £68.0 million (2010: £70.2 million) of which £55.7 million (2010: £59.4 million) relates to freehold properties, and £12.3 million (2010: £10.8 million) relates to properties held under operating leases.

Freehold land and buildings are carried at valuation in the statement of financial position. 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 £55.7 million valuation of the freehold properties £4.7 million relates to the net book value of fixtures, fittings and equipment, and the remaining £51.0 million relates to freehold properties.

The 2011 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 has residential development potential following the grant of planning permission for 112 apartments with associated car parking and landscaping it remains an operating self-storage facility and has been valued as such. 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 stated at cost and any additional uplift based on the assumption that a substantial number of the existing store's customers will transfer to the new store when built has been ignored. A reclassification has been made in the PPE note to include the cost of the Reading development site in development assets.  The valuations do not account for any further investment in existing stores since July 2011.

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.

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 70.16% (2010: 72.14%). 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 5.49% (2010: 5.68%). This rises to 11.72% (2010: 11.81%) 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 12.18% (2010: 12.20%).

e. Purchaser's costs of 5.80% have been assumed initially and sale plus purchaser's costs totalling 7.80% 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 15 years and 2 months as at 31 July 2011 (13 years and 2 months as at 31 July 2010). Valuations for stores held under operating leases are not reflected in the statement of financial position and the assets in relation to these stores are carried at cost less accumulated depreciation.

Special Assumption - Lease Extension

One of the Group' leases has been renegotiated during the year and includes a ten year option to renew the lease from March 2026 to March 2036.  The option to extend is only operable in the event that all four of the leases are extended and is personal to Lok'nStore or another "major self-storage operator", to be approved by the landlord (approval not to be unreasonably withheld).  The valuation on the Special Assumption that the option to extend the lease for 10 years is reflected.

Market Uncertainty ('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 wider property market  and in particular in the market for self-storage property. 

Although there were a number of self storage transactions in 2007, C&W have noted that the only significant transactions since 2007 are:

1.   The sale of a 51% share in Shurgard Europe which was announced in January 2008 and completed on 31 March 2008;

2.   The sale of the former Keepsafe portfolio by Macquarie to Alligator Self Storage which was completed in January 2010; and

3.   The purchase by Shurgard Europe of 80% interests held by its joint venture partner (Arcapita) in its two European joint venture vehicles, First Shurgard and Second Shurgard.  The price paid was 172 million Euros and the transaction was announced in March 2011.  The two joint ventures owned 72 self-storage properties; 

Due to the lack of comparable market information in the self-storage sector, C&W have therefore had to exercise more than the usual degree of judgement in arriving at their opinion of value. 

It has been held that valuers may properly conclude within a range of values.  This range is likely to be greater in an illiquid market where inherent uncertainty exists and a greater degree of judgement must therefore be applied.

Prudent lotting

C&W have assessed the value of each property individually.  However, with regard to those stores with negative or low initial cash flow 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 cash flow.  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.  

 11 c)    Property lease premiums

£2.9 million of costs relating to the long lease at Maidenhead is classified as a non-current asset in the statement of financial position (2010: £2.9 million). 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.

Property lease premiums	31 July 2011 £	31 July 2010 £
Balance 1 August	2,860,781	2,826,199
Additions during the year	83,322	34,582
Balance 31 July	2,944,103	2,860,781

 12         Investments

Investment in subsidiary undertakings	£
1 August 2009	1,309,046
Capital contributions arising from share-based payments	181,436
31 July 2010	1,490,482
Capital contributions arising from share-based payments	99,639
31 July 2011	1,590,121

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
Saracen Datastore Limited***	Ordinary	-	90.6	Records Management & Serviced Archive Services

*This company is a subsidiary of Lok'nStore Limited

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

***This company is a subsidiary of Lok'nStore Limited

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.

13         Inventories

	Group 2011 £	Group 2010 £	Company 2011 £	Company 2010 £
Consumables and goods for resale	110,414	70,085	-	-

The amount of inventories recognised as an expense during the year was £149,843 (2010: £144,337).

14         Trade and other receivables

	Group 2011 £	Group 2010 £	Company 2011 £	Company 2010 £
Trade receivables	1,164,497	794,131	-	-
Other receivables	166,734	47,483	-	-
Prepayments and accrued income	489,771	349,142	-	-
	1,821,002	1,190,756	-	-

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

Trade receivables

In respect of its self-storage business, the Group does not typically offer credit terms to its customers and hence the Group is not exposed to significant credit risk. All customers are required to pay in advance of the storage period. A late charge of 10% is applied to a customer's account if they are greater than 10 days overdue in their payment. The Group provides for receivables as a general provision based upon sales levels. There is a right of lien over the customers' goods, so if they have not paid within a certain time frame, we have the right to sell the items they store to recoup the debt owed by the customer. Trade receivables that are overdue are provided for based on estimated irrecoverable amounts from the sale of goods, determined by reference to past default experience.        

For individual self-storage customers, the Group does not perform credit checks, however this is mitigated by the fact that all customers are required to pay in advance, and also to pay a deposit of four weeks' storage income. Before accepting a new business customer who wishes to use a number of the Group's stores, the Group uses an external credit rating to assess the potential customer's credit quality and defines credit limits by customer. There are no customers who represent more than 5% of the total balance of trade receivables.

In respect of its serviced archive and records management business, customers are invoiced typically monthly in advance for the archive storage of their boxes, tape and files and the provision of additional services, such as document box or tape collection and retrieval from archive, customers are invoiced typically monthly in arrears. The serviced archive segment with over 300 customers has a greater customer concentration with its ten largest corporate customers accounting for 40% of revenue.

Included in the Group's trade receivables balance are receivables with a carrying amount of £249,239 (2010: £54,568) which are past due at the reporting date for which the Group has not provided as there has not been a significant change in credit quality and the amounts are still considered recoverable. The Group holds a right of lien over the customers' goods if these debts are not paid. The average age of these receivables is 40 days past due (2010: 52 days past due).

Ageing of past due but not impaired receivables

	Group 2011 £	Group 2010 £
0-30 days	114,326	13,826
30-60 days	93,044	3,784
60+ days	41,869	36,958
Total	249,239	54,568
Movement in the allowance for doubtful debts
	Group	Group
	2011	2010
	£	£
Balance at the beginning of the year	81,040	91,846
Impairment losses recognised	42,860	12,758
Amounts written off as uncollectible	(23,147)	(23,564)
Balance at the end of the year	100,753	81,040

The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the Directors believe that there is no further provision required in excess of the allowance for doubtful debts.

Ageing of impaired trade receivables

	Group 2011 £	Group 2010 £
0-30 days	-	-
30-60 days	-	-
60+ days	100,753	81,040
Total	100,753	81,040

15         Trade and other payables

	Group 2011 £	Group 2010 £	Company 2011 £	Company 2010 £
Trade payables	1,083,889	460,527	-	-
Taxation and social security costs	449,059	391,743	-	-
Other payables	912,805	957,352	-	-
Accruals and deferred income	2,210,043	1,864,816	-	-
	4,655,796	3,674,438	-	-

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

16         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 17, 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 2011 £	Group 2010 £
Debt	(28,167,894)	(28,089,416)
Cash and cash equivalents	3,778,524	5,364,031
Net Debt	(24,389,370)	(22,725,385)
Statement of financial position equity	38,596,261	39,108,306
Net debt to equity ratio	62.8%	58.1%

The increase in the Group's gearing ratio arises through the combined effect of a decrease in net cash balances arising from the purchase of the Saracen Datastore business for cash of £3.65 million and partially offset by the cash generated from operations, and a decrease in the valuation of its freehold properties. 

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 in 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 17. 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, arranged through The Royal Bank of Scotland plc secured on its existing store portfolio and other Group assets with a net book value of £81.2 million (2010: £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. As at the reporting date the Group has a committed revolving credit facility of £40 million (2010: £40 million). This facility expires on 5 February 2012. Undrawn committed facilities at the year-end amounted to £11,910,584 (2010: £11,910,584). On 20 October 2011, the Group agreed a new senior five year term revolving credit facility with Lloyds TSB plc (see Note 26, Events after the reporting date).

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 17. 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 during the financial year:

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). From 30 June 2011, the non-utilisation charge increased from 0.25% to 0.5%

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 2011 are as follows:

	Group 2011 £	Group 2010 £
Variable rate treasury deposits*	3,537,605	5,185,624
Bank deposits	65,000	-
Total deposits	3,602,605	5,185,624

* 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 2011 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 2011, it is estimated that an increase of one percentage point in interest rates would have reduced the Group's annual profit before tax by £276,266 (2010: £281,339) and conversely a decrease of one percentage point in interest rates would have increased the Group's annual profit before tax by £276,266 (2010: £281,339). 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 1.84% (2010: 1.81%).

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 14. The Group's self-storage business has no significant concentration of credit risk, with exposure spread across 6,700 customers in our stores and no individual customer accounts for more than 1% of revenue. The serviced archive business with over 300 customers has a greater concentration of credit risk with its ten largest corporate customers accounting for 40% of revenue and its top 50 delivering 71.1% 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 2011 was £1,208,122 (2010: £833,185) on receivables and £3,778,524 (2010: £5,364,031) on cash and cash equivalents.

H Maturity analysis of financial liabilities

The undiscounted contractual cash flow maturities are as follows:

2011 - Group

	Trade and other payables £	Borrowings £	Interest on borrowings £
From two to five years	-	-	-
From one to two years	-	26,342	6,093
Due after more than one year	-	26,342	6,093
Due within one year	2,817,741	28,141,552	282,001
Total contractual undiscounted cash flows	2,817,741	28,167,894	288,094

2010 - Group

	Trade and other payables £	Borrowings £	Interest on 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

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 £81.2 million together with cross-company guarantees of Lok'nStore Limited.

I Fair values of financial instruments

	2011 £	2010 £
Categories of financial assets and financial liabilities
Financial assets
Trade and other receivables	1,208,122	833,185
Cash and cash equivalents	3,778,524	5,364,031
Financial liabilities
Trade and other payables	(2,817,741)	(2,037,007)
Bank loans	(28,071,905)	(28,036,885)
Finance leases	(78,478)	-

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 14. 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 £5.6 million (2010: £6.02 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.

17         Borrowings

	Group 2011 £	Group 2010 £	Company 2011 £	Company 2010 £
Non-current
Bank loans repayable in more than two years
but not more than five years
Gross	-	28,089,416	-	-
Deferred financing costs	-	(52,531)	-	-
Bank loans repayable in more than two years
but not more than five years
Net borrowings	-	28,036,885	-	-
Finance lease liabilities	26,342	-	-	-
Non-current borrowings	26,342	28,036,885	-	-
Current
Bank loans repayable in less than one year
Gross	28,089,416	-	-	-
Deferred financing costs	(17,511)	-	-	-
Bank loans repayable in more than two years
but not more than five years
Net borrowings	28,071,905	-	-	-
Finance lease liabilities	52,136	-	-	-
Current borrowings	28,124,041	-	-	-

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 £81.2 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.

Refinancing of banking facilities

After the reporting date, the Group has negotiated a new five year £40 million revolving credit facility with Lloyds TSB plc. The revolving credit facility is for a five-year term and expires on 19 October 2016. The facility will be used to repay the existing RBS facility and provide working capital for the development of the business over the medium term. 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 2.35%-2.65% margin based on a loan to value covenant test while the interest cover and loan to value covenants are broadly in line with the previous facility.

Finance lease liabilities

Lease liabilities are effectively secured as the rights to the leased asset revert to the lessor in the event of default and are as follows:

	Group 2011 £	Group 2010 £	Company 2011 £	Company 2010 £
Gross finance liabilities - minimum lease payments
Within one year	66,323	-	-	-
Later than one year and no later than five years	32,434	-	-	-
Later than five years	-	-	-	-
	98,757	-	-	-
Future finance charges on finance leases	(20,279)	-	-	-
	78,478	-	-	-

The present value of finance lease liabilities is as follows:

	Group 2011 £	Group 2010 £	Company 2011 £	Company 2010 £
Gross finance liabilities - minimum lease payments
Within one year	52,136	-	-	-
Later than one year and no later than five years	26,342	-	-	-
Later than five years	-	-	-	-
	78,478	-	-	-

18         Deferred tax

Deferred tax liability	2011 £	2010 £
Liability at start of year	10,846,123	10,248,297
Charge to income for the year	65,031	209,400
Tax credited directly to other comprehensive income	(1,216,374)	388,426
Saracen acquisition- Initial recognition Intangibles	827,210	-
Saracen - other deferred tax recognised on acquisition	33,111	-
Liability at end of year	10,555,101	10,846,123

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

	Accelerated Capital Allowances £	Tax losses £	Intangible Assets £	Other temporary differences £	Revaluation of properties £	Rolled over gain on disposal £	Total £
At 1 August 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
Charge/ (credit) to income for the year	(206,073)	494,084	-	24,449	(65,445)	(181,984)	65,031
Charge to other comprehensive income	-	-	-	-	(1,216,374)	-	(1,216,374)
Saracen
- Initial recognition Intangibles	-	-	827,210	-	-	-	827,210
- Recognised on acquisition	33,111	-	-	-	-	-	33,111
At 31 July 2011	1,306,709	(598,642)	827,210	24,449	6,720,582	2,274,793	10,555,101

At the reporting date, the Group has unused revenue tax losses of approximately £2.63 million (2010: £4.8 million) available to carry forward against future profits of the same trade. A deferred tax asset of £0.62 million (2010: £1.09 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 £39,195 (2010: £8,000) 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 2011 as the share price at the year-end is below the exercise price of the options.

The UK's main rate of corporation tax is expected to reduce from 26% to 25% from 1 April 2012, thereafter tax rates are expected to reduce by 1% per year to 23% in 2014. Due to the difficulty of predicting the amount of capital expenditure over this period, it is not possible to accurately quantify the effect of the rate change on the deferred tax position over this period.

19         Share capital

		2011	2010
		£	£
Authorised:
35,000,000 ordinary shares of 1 pence each (2010: 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 2010 and 31 July 2011		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 3December 2010, 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. 

20         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.

The Company has the following share options:

		As at				As at
		31 July			Lapsed/	31 July
Summary		2010	Granted	Exercised	surrendered	2011
Enterprise Management Initiative Scheme		491,901	-	-	(142,735)	349,166
Approved Share Options Scheme		-	-	-	-	-
Unapproved Share Options		2,192,213	240,517	-	(268,344)	2,164,386
Approved CSOP Share Options		179,019	62,983	-	(10,000)	232,002
Total		2,863,133	303,500	-	(421,079)	2,745,554
Options held by Directors		1,655,000	175,000	-	-	1,830,000
Options not held by Directors		1,208,133	128,500	-	(421,079)	915,554
Total		2,863,133	303,500	-	(421,079)	2,745,554
		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

The following table shows options held by Directors under all schemes.

						Approved CSOP
		EMI Scheme	Approved Scheme		Unapproved Scheme	share options	Total
2011
Executive Directors
A Jacobs		-	-		450,000	-	450,000
SG Thomas		-	-		450,000	-	450,000
RA Davies		98,039	-		478,431	23,530	600,000
CM Jacobs		79,173	-		191,082	24,745	295,000
Non-Executive Directors
RJ Holmes		-	-		10,000	-	10,000
ETD Luker		-	-		15,000	-	15,000
C P Peal		-	-		10,000	-	10,000
I Wright		-	-		-	-	-
		177,212	-		1,604,513	48,275	1,830,000

					Approved CSOP
		EMI Scheme	Approved Scheme	Unapproved Scheme	share options	Total
2010
Executive Directors
A Jacobs		-	-	400,000	-	400,000
SG Thomas		-	-	400,000	-	400,000
RA Davies		98,039	-	428,431	23,530	550,000
CM Jacobs		79,173	-	166,082	24,745	270,000
Non-Executive Directors
RJ Holmes		-	-	10,000	-	10,000
ETD Luker		-	-	15,000	-	15,000
C P Peal		-	-	10,000	-	10,000
		177,212	-	1,429,513	48,275	1,655,000

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 (2010: 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 £99,639 (2010: £181,436), all of which relates to equity-settled share-based payment transactions. In total a 'Share-based payments reserve' at 31 July 2011 of £1,375,558 results (2010: £1,275,919).

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 £121,353 (2010: £90,652).

21         Other reserves

		Merger reserve	Other distributable reserve	Capital redemption reserve	Share-based payment reserve	Total
Group		£	£	£	£	£
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)
1 August 2010		6,295,295	5,403,140	34,205	1,275,919	13,008,559
Share based remuneration (options)		-	-	-	99,639	99,639
Dividend paid		-	(249,936)	-	-	(249,936)
31 July 2011		6,295,295	5,153,204	34,205	1,375,558	12,858,262

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	Capital	Share-based
		distributable	redemption	payment
		reserve	reserve	reserve	Total
Company		£	£	£	£
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)
1 August 2010		5,403,140	34,205	1,275,919	6,713,264
Share based remuneration (options)		-	-	99,639	99,639
Dividend paid		(249,936)	-	-	(249,936)
31 July 2011		5,153,204	34,205	1,375,558	6,562,967

22         Retained earnings

Group			Retained earnings before deduction of own shares £	Own shares (note 23) £	Retained earnings Total £
1 August 2009			5,681,334	(2,592,812)	3,088,522
Profit for the financial year			221,124	-	221,124
Transfer from revaluation reserve			188,346	-	188,346
1 August 2010			6,090,804	(2,592,812)	3,497,992
Profit attributable to owners of Parent for the financial year			892,514	-	892,514
Transfer from revaluation reserve			196,335	-	196,335
(additional dep'n on revalued assets net of deferred tax)
31 July 2011			7,179,653	(2,592,812)	4,586,841

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 £168,886 (2010: £168,652).

23         Own shares

		ESOP	ESOP	Treasury	Treasury	Own shares
		shares	shares	shares	shares	total
		Number	£	Number	£	£
1 August 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
Transfer out of scheme		-	-	-	-	-
31 July 2011		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 treasury 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 2011, the Trust held 623,212 (2010: 623,212) ordinary shares of 1 pence each with a market value of £666,837 (2010: £529,730). No shares were transferred out of the scheme during the year (2010: nil).

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

24         Cash flows

(a) Reconciliation of profit before tax to cash generated from operations

				2011	2010
				£	£
Profit before tax				938,280	430,524
Depreciation				1,615,868	1,832,477
Professional costs - acquisition of Saracen				129,208	-
Equity settled share based payments				99,639	181,436
Loss on sale of fixed assets				-	452
Interest receivable				(24,063)	(18,979)
Interest payable				522,513	508,687
Increase in inventories				(40,329)	(2,980)
Decrease in receivables				(630,246)	10,140
Increase in payables				988,689	524,537
Cash generated from operations				3,599,559	3,466,294

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

				31 July	31 July
				2011	2010
				£	£
(Decrease) / increase in cash in the year				(1,585,507)	2,135,300
Change in net debt resulting from cash flows				(78,478)	-
Movement in net debt in year				(1,663,985)	2,135,300
Net debt brought forward				(22,725,385)	(24,860,685)
Net debt carried forward				(24,389,370)	(22,725,385)

25         Commitments under operating leases

At 31 July 2011 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
					2011	2010	2011	2010
					£	£	£	£
Land and buildings
Amounts due:
Within one year					1,578,307	1,287,352	-	-
Between two and five years					5,919,772	4,709,408	-	-
After five years					8,404,878	7,018,703	-	-
					15,902,957	13,015,463	-	-

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 £92,450 (2010: £98,763). 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 reporting date, the Group had contracted with tenants, under non-cancellable leases, for the following future minimum lease payments:

					Group	Group	Company	Company
					2011	2010	2011	2010
					£	£	£	£
Within one year					76,945	57,413	-	-

26         Events after the reporting date

a)   Refinancing of Banking facilities - Lloyds Banking Group

The Group has negotiated a new five year £40 million revolving credit facility with Lloyds TSB plc. The revolving credit facility is for a five-year term is effective from 20 October 2011 and expires on 19 October 2016. The facility will be used to refinance the existing RBS facility and provide working capital for the development of the business over the medium term. 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 2.35%-2.65% margin based on a loan to value covenant test while the interest cover and loan to value covenants are broadly in line with the previous facility.

b)   Renewal of Planning permission at Reading

On 4 October 2011, the planning permission originally granted for demolition of existing building and erection of 112 flats with associated car parking and landscaping at 5-9 Berkeley Avenue, Reading in accordance with the terms of the application Ref 10/01567/EXT, dated 7 September 2010 was renewed on appeal. There were no substantive additional conditions imposed by the Inspector which materially impact on the existing Permission.

27         Related party transactions

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

							2011	2010
							£	£
Net amount due from Lok'nStore Limited							5,600,941	6,019,763

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 2011.

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

The 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 6 of the Notes to the Financial Statements.

								2011	2010
								£	£
Short term employee benefits								507,400	479,169
Post-employment benefits								14,663	8,944
Share-based payments								66,182	99,318
Total								588,245	587,431

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 6. Fees are settled monthly and there were no outstanding amounts due to Value Added Services Limited at the year-end (2010: £nil). The maximum balance outstanding at any time during the year was £24,252 (ex VAT) (2010: £24,252).

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 (2010: £6,000). The balance outstanding to Trucost plc at year-end was £nil (2010: £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 £20,741 (2010: £21,434). There was £3,427 outstanding due to Keith Jacobs at the year-end (2010: £1,791). The maximum balance outstanding at any time during the year is £3,427 (ex VAT) (2010: £1,791).

28 a)     Capital commitments and guarantees

The Group has capital expenditure contracted but not provided for in the financial statements of £343,327 (2010: £84,984) relating to minor works.

28b)      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 (2010: £28.1 million).

28c)      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. It is expected that a Tribunal Hearing will take place in January 2012 to determine the matter.

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 2011 which may become repayable to HMRC totals £369,193 (2010: £327,765) based on the standard method restriction. Of this £203,386 (2010: £192,830) relates to capital expenditure inputs and £165,807 (2010: £134,935) 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 £83,910 (2010: £77,005). On a pro rata basis this potential liability between restricted inputs gives a liability of £55,217 (2010: £51,472) relating to capital expenditure inputs and £28,693 (2010: £25,533) 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.

 

END

 

 

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