Big Yellow Group
Annual Report 2015

Plain-text annual report

You can access more information about us on our website bigyellow.co.uk Big Yellow Group PLC 2 The Deans, Bridge Road, Bagshot, Surrey GU19 5AT Tel: 01276 470190 Fax: 01276 470191 e-mail: info@bigyellow.co.uk i B g Y e l l o w G r o u p P L C A n n u a l R e p o r t & A c c o u n t s 2 0 1 5 Big Yellow Group PLC Annual Report & Accounts 2015 Why ? think… Big Yellow Because we are about more than just storage. people service security locations facilities innovation growth Get some space in your life.™ think… people service security locations facilities innovation growth Big Yellow Group PLC is the UK’s brand leader in self storage. Big Yellow now operates from a platform of 84 stores, including 14 stores branded as Armadillo Self Storage, in which the Group has a 20% interest. We own a further five Big Yellow self storage development sites, of which two have planning consent. The current maximum lettable area of this platform is 5.1 million sq ft. When fully built out the portfolio will provide approximately 5.4 million sq ft of flexible storage space. 96% of the Big Yellow stores and sites are held freehold and long leasehold (by value); with the remaining 4% short leasehold. We have pioneered the development of the latest generation of self storage facilities, which utilise state of the art technology and are located in high profile, accessible, main road locations. Our focus on the location and visibility of our buildings, coupled with excellent customer service, has created by far the most recognised brand name in the UK self storage industry. We remain … Britain’s favourite self storage company. Welcome / Please take a Closer Look We are the innovative leaders in the UK self storage industry providing individuals and businesses with an unrivalled product, the best locations, the best quality facilities and the strongest brand. We have great people who deliver the best customer service. We achieve this because we encourage a culture of partnership within the business and reward our people for their contribution. Contents A Year of Further Achievement Why? Big Yellow Big Yellow Brand Customer Service Innovation Security Portfolio ifc 14 16 18 Introduction 02 03 04 06 08 10 12 Highlights Chairman’s Statement Strategic Report 18 21 24 25 29 30 32 38 41 52 Our Strategy and Business Model Operational and Marketing Review Proforma Portfolio Summary – Big Yellow Stores Our Stores Portfolio Summary – Armadillo Stores Store Performance Financial Review Risk and Uncertainties Corporate Social Responsibility Report Assurance Statement on the Corporate Social Responsibility Report 54 55 58 62 64 84 87 88 92 93 94 95 95 Directors, Officers and Advisors Directors’ Report Corporate Governance Report Report of the Nominations Committee Remuneration Report Audit Committee Report Statement of Directors’ Responsibilities Independent Auditors’ Report to the Members of Big Yellow Group PLC Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Reconciliation of Net Cash Flow to Movement in Net Debt 96 Notes to the Financial Statements 124 Company Balance Sheet 125 Company Cash Flow Statement 126 Company Statement of Changes in Equity 127 Notes to the Financial Statements 130 Ten Year Summary Over the following pages: We outline the core qualities of our business. We explain our achievements in the year and outline our plans for the future… 01 A Year of Further Achievement Dea r All, We have achieved a lot in the year: Strong growth in occupancy and revenue delivering record earnings growth of 32%. . . A record increase in the dividend pay-out for the year to March of 32%. . A strong performance from the Armadillo stores. . A record year at CSC and also National accounts. . The successful acquisition of the 10 Armadillo stores along with our Australian JV partners. Armadillo is now secure and prospering within the Big Yellow business and we are looking at expanding the brand to sit alongside Big Yellow Self Storage. . . . . . . . The opening of a new London 70,000 sq ft store at Gypsy Corner which reached 60% occupancy and 42,000 sq ft in its first year. The purchase of a second 35,000 sq ft store in Oxford which we can extend in due course by 10,000 sq ft. We now have appropriate capacity in Oxford for this fast growing university city. The successful refinancing of our bank facilities in the summer for five years and also a new seven year £70 million facility with M&G, part of Prudential. We have one of the most secure capital structures of all listed Real Estate Investment Trusts with over five times cash flow cover for our annual interest expense. The placing of 9.9% of listed Big Yellow shares to raise approximately £76m net of expenses which, along with debt finance, was used to acquire the 66.7% of the 12 JV stores we did not own on 1 December. These are all now 100% owned. The purchase of our first land and building since 2007 in Cambridge. It was a Royal Mail Depot and is capable of being converted to a 55,000 sq ft self storage centre and we hope to have it opened in late 2015. In December we acquired the Freehold of our store at Battersea and the retail unit next door. We will be looking at options to build a larger store in a mixed use development in the future. This is a central London store and we are delighted to have achieved control of this important strategic location. The inaugural Viewpoint employee engagement survey which had pleasing results but also highlighted areas for improvement which we will action in 2015. The success of Big Yellow as a business depends on all of us striving for those 1% improvements and working together, understanding that each and every one of us makes a critical contribution to our success. Jim Gibson Chief Executive Officer 02 Awareness and demand for self storage in the UK is growing year on year. Our focus on London and key metropolitan areas means we are best placed to capitalise on this growth from domestic and business customers. Ensuring Future Growth Why ? Big Yellow Because we are about more than just storage. Whether it’s a house move, setting up or running a business or a DIY project, these are all key life moments where it can all get a bit stressful. At Big Yellow, our people, service, security and locations all help to take the stress and hassle away. Not add to it. t a i n ’ s i B r t e i f a v o u r s t o r a g e f s e l c o m p a n y 03 Big Yellow / Our Culture is our Brand We have the market leading brand, the largest online market share and we focus on London, the South East and large metropolitan cities, where barriers to entry are at their highest. 52% Big Yellow Base: All London Adults 1,035 What are the names of any self storage companies you can think of? 4% Access 1% Big Box 7% Safestore 6% Shurgard 32% None 13% Other 5% Don’t Know You Gov Awareness Survey May 2015 Base: All UK Adults 2,040 What are the names of any self storage companies you can think of? 22% Big Yellow 1% Access 1% Armadillo 1% Big Box 1% Kangaroo 2% Lok n Store 3% Safestore 15% Other 58% None 6% Don't Know UK Our Brand Strategy / A Brand based on People By creating one powerful brand nationwide, Big Yellow is front of mind for more customers in our market than our competitors, with significant potential to increase this brand awareness. London 04 “Customer at Big Yellow Oxford I found it all a very stress free experience during a stressful time of moving home and needing somewhere to safely store my belongings for a couple of months. I found the staff friendly and helpful.” All of our people share a passion for delivering the service our customers deserve, helping them get through stressful life changes such as moving home. That is our Brand. 05 Customer Service / With a smile … Our friendly and helpful staff are one of the main reasons why customers choose Big Yellow. 11,600 online reviews of our customer service are testament to this. The wellbeing of our staff is important to us and we provide an enjoyable working environment without losing our commitment to delivering the very best standards of customer service. A continuous investment in training and encouraging a culture of partnership through bonus and incentive schemes is critical to our continued success of delivering unrivalled customer service. We work hard to understand our customers’ storage requirements and give the best service possible whether it is face to face, over the phone or through our user friendly website, mobile site or online chat. Our customer support centre is on hand seven days a week to provide an additional layer of customer service. All calls are answered promptly and the customer support team take the time to talk people through our service, provide quotes and answer any questions. Customer reviews are also published on the website and show an extremely high level of satisfaction. We also invite customers to submit reviews to a third party review site which are currently averaging 9.5 out of 10. “Customer at Big Yellow Battersea The experience was an excellent one purely due to the flawless customer service I received. I particularly appreciated the transparency around costs and the detailed information I was given in advance.” Chris Assistant Manager Bromley Gemma Store Manager Orpington 06 Azelia Sales Advisor Bromley We put the customer at the heart of our business. We are someone our customers can trust. We are proud of our people and they are integral to the success of our company. Proud of our People 07 Innovation / With an eye on staying ahead of the game At Big Yellow, we are always looking for innovative ways to help our customers’ lives and make the business more environmentally sustainable. We are continually improving our digital platforms for our online visitors, providing a seamless and informed user experience. We have recently relaunched our mobile optimised website with a focus on usability for the growing number of mobile users visiting Big Yellow online. We develop online tools to help our web visitors make comfortable and informed choices about their self storage requirements. Video store tours, comprehensive FAQs, easy to use size guides and online chat are all available for our online visitors. Additionally, our customers can reserve their room and check-in online to make life even easier for them. Innovative building design is part of our commitment to a more sustainable business. We look to incorporate the latest technologies such as energy efficient lighting and solar panels to reduce our carbon foot print and produce our own renewable energy. “Customer at Big Yellow Staples Corner From the initial website enquiry and phone call, through to booking, online check-in and storage, everything was very quick and easy. Prices are transparent.” We continually analyse and improve the web journey for online visitors and have re-launched a newly designed mobile website in 2015 to facilitate the customers ever-changing needs. Customer Focussed 08 Check-in online Energy efficient lighting Updated mobile optimised website 09 Security / That is second to none We provide the highest levels of security in the UK self storage industry. We have invested significantly to ensure our customers enjoy peace of mind. We are the only major UK operator where every room in every store is individually alarmed. Secure perimeter fencing, electronic coded gates, intruder alarms, PIN code entry and CCTV which is externally monitored 24 hours a day, provide additional levels of security for our customers. The importance of security and the need for vigilance is communicated to all store staff and reinforced through regular training. “Customer at Big Yellow Birmingham Very impressed with your level of service, the cleanliness of the facility and the security key pads to access each area.” 10 24 hour digital CCTV PIN code access Our digital CCTV systems are externally monitored 24 hours a day, providing an additional level of security especially for customers with extended hours access. Ensuring Peace of Mind Electronic coded gates Individually alarmed rooms 11 Portfolio / An extensive national network Our customers like our modern, highly visible, purpose built stores which are situated in safe and easily accessible locations. Our customers like our modern, highly visible, purpose built stores which are situated in safe and easily accessible locations. We have opened our Enfield store on the A10 in London and our Gypsy Corner store situated next to the A40 in London. We also acquired two stores in Oxford and Chester. This and our other high profile store locations contribute to the growing awareness of self storage and our brand. We have an unrivalled portfolio across London, the South East and large metropolitan cities, with a network of 84 stores.. Gypsy Corner Peterborough 12 Enfield DUNDEE EDINBURGH KEY 70 Big Yellow stores 3 Big Yellow stores under development 14 Armadillo stores STOCKTON > Outside London – 49 stores and sites MORECAMBE LEEDS HULL LIVERPOOL NORTH LIVERPOOL LIVERPOOL SOUTH MANCHESTER WARRINGTON SHEFFIELD HILLSBOROUGH SHEFFIELD WESTBAR SHEFFIELD PARKWAY SHEFFIELD BRAMALL LANE CHESTER STOCKPORT CHEADLE MACCLESFIELD STOKE-ON-TRENT BIRMINGHAM DERBY NOTTINGHAM NORWICH PETERBOROUGH CAMBRIDGE COLCHESTER MILTON KEYNES LUTON CHELTENHAM GLOUCESTER OXFORD x2 HIGH WYCOMBE CHELMSFORD CARDIFF BRISTOL CENTRAL SWINDON READING SLOUGH London London SOUTHEND > London – 38 stores WATFORD ENFIELD NORTH FINCHLEY EDMONTON A1(M) STAPLES CORNER EAST FINCHLEY HANGER LANE EALING GYPSY CORNER ROMFORD ILFORD BARKING BOW DAGENHAM M40 HOUNSLOW CHISWICK NORTH KENSINGTON FULHAM KENNINGTON RICHMOND TWICKENHAM SHEEN BATTERSEA NEW CROSS M4 KINGSTON NEW MALDEN TOLWORTH WANDSWORTH MERTON BALHAM ELTHAM WEST NORWOOD BECKENHAM BROMLEY BYFLEET SUTTON CROYDON ORPINGTON M2 M3 M20 BRISTOL ASHTON GATE CAMBERLEY GUILDFORD GUILDFORD CENTRAL TUNBRIDGE WELLS PORTSMOUTH BRIGHTON POOLE 70 easy to find, high profile locations provide convenience for customers and unmissable exposure for the Big Yellow brand. 14 Armadillo stores further broaden our national coverage High profile locations. 13 Highlights / Strong operating performance delivers 32% earnings growth Financial metrics Revenue Adjusted profit before tax(1) Adjusted diluted EPRA earnings per share(2) Dividend – final – total Adjusted NAV per share(3) Cash flow from operating activities (after net finance costs) Store metrics Occupancy growth(4) Occupancy (%)(4) Average net achieved rent per sq ft(4) Statutory metrics Profit before tax Basic earnings per share Year ended 31 March 2015 £84.3m £39.4m 27.1p 11.3p 21.7p 510.4p £42.4m Year ended 31 March 2014 £72.2m £29.2m 20.5p 8.4p 16.4p 446.5p £32.8m 267,000 sq ft 73.2% £24.95 200,000 sq ft 67.9% £24.32 £105.2m 72.5p £59.8m 42.5p % Growth 17 35 32 35 32 14 29 34 8 3 76 71 1 See note 10 2 See note 12 3See notes 12 and 14 4See Portfolio Summary and Operating and Financial Review Highlights > Increased demand throughout UK > Growth in all our key store metrics > 32% increase in adjusted earnings per share and total dividend > Acquisition of remaining two thirds of Big Yellow Limited Partnership and £76.4m placing > Platform expanded by 234,000 sq ft: – Two new freehold stores constructed at Gypsy Corner and Enfield – Two existing freehold stores acquired in Oxford and Chester > Acquisition of freehold building in Cambridge for conversion > Acquisition of freehold interest in existing store in Battersea > Debt refinanced – diversified pool, extended maturity, lower cost > Two Armadillo joint ventures with Australian consortium – April 2014: Acquisition of ten store portfolio totalling 401,000 sq ft – February 2015: Acquisition of four store portfolio totalling 270,000 sq ft We are pleased to report very strong results, with demand growth across our network reflecting improved economic growth, not just in London, but within the UK as a whole. Demand Growth 14 We have delivered occupancy, cash flow and earnings growth for the sixth year in a row. Occupancy (%) Net rent (per sq ft) 73.2 69.8 64.8 63.5 59.3 75% 70% 65% 60% 55% 50% 26.78 26.49 26.15 25.23 24.65 £28.00 £27.00 £26.00 £25.00 £24.00 £23.00 £22.00 £21.00 £20.00 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 Revenue (£m) 84.3 72.2 69.7 65.7 61.9 90.0 80.0 70.0 60.0 50.0 Adjusted profit before tax (£m) 39.4 29.2 25.5 23.6 20.2 45 40 35 30 25 20 15 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 Adjusted earnings per share (pence) Dividend per share (pence) 27.1 20.5 19.3 18.2 15.5 28 26 24 22 20 18 16 14 12 10 21.7 16.4 11.0 10.0 9.0 25.0 20.0 15.0 10.0 5.0 0.0 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 A S T R O N G P E R F O R M A N C E / I A S U S T A N A B L E F U T U R E 15 Chairman’s Statement The objective is very simple; to grow earnings and dividend at a compelling, but sustainable rate over a long period of time, without taking undue risk. Growth / Of Revenue and Earnings Big Yellow Group PLC (“Big Yellow”, “the Group” or “the Company”), the UK’s brand leader in self storage, is pleased to announce results for the fourth quarter and the year ended 31 March 2015. We are pleased to report very strong results, with demand growth across our network reflecting improved economic growth not just in London, but within the UK as a whole. To deliver this performance we continue to innovate and maintain an unerring focus on all aspects of our business, such that we grow our market share and monetise the strength of our brand. Financial results Revenue for the year was £84.3 million (2014: £72.2 million), an increase of 17%. Excluding the Partnership stores consolidated from 1 December 2014, revenue was £80.6 million, an increase of 12% from the prior year. The stores have grown in occupancy over the year from 67.9% to 73.2% at 31 March 2015. Cash inflows from operating activities (after finance costs) increased by £9.6 million (29%) to £42.4 million for the year (2014: £32.8 million). The Group made an adjusted profit before tax in the year of £39.4 million (2014: £29.2 million), up 35%. This translated into a 32% increase in adjusted earnings per share to 27.1p (2014: 20.5p). The Group made a statutory profit before tax for the year of £105.2 million, compared to a profit of £59.8 million last year. The revaluation gain on the investment property portfolio is £64.5 million for the year, reflecting the improved operating performance of the business and yield compression. The Group has net bank debt of £277.1 million at 31 March 2015 (2014: £226.1 million). This represents approximately 27% (2014: 28%) of the Group’s gross property assets totalling £1,022.8 million (2014: £804.8 million) and 35% (2014: 36%) of the adjusted net assets of £801.4 million (2014: £634.4 million). The Group’s income cover for the year (expressed as the ratio of cash generated from operations against interest paid) was 5.4 times (2014: 4.1 times). On an annualised basis at March the ratio was 5.9 times. Placing and acquisition of Big Yellow Limited Partnership We set up Big Yellow Limited Partnership with Pramerica Real Estate Investors in November 2007 to build out our regional portfolio, allowing us to focus the Group’s resources on developing our London sites. The Partnership had a limited life, with Big Yellow having a call option over Pramerica’s equity interest crystallising from the March 2015 balance sheet. We were therefore very pleased to have come to an agreement with Pramerica to accelerate this process and on 1 December 2014 acquired their 66.67% share for £39.25 million and the underlying Partnership debt (£57 million) totalling £96.25 million. This was largely funded by a successful placing raising £76.4 million (net of expenses) in November 2014. The acquisition represented an opportunity to employ more capital into prime Big Yellow branded assets and consolidate the Group’s position as the leading UK self storage brand, where the Company has detailed knowledge and visibility over the assets acquired. Investment in new capacity In the year we have made some progress in growing our self storage platform in key target locations, although competition for land remains high, particularly in London. In July we acquired a freehold store in Oxford from Fort Box Self Storage for £4.1 million. The store has been rebranded as a Big Yellow, and has a current lettable area of 35,000 sq ft, with expansion space for a further 10,000 sq ft. Our existing 33,000 sq ft Oxford store averages over 85% occupied and this acquisition will allow us to drive growth in occupancy and rental yield from our larger operating platform. We acquired the freehold of a former Royal Mail depot in Cambridge adjacent to the Cambridge Retail Park, Newmarket Road, completing in April 2015, which we intend to refurbish and convert into a 55,000 sq ft self storage centre, opening in late 2015. We expect the total investment including refurbishment to be approximately £9.3 million. This is our first new site acquisition for construction in seven years. The acquisition is testament to our confidence in both Cambridge and our business model. It should be noted, however, that the opportunity took 14 years to present itself, despite continual searching over that time. 16 We opened our 60,000 sq ft store in Enfield on 1 April 2015, on a prominent location on the A10. We intend to construct our store in Central Guildford over the course of the year, and anticipate it opening in Autumn 2016. We have acquired the freehold interest of our existing 34,000 sq ft store in Battersea, which had 12 years remaining on the occupational lease together with a 14,100 sq ft retail unit let to Halfords on an annual rent of £458,000 with 7 years unexpired, part of which is sublet to Pets at Home. The next rent review date is January 2017. The total consideration paid was £23 million. This increases the freehold ownership of our portfolio and protects our position in this important central London location. In the medium term, we will redevelop the 1.5 acre site to include a larger Big Yellow store together with other uses. In April 2014 we acquired the Armadillo portfolio in a joint venture with an Australian consortium for a property value of £19.75 million. Our equity invested in this joint venture is £1.9 million, representing a 20% stake. The business has traded ahead of expectations since acquisition, and, in addition to the management fees earned, we have received a first year dividend of £178,000, representing a 9.3% yield. In January 2015, the Group acquired the entire share capital of Big Storage Limited, a self storage company with five stores in the North West of England, for a property value of £24.9 million. The Group retained the store in Chester, which will be rebranded as Big Yellow. The Group subsequently sold the company with the remaining four stores to a joint venture company for a property value of £19.3 million, of which the Group owns 20% and an Australian consortium the remaining 80%. These four stores will be rebranded as Armadillos. This brings our Armadillo brand to 14 stores with a total capacity of 671,000 sq ft, and blended occupancy of 69.0% at 31 March 2015. Our people Success in any business is ultimately driven from within and with all making a contribution. I believe that we have a unique culture in the business with accessible management and a non-hierarchical structure which values and endeavours to reward everyone in the organisation for their contribution to our success. Our strong performance during the year was driven as always by the efforts and loyalty of our Big Yellow team, and our people remain pivotal to the achievement of our key medium term objectives of driving occupancy, revenue, and cash flow growth. Outlook We make no attempt to judge the economic cycle as it is a fruitless task and never more than now. We have now positioned the Group for the long-term so that we can enjoy the benefits of a strong economy and also adequately accommodate any reverses. The most important contribution to performance will be growing the occupancy and increasing rental rates in the existing platform of stores. In addition, there is scope to add more stores but the availability of land, and competition for it, makes this challenging. That said, there will be opportunities and we are well positioned to exploit them. The objective is very simple; to grow earnings and dividend at a compelling, but sustainable rate over a long period of time, without taking undue risk. Dividends The Group’s dividend policy is to distribute 80% of full year adjusted earnings per share. The final dividend declared is 11.3 pence per share. The dividend declared for the year of 21.7 pence per share represents an increase of 32% from 16.4 pence per share last year. Nicholas Vetch Chairman 18 May 2015 17 Strategic Report Our Strategy and Business Model The Strategic Report discusses the following areas: > Our strategy and business model > Operational and marketing review > Store performance > Financial review > Going concern basis > Principal risks and uncertainties > Corporate social responsibility Approval This report was approved by the Board of Directors on 18 May 2015 and signed on its behalf by: James Gibson Chief Executive Officer John Trotman Chief Financial Officer Our Strategy Our strategy from the outset has been to develop Big Yellow into the market leading self storage brand, which we have achieved with unprompted awareness of over seven times that of our nearest competitor (source: YouGov survey, May 2015). We concentrate on developing our stores in main road locations with high visibility, where our distinctive branding generates high awareness of Big Yellow. Self storage demand from businesses and individuals at any given store is linked in part to local economic activity, consumer and business confidence, all of which are inter-related. Fluctuations in housing activity whether in the rented or owner occupied sector are also a factor and in our view influence the top slice of demand over and above a core occupancy. This has been demonstrated by the resilience of our like-for-like stores since September 2007 despite a collapse in housing activity and GDP over the period 2007 to 2009. Local GDP and hence business and housing activity are greatest in the larger urban conurbations and in particular London and the South East. Furthermore, people and businesses are space constrained in these more expensive areas. Barriers to entry in terms of competition for land and difficulty around obtaining planning are also highest in more urbanised locations. Over the last 16 years we have created a portfolio of 70 purpose built prime Big Yellow self storage centres, largely freehold and focussed on London, the South East and large metropolitan cities. 61% of our current store revenue derives from within the M25; for London and the South East, the proportion of current store revenue is 80%. The REVPAF performance of our stores in London was more resilient over the downturn than in the regions. Our Big Yellow stores are on average 63,000 sq ft, compared to an industry average of 41,000 sq ft (source: The Self Storage Association 2015 UK Annual Survey). The upside from filling our larger than average sized stores is, in our view, only possible in large metropolitan markets, where self storage demand from domestic and business customers is the highest. As the operating costs of our assets are relatively fixed, larger stores in bigger urban conurbations, particularly London, drive higher revenues and higher operating margins. We continue to believe that the medium term opportunity to create shareholder value will be principally achieved by leasing up existing stores to drive revenue, the majority of which flows through to the bottom line given that our operating and central overhead costs are already largely fixed and embedded. Our key objectives remain: > leveraging our market leading brand position to generate new prospects, principally from our online mobile and desktop platforms; > focusing on training, selling skills, and customer satisfaction to maximise prospect conversion and referrals; > growing occupancy and net rent so as to drive revenue optimally at each store; > maintaining a focus on cost control, so revenue growth is transmitted through to earnings growth; > maintaining a conservative capital structure in the business with Group pre-interest cash flow cover of a minimum of five times annual interest expense; and > producing sustainable returns for shareholders through a low leverage, low volatility, high distribution REIT. In the fifteen years since flotation in May 2000, Big Yellow has delivered a Total Shareholder Return (“TSR”), including dividends reinvested, of 15.2% per annum, in aggregate 740% at the closing price of 647.5p on 31 March 2015. This compares to 7.8% per annum for the FTSE Real Estate Index and 4.8% per annum for the FTSE All Share index over the same period. This demonstrates the power of compounding over the longer term. 18 Our Business Model Attractive market dynamics Our competitive advantage . UK self storage penetration in key urban conurbations remains relatively low . Very limited new supply coming onto the market . Resilient through the downturn . Sector growth is positive, with increasing domestic demand . Industry’s most recognised brand . Prominent stores on arterial or main roads, with extensive frontage and high visibility . Largest share of web traffic from mobile and desktop platforms . Excellent customer service, customer feedback programme with store level customer satisfaction surveys . Largest UK self storage footprint by Maximum Lettable Area (“MLA”) capacity . Primarily freehold estate concentrated in London and South East and other large metropolitan cities . Larger average store capacity – economies of scale, higher operating margins . Secure financing structure with strong balance sheet Evergreen income streams Strong growth opportunities . 47,250 customers . Average length of stay for existing customers of 22 months . 29% of customers in stores > two year length of stay . Low bad debt expense (0.15% of revenue in the year) . Driving REVPAF with a focus on occupancy growth . Yield management as occupancy increases . Demand increasing with improving economic activity . Growth in national accounts and business customer base . Increasing the platform from the Group’s resources . Continuing investment in our 20% Armadillo joint ventures Conversion into quality earnings . Freehold assets for high operating margins and operational advantage . Low technology & obsolescence product, maintenance capex fully expensed . Annual compound adjusted eps growth of 17% since 2004/5 . Annual compound cash flow growth of 16% since 2004/5 19 Strategic Report (continued) Our Strategy and Business Model (continued) The self storage market In the recently published 2015 Self Storage Association UK Survey, only 45% of those surveyed had a reasonable or good awareness of self storage, in line with findings from our own research. Furthermore, only 6% of the 2,151 adults surveyed were currently using self storage or were thinking of using self storage in the next year. This indicates a continued opportunity for growth and with increasing use, together with the ongoing marketing efforts of everyone in the industry, we anticipate awareness to grow. Growth in new facilities across the industry has been limited to regional areas of the UK, particularly in the north, whereas in London, there were very few new openings last year and indeed capacity is expected to fall in the next twelve months with the closures of stores for redevelopment into alternative uses. Between 2010 and 2014 average industry openings have been approximately nine per year, which compares to an average of 34 per year in the preceding four years. 78% of respondents to the survey expected an improvement in profits this year, compared to 79% last year, and 84% expect rents for new customers to rise in 2015 compared to 87% last year. The Self Storage Association (“SSA”) estimate that the UK industry is made up of approximately 1,022 self storage facilities (of which 159 are purely container operations), providing 35.7 million sq ft of self storage space, equating to 0.56 sq ft per person in the UK. This compares to 7.3 sq ft per person in the US, 1.6 sq ft per person in Australia and 0.1 sq ft for mainland Europe, where the roll-out of self storage is a more recent phenomenon (source: Self Storage Association 2015 UK Annual Survey). 346 self storage facilities in the UK are held by large operators (defined as those managing 10 facilities or more) which represents 40% of the total number of self storage centres, but we would estimate approximately 50 to 60% of total capacity. Awareness of self storage will continue to grow as more businesses and individuals use the product at a time when the supply side is restricted, with very few store openings expected in the calendar year. Big Yellow is well placed to benefit from the growing self storage market, given the strength of our brand, and online platform which delivers approximately 86% of our prospect enquiries. Our portfolio is strategically focussed on London, the South East and large metropolitan cities, where barriers to entry and economic activity are at their highest. KPIs The key performance indicators of our stores are occupancy and rental yield, which together drive the revenue of the business. These are three key measures which are focussed on by the Board, and are reported on a weekly basis. Over the course of past five years, both occupancy and revenue have grown significantly. Rental yield was relatively stable between 2010 and 2012, reduced following the introduction of VAT in 2013 and grew by 6.1% in the year to 31 March 2014. It has decreased this year by 3.5%, principally reflecting the acquisition of the Big Yellow Limited Partnership stores at a lower average net rent per sq ft, being a regional portfolio. On a like for like basis, net rent has grown by 2.4% this year. Our key focus is on continuing to grow occupancy, with rental yield growth following once the stores have reached higher occupancy levels. Adjusted profit before tax, adjusted earnings per share and distributions to shareholders are our other KPIs. We have delivered compound eps growth of 15% over the past five years, and compound dividend growth of 24% over the same period. Compound adjusted eps growth since 2004/5 is 17%. We have illustrated the Group’s performance in these measures over the past five years on page 15. Capital structure In November 2013, the Company carried out a study of debt leverage and its impact on the long-term share performance of businesses, with the help of an external consultant. The study covered 40 quoted companies in the REIT space together with other consumer facing businesses for the period from 2000 to 2013. The main objective was to see if the results supported our long held view that lower geared businesses outperform in the long-term. Different business models with varying operating margins might, at the margin, have different optimum levels of debt. However a consistent theme emerged that excessive levels of debt have been universally value destructive. In a narrow window between 2003 and 2006 higher levels of debt would have delivered higher returns, but even during that period optimum levels of debt were lower than might be expected, and would have required pinpoint accuracy in timing. Transmission of this value destruction did result in significant underperformance and marked increases in share price volatility. Optimum levels of LTV gearing (expressed as net debt to gross asset value) ranged from 10% in moments of extreme fear (2008 to 2009) to 43% in periods of exuberance (2003 to 2006). Using 2009 to 2013 as a base, which is more representative of the long-term norm, albeit on a conservative basis, the optimum level of LTV was found to be 23%. We have previously said that we believe that the Group would benefit from lower leverage and the Board has a long-term target of Group income cover of over 5 times. The relationship of this metric to capital leverage is not perfectly correlated but making long-term assumptions on values and interest is reasonably correlated. We believe that the optimum level of LTV is 20% to 30% with a target of mid 20s from the current level of 27%. Given the subjective nature of valuations we prefer to express this target as net operating income over debt costs. 80% of revenue from London and the South East 15.2% per annum TSR since floatation 17% compound EPS growth since 2004/2005 20 Operational and Marketing Review For unprompted brand awareness, our recall in London is 52%, and for the rest of the UK it is 22%, both more than seven times that of our nearest competitor. Overview We now have a portfolio of 73 Big Yellow stores and sites of which 70 are currently open (Enfield opened on 1 April 2015). In addition we operate from 14 Armadillo Self Storage centres which are located in northern cities. Our store in Cambridge is expected to open in late 2015, and our store at Guildford Central is expected to open in Summer 2016. Planning negotiations are ongoing at our site in central Manchester. Access to capital and bank facilities has improved in the last year for real estate businesses, including self storage, however this is mainly for larger well-capitalised groups, rather than necessarily the smaller, independent operators. Growth in new openings over the last four years has averaged 1% of total capacity per annum, down significantly from the previous decade. Additionally, in our core markets in London and the South East, very high land values will render the opportunity for creating new self storage centres difficult. We believe that we are in a relatively strong position given the strength of our balance sheet and our proven property development expertise together with our ability to access funding to exploit the right opportunity. Operations The Big Yellow store model is well established. The “typical” store has 60,000 sq ft of net lettable storage area and takes some three to five years to achieve 80% plus occupancy. Some stores have taken longer than this given they opened just before or during the downturn. The average room size occupied in the portfolio is currently 67 sq ft, compared to 68 sq ft last year. The store is open seven days a week and is initially run by three staff, with a part time member of staff added once the store occupancy justifies the need for the extra administrative and sales workload. The drive to improve store operating standards and consistency across the portfolio remains a key focus for the Group. Excellent customer service is at the heart of our business objectives, as a satisfied customer is our best marketing tool. We measure customer service standards through a programme of mystery shoppers and online customer reviews. The website, whether accessed by desktop, tablet or smartphone receives the largest share of prospects, accounting for 86% of all sales leads. At the start of the prior year we launched a new customer-experience programme which combines the feedback from mystery shopping and customer reviews into the reinforcement of customer focus in our store operations. Our net promoter scores from this programme have increased over the year with part of the store teams’ bonus linked to the scores they achieve. We have a team of eight Area Managers in place who have on average worked for Big Yellow for eleven years. They develop and support the stores to drive the growth of the business. The store bonus structure rewards occupancy growth, sales growth and cost control through quarterly targets based on occupancy and store profitability, including the contribution from ancillary sales of insurance and packing materials. Information on bonus build up is circulated monthly and stores are consulted in preparing their own targets and budgets each quarter, leading to improved visibility, a better understanding of sales lines and control of operating costs. We believe that as a consumer-facing branded business it is paramount to maintain the quality of our estate and customer offering. We therefore continue to invest in preventative maintenance, store cleaning and the repair and replacement of essential equipment, such as lifts and gates. The ongoing annual expenditure is approximately £30,000 per store, which is included within cost of sales. This excludes our rolling programme of store makeovers, which typically take place every five years, at a cost of approximately £20,000 per store. Demand Of the customers moving into our stores in the last year, surveys undertaken indicate approximately 45% are linked to the housing market, either customers renting storage space whilst moving within the rental sector or the owner occupied sector. During the year 12% of our customers who moved in took storage space as a spare room for decluttering and approximately 33% of our customers used the product because some event has occurred in their lives generating the need for storage; they may be moving abroad for a job, have inherited possessions, are getting married or divorced, are students who need storage during the holidays, or homeowners developing into their lofts or basements. The balance of 10% of our customer demand during the year came from businesses. 21 Strategic Report (continued) Operational and Marketing Review (continued) Our business customers range across a number of industry types, such as retailers, e-tailers, professional service companies, hospitality companies and importers/exporters. These businesses store stock, documents, equipment, or promotional materials all requiring a convenient flexible solution to their storage, either to get started or to free up more expensive space. We have a dedicated national accounts team for business customers who wish to occupy space in multiple stores. These accounts are billed and managed centrally. We have four full time members of staff working on growing and managing our national account customers. The national accounts team can arrange storage at short notice at any location for our customers. In smaller towns where we do not have representation, we have negotiated sub-contract arrangements with other operators who meet certain operating standards. Revenue from our national accounts increased by 48% compared to the prior year. Business customers typically stay longer than domestic customers, and also on average occupy larger rooms. Whilst only representing 10% of new customers during the year, businesses represent 18% of our overall customer numbers, occupying 34% of the space in our stores. The average room size occupied by business customers is 125 sq ft, against 54 sq ft for domestic customers. This compares with the SSA Survey result for the industry as a whole which had 59% of space occupied by domestic customers and 41% of space by businesses. We would expect to have a higher proportion of domestic customers given our focus on London and other large metropolitan cities. We have seen solid demand from business customers, as they seek a cost effective, flexible solution to their storage requirements, preferring self storage to the commitment of a long lease. We believe there is an opportunity to grow business occupancy and national accounts in the coming year. We have improved our business offer further, we have increased the resource of our national accounts team, and we are increasing our marketing to drive business prospects. Marketing and eCommerce Our marketing strategy continues to focus on driving customer satisfaction and response through our multiple digital platforms. For the last nine years, we have commissioned a YouGov survey to help us monitor our brand awareness. In our most recent survey, conducted in May 2015, we used a statistically robust sample size of 1,035 respondents in London and 2,040 for the rest of the UK. The survey has shown our prompted awareness to be at 75% in London, two and a half times our nearest competitor and 44% for the rest of the UK, over three times higher than our nearest competitor. Of web visits in March 2015, whether to the Big Yellow mobile or desktop websites, 48% come from tablets and smartphones. For unprompted brand awareness, our recall in London is 52% and for the rest of the UK it is 22%, both more than seven times higher than our nearest competitor. These surveys continue to prove we are the UK’s brand leader in self storage (source: YouGov, May 2015). Online The Big Yellow website, whether accessed by desktop, tablet or smartphone, receives the largest share of prospects, accounting for 86% of all sales leads across the year ended 31 March 2015. Telephone is the first point of contact for 9% of prospects and walk-in enquiries, where we have had no previous contact with a prospect, represent 5%. We have the largest online market share of web visits to self storage company websites in the UK. Across the year ended 31 March 2015, our online market share of web visits ranged from 33% to 39%. Our nearest competitor ranged from 14% to 19% online market share for the same period (source: Experian Hitwise 44 largest UK operators). We continually monitor and improve the website user journey to make the experience as informative, customer focussed and intuitive as possible. Our mobile strategy is central to this. By the end of March 2015, smartphones and tablets accounted for 48% of all web visits. Specifically, smartphones alone accounted for 32% of web visits in March 2015, up from 27% in March 2014. Whether it is through desktop, tablet or mobile, our customers enjoy a seamless experience whichever digital route they choose. We are continually developing helpful and time saving online tools such as check-in online, online FAQs, video store tours and online chat. These all help the customer to make an informed choice about their self storage requirements. Online customer reviews Consistent with our strategy of putting the customer at the heart of our business, our online customer reviews generate real-time feedback from customers as well as providing positive word of mouth referral to our web visitors. Through our ‘Big Impressions’ customer feedback programme, we ask our new customers to rate our product and service and with the users’ permission, we then publish these independent reviews on the website. There are currently over 11,600 reviews published. The Big Impressions programme also generates customer feedback on their experience when they move out of a Big Yellow store and also from those prospects who decided not to store with us. In addition, this programme reinforces best practice of customer service at our stores where customer reviews and mystery shop results are transparently accessible at all levels. In addition, we also gain real-time insight from customers who submit reviews to a third party customer review site. These reviews are currently averaging 9.5 out of 10. We also regularly monitor Google reviews and mentions of Big Yellow within the social mediums of Twitter, online forums and blogs. We use this insight to continually improve our service offering. 22 52% Unprompted brand awareness in London 22% Unprompted brand awareness in the rest of the UK 33-39% Online market share Driving online traffic Search engines are the most important acquisition tool for us, accounting for the majority of all traffic to the website. We continue to invest in search engine optimisation (“SEO”) techniques both on and off the site. This helps us to maintain our high positions for the most popular and most searched for terms such as “storage” and “self storage” in the organic listings on Google. The sponsored search listings remain the largest source of paid for traffic and we ensure our prominence in these listings is balanced with effective landing pages to maximise site conversion. This year, we have also continued with online display advertising on websites which are targeted to our core audience groups. This activity performs both a direct response and branding role. Efficiencies in online spend are continuing into the year ending 31 March 2016, ensuring the return on investment is maximised from all of our different online traffic sources. Online marketing budgets will continue to remain fluid and be directed towards the media with the best return on investment. Social media Social media continues to be complementary to our existing marketing channels. Our activity is most focussed on Twitter, not only monitoring and answering queries regarding self storage, but also posting our own creative tweets, tips and advice. The Big Yellow YouTube channel is used to showcase our stores to web prospects through a video store tour. We use both domestic and business versions to help prospects experience the quality of the product without the need for them to visit the store in person. Our online blog is updated regularly with tips and advice for homeowners and businesses as well as summaries of our charitable and CSR initiatives. PR We have used PR stories in the year to help raise the awareness of Big Yellow and the benefits of self storage to different audience groups. These have focussed on the flexible benefits of using self storage for when you are looking to sell your home, an intriguing insight into how household clutter can damage relationships, plus research into the growing demographic trend of the Boomerang Generation who are returning home to live back with their parents after having flown the nest. These stories help to promote the wider uses of Big Yellow Self Storage against everyday issues and have generated both national and regional media coverage online and offline. They are also supported by radio interviews which allow us to talk about the benefits of Big Yellow. Budget During the year the Group spent approximately £3.6 million on marketing (4% of total store revenue). We have increased the budget for the year ahead to £4 million with a focus on driving our revenue through delivering more prospects to the website. 23 Strategic Report (continued) Proforma Portfolio Summary – Big Yellow Stores Number of stores(2) 50 14 5 Mature(1) Established Developing 2015 Total 69 Mature Established Developing 2014 48 14 4 Total 66 At 31 March Total capacity (sq ft) Occupied space (sq ft) Percentage occupied Net rent per sq ft For the year REVPAF(3) Average occupancy Average annual rent psf 3,121,000 2,350,000 75.3% £25.89 883,000 613,000 69.4% £22.73 340,000 215,000 63.2% £25.05 4,344,000 3,178,000 73.2% £25.23 3,017,000 2,146,000 71.1% £25.62 883,000 536,000 60.7% £22.09 270,000 150,000 55.6% £23.83 4,170,000 2,832,000 67.9% £24.85 £22.49 74.7% £25.73 £18.04 67.7% £22.33 £16.40 58.1% £23.80 £21.09 71.9% £24.95 £21.03 70.6% £25.05 £15.43 58.7% £21.63 £14.37 51.1% £22.85 Self storage income Other storage related income(4) Ancillary store rental Income Total store revenue Direct store operating costs (excluding depreciation) Short and long leasehold rent(5) Store EBITDA(6) Store EBITDA margin Deemed cost To 31 March 2015 Capex to complete Total £000 £000 58,695 9,871 136 68,702 (20,596) (1,941) 46,165 67.2% £m 311.0 – 311.0 13,355 2,519 54 15,928 (5,573) – 10,355 65.0% £m 145.4 1.7 147.1 £000 4,701 790 86 5,577 (2,187) – 3,390 60.8% £m 74.0 0.2 74.2 £000 £000 £000 53,367 9,272 91 62,730 (19,973) (2,005) 40,752 65.0% 11,211 2,329 85 13,625 (5,373) – 8,252 60.6% 76,751 13,180 276 90,207 (28,356) (1,941) 59,910 66.4% £m 530.4 1.9 532.3 £000 3,153 632 95 3,880 (1,732) – 2,148 55.4% £19.41 66.8% £24.32 £000 67,731 12,233 271 80,235 (27,078) (2,005) 51,152 63.8% (1) The mature stores have been open for more than six years at 1 April 2014. The established stores have been open for between three and six years at 1 April 2014 and the developing stores have been open for fewer than three years at 1 April 2014. The Group acquired two stores during the year in Chester and Oxford. These are shown within mature stores in the current year as they have been open for more than six years. (2) The Group acquired the 66.7% of Big Yellow Limited Partnership that it did not previously own on 1 December 2014. The results of the stores in the Partnership have been included in the results above for both years to give a clearer understanding of the underlying performance of all Big Yellow stores. The table below shows the results excluding the period when the stores were not wholly owned. Store revenue Store EBITDA 2015 Partnership results as an associate £000 (7,476) (4,659) Per above £000 90,207 59,910 Statutory £000 82,731 55,251 Per above £000 80,235 51,152 2014 Partnership results as an associate £000 (9,529) (5,480) Statutory £000 70,706 45,672 (3) Total store revenue divided by the average maximum lettable area in the year. (4) Packing materials, insurance and other storage related fees. (5) Rent for six mature short leasehold properties accounted for as investment properties and finance leases under IFRS with total self storage capacity of 398,000 sq ft, and a long leasehold lease-up store with a capacity of 64,000 sq ft. The Group acquired the freehold of its Battersea store in December 2014. (6) Store earnings before interest, tax, depreciation, amortisation, and an allocation of central overhead. 24 Our Stores Our Portfolio / Unrivalled in the UK An unrivalled portfolio of stores across London, the South East and other large metropolitan cities. Enfield, April 2015 MLA – 60,000 sq ft Chester, February 2015 MLA – 69,000 sq ft Oxford 2, July 2014 MLA – 35,000 sq ft Gypsy Corner, April 2014 MLA – 70,000 sq ft Chiswick, April 2012 MLA – 75,000 sq ft New Cross, February 2012 MLA – 62,000 sq ft Stockport, September 2011 MLA – 65,000 sq ft Eltham, April 2011 MLA – 70,000 sq ft Camberley, January 2011 MLA – 68,000 sq ft High Wycombe, June 2010 MLA – 60,000 sq ft 25 Our Portfolio (continued) Reading, December 2009 MLA – 62,000 sq ft Sheffield Bramall Lane, September 2009 MLA – 60,000 sq ft Poole, August 2009 MLA – 55,000 sq ft Nottingham, August 2009 MLA – 67,000 sq ft Edinburgh, July 2009 MLA – 63,000 sq ft Twickenham, May 2009 MLA – 73,000 sq ft Liverpool, March 2009 MLA – 60,000 sq ft Bromley, March 2009 MLA – 71,000 sq ft Birmingham, February 2009 MLA – 60,000 sq ft Sheen, December 2008 MLA – 64,000 sq ft Sheffield Hillsborough, October 2008 MLA – 60,000 sq ft Kennington, May 2008 MLA – 66,000 sq ft Merton, March 2008 MLA – 70,000 sq ft Fulham, March 2008 MLA – 139,000 sq ft Balham, March 2008 MLA – 60,000 sq ft Barking, November 2007 MLA – 64,000 sq ft Ealing Southall, November 2007 MLA – 57,000 sq ft Sutton, July 2007 MLA – 70,000 sq ft Gloucester, December 2006 MLA – 50,000 sq ft Edmonton, October 2006 MLA – 75,000 sq ft 26 Kingston, August 2006 MLA – 62,000 sq ft Bristol Ashton Gate, July 2006 MLA – 61,000 sq ft Finchley East, May 2006 MLA – 54,000 sq ft Tunbridge Wells, April 2006 MLA – 57,000 sq ft Bristol Central, March 2006 MLA – 64,000 sq ft North Kensington, December 2005 MLA – 51,000 sq ft Leeds, July 2005 MLA – 76,000 sq ft Beckenham, May 2005 MLA – 71,000 sq ft Tolworth, November 2004 MLA – 56,000 sq ft Watford, August 2004 MLA – 64,000 sq ft Swindon, April 2004 MLA – 53,000 sq ft Orpington, December 2003 MLA – 64,000 sq ft Byfleet, November 2003 MLA – 48,000 sq ft Chelmsford, April 2003 MLA – 54 ,000 sq ft Finchley North, March 2003 MLA – 62,000 sq ft West Norwood, January 2003 MLA – 57,000 sq ft Colchester, December 2002 MLA – 54,000 sq ft Bow, November 2002 MLA – 132,000 sq ft Brighton, October 2002 MLA – 59,000 sq ft Guildford, June 2002 MLA – 55,000 sq ft 27 Our Portfolio (continued) New Malden, May 2002 MLA – 81,000 sq ft Hounslow, December 2001 MLA – 54,000 sq ft Battersea, December 2001 MLA – 34,000 sq ft Ilford, November 2001 MLA – 58,000 sq ft Cardiff, October 2001 MLA – 74,000 sq ft Portsmouth, October 2001 MLA – 61,000 sq ft Norwich, September 2001 MLA – 47,000 sq ft Dagenham, July 2001 MLA – 51,000 sq ft Wandsworth, April 2001 MLA – 47,000 sq ft Luton, March 2001 MLA – 41,000 sq ft Southend, March 2001 MLA – 57,000 sq ft Staples Corner, March 2001 MLA – 112,000 sq ft Romford, November 2000 MLA – 70,000 sq ft Milton Keynes, September 2000 MLA – 61,000 sq ft Cheltenham, April 2000 MLA – 50,000 sq ft Slough, February 2000 MLA – 67,000 sq ft Hanger Lane, October 1999 MLA – 66,000 sq ft Oxford, August 1999 MLA – 33,000 sq ft Croydon, July 1999 MLA – 80,000 sq ft Richmond, May 1999 MLA – 35,000 sq ft 28 Strategic Report (continued) Portfolio Summary – Armadillo Stores Number of stores At 30 September Total capacity (sq ft) Occupied space (sq ft) Percentage occupied Net rent per sq ft For the 6 month period REVPAF Average occupancy Average annual rent psf Self storage income Other storage related income Ancillary store rental income Total store revenue Direct store operating costs (excluding depreciation) Store EBITDA Store EBITDA margin Cumulative capital expenditure To 31 March 2015 To complete Total capital expenditure Armadillo 1(1) March 2014 12 401,000 240,000 59.9% £14.31 £10.03 58.9% £13.84 £000 3,273 738 12 4,023 (2,016) 2,007 49.9% March 2015 12 401,000 253,000 63.1% £14.66 £11.20 62.9% £14.53 £000 3,665 817 10 4,492 (2,035) 2,457 54.7% £m 19.8 0.2 20.0 (1) The Group acquired an interest in Armadillo 1 on 16 April 2014. The results shown here are to provide readers with a clearer understanding of the performance of the portfolio. Please see note 13d for the Group’s share of Armadillo 1’s results since ownership. (2) The Group acquired an interest in Armadillo 2, a portfolio of four stores in the North West on 3 February 2015. The four stores were 77.8% occupied of their 270,000 sq ft capacity at 31 March 2015. The trading figures for this portfolio will be presented from next year. Please see note 13d for the Group’s share of Armadillo 2’s results since ownership. 29 Strategic Report (continued) Store Performance We had a very strong quarter to June with good net move-in growth. The second quarter peaked in August and then we saw many of our students and short term house moves starting to vacate in September, leading to a relatively flat quarter. The third quarter saw student and house move vacations leading to a net loss in units occupied and sq ft. In the final quarter we have seen a return to growth in net occupied rooms and increased occupancy in the stores by 82,000 sq ft. The table below illustrates the move-in performance in the year. Store move-ins April to June July to September October to December January to March Total Year ended 31 March 2015 Year ended 31 March 2014 Net move-ins % 31 March 2015 20,196 21,873 16,897 16,131 75,097 18,685 19,946 14,848 15,464 68,943 8 10 14 4 9 5,613 (704) (1,410) 1,126 4,625 In all Big Yellow stores, the occupancy growth in the current year was 346,000 sq ft, against an increase of 200,000 sq ft in the prior year. This growth includes 24,000 sq ft of occupancy acquired with the acquisition of Fort Box Self Storage in Oxford (“Oxford 2”), and 55,000 sq ft of occupancy acquired with the acquisition of Big Storage Chester. The net occupancy growth in the year was therefore 267,000 sq ft. This growth represents an average of 3,870 sq ft per store (2014: 3,030 sq ft per store). Occupancy 31 March 2015 000 sq ft Occupancy 31 March 2014 000 sq ft Growth for year to 31 March 2015 000 sq ft Growth for year to 31 March 2014 000 sq ft 2,350 613 215 3,178 2,146 536 150 2,832 204 77 65 346 109 51 40 200 As the stores lease-up, our pricing model reduces the level of promotional discounts offered in individual stores. This squeezing out of promotions leads to an increase in net achieved rents. The table below illustrates this, showing the growth in net rent per sq ft for the portfolio over the year. Average occupancy in the year Net rent per sq ft growth over the year 0 to 60% 60 to 70% 70 to 80% Above 80% 1.1% 1.4% 2.0% 5.9% Store occupancy summary 50 mature stores 14 established stores 5 developing stores Total – all 69 stores The 50 mature stores are 75.3% occupied compared to 71.1% at the same time last year. The 14 established stores have grown in occupancy from 60.7% to 69.4%. The five developing stores added 65,000 sq ft of occupancy in the year to reach closing occupancy of 63.2%. Overall store occupancy has increased in the year from 67.9% to 73.2%. All 69 stores open at the year end are trading profitably at the EBITDA level. Pricing and rental yield We have continued our sales promotion offer throughout the year of “50% off for up to your first 8 weeks storage”. Our Price Promise is also used to match competitors’ prices, if the product is comparable. Pricing is dynamically generated and takes into account customer demand and local competition. In the year ended 31 March 2015, net rent in the like for like stores grew by 2.4%. This has been a combination of reducing discounts to new customers and retaining price increases from existing customers. 30 The table below shows the average key metrics across the store portfolio for the year ended 31 March 2015: Store capacity Sq ft occupied per store at 31 March 2015 % occupancy Revenue per store EBITDA per store EBITDA margin Mature stores Established stores Developing stores 62,420 47,000 75.3% £1,374,000 £923,000 67.2% 63,071 43,786 69.4% £1,138,000 £740,000 65.0% 68,000 43,000 63.2% £1,115,000 £678,000 60.8% Armadillo In April 2014 we acquired the Armadillo portfolio of 10 stores, which we have been managing since 2009, with an Australian consortium. The Armadillo platform was added to in February 2015 with the acquisition of a further four stores following the purchase of Big Storage by the Group and its subsequent disposal to a company in which the Group has a 20% interest, with the balance held by an Australian consortium. The Armadillo stores are lower-frills, but good quality, largely freehold assets in towns where we would not typically locate a Big Yellow store. Armadillo provides a number of operational advantages to the Group, such as a wider platform to sell to national accounts, more promotional opportunities for staff, more efficient use of the Company’s overhead and benefits online. The Group will consider other opportunities to add to the Armadillo platform if the right stores or portfolio become available. Development pipeline There are two freehold sites with planning for Big Yellow stores to be developed. We also own a 4.5 acre development site in central Manchester where we are in planning discussions for a mixed use scheme incorporating a new Big Yellow store. We have acquired the freehold interest of our existing 34,000 sq ft store in Battersea, which had 12 years remaining on the occupational lease together with a 14,100 sq ft retail unit let to Halfords on an annual rent of £458,000 with 7 years unexpired, part of which is sublet to Pets at Home. The next rent review date is January 2017. The total consideration paid was £23 million. This increases the freehold ownership of our portfolio and protects our position in this important central London location. In the medium term, we will redevelop the 1.5 acre site to include a larger Big Yellow store together with other uses. The Group also owns an office building adjacent to our Wandsworth store which we are seeking planning permission to convert to self storage, adding approximately 30,000 sq ft of net storage space to the store. The status of the development pipeline is summarised in the table below: City Location Status Anticipated capacity Battersea Cambridge Guildford Manchester Wandsworth Potential redevelopment of Big Yellow store and adjoining retail in a mixed use residential scheme to increase our self storage capacity Early design discussions with the Borough Council Up to an additional 60,000 sq ft Adjacent to the Cambridge Retail Park, Newmarket Road Existing B8 consent, detailed signage consent required 55,000 sq ft Prime location in centre of Guildford on Woodbridge Meadows Prime location on Water Street in central Manchester Possible extension of 30,000 sq ft to existing 47,000 store Consent granted 56,000 sq ft Planning under negotiation 50,000 sq ft to 70,000 sq ft Planning under negotiation Additional 30,000 sq ft The Group manages the construction and fit-out of its stores in-house, as we believe it provides both better control and quality, and we have an excellent record of building stores on time and within budget. 31 Strategic Report (continued) Financial Review Total revenue for the year was £84.3 million, an increase of £12.1 million (17%) from £72.2 million in the prior year. Delivering results Financial results Placing and acquisition of Big Yellow Limited Partnership In November 2014 the Group issued 14.35 million new ordinary shares at 547.5 pence per share raising £76.4 million (net of expenses). Following the Placing the Group completed the buy-out of its partner Pramerica Real Estate Investors from its existing joint venture, Big Yellow Limited Partnership (accelerated from the option date of 31 March 2015). The purchase price was £39.25 million, close to the book value at 30 September 2014 and was paid in cash. Big Yellow Limited Partnership was created in November 2007 and the portfolio consisted of 12 stores located in Birmingham, Camberley, Edinburgh, High Wycombe, Leeds, Liverpool, Nottingham, Poole, Reading, Sheffield (two stores) and Stockport. At the price paid the portfolio had an implied first year pre-admin net operating income yield of 6.8%, rising to 8.1% if the stores achieve 85% occupancy at today’s rental levels. Revenue Total revenue for the year was £84.3 million, an increase of £12.1 million (17%) from £72.2 million in the prior year. The revenue excluding the Partnership stores consolidated from 1 December was £80.6 million for the year, representing an increase of 12% from last year. The other revenue is fee income earned from Big Yellow Limited Partnership (until 30 November), management fee income from the Armadillo Partnerships, and tenant income on sites where we have not started development. Other sales (included within the above), comprising the selling of packing materials, insurance and storage related charges, represented 16.8% of storage income for the year (2014: 17.5%) and generated revenue of £11.8 million for the year, up 13% from £10.5 million in 2014. The table below reconciles the quarterly store revenue compared to the prior year, showing the impact on revenue of the Partnership stores acquired on 1 December 2014. Quarter April to June July to September October to December January to March Total Same stores* 2015 £m Same stores 2014 £m 18.6 20.5 20.3 19.6 79.0 16.7 18.4 17.9 17.7 70.7 BYLP stores consolidated £m – – 1.0 2.7 3.7 % 11% 11% 13% 11% 12% 2015 total £m 18.6 20.5 21.3 22.3 82.7 % increase on 2014 11% 11% 19% 26% 17% * the same stores are the Big Yellow stores excluding the BYLP stores. Operating costs Cost of sales comprises principally of the direct store operating costs, including store staff salaries, utilities, business rates, insurance, a full allocation of the central marketing budget, and repairs and maintenance. Cost of sales in the income statement has increased by £2.4 million (9%) to £27.4 million (2014: £25.0 million). Of this increase £1.4 million relates to the operating costs of the Partnership stores from 1 December 2014. The operating costs of the new stores at Gypsy Corner, Oxford 2 and Chester account for £0.7 million of the increase, with the remaining increase of £0.3 million due to general inflationary pressures in part offset by rates rebates received at a couple of stores. Administrative expenses in the income statement have increased by £0.9 million compared to the prior year, largely due to an increase of £0.6 million in the share based payment charge and associated national insurance on the vesting of share incentives. £2.1 million of the £8.5 million administrative expense is non-cash IFRS 2 share-based payment charges. Store EBITDA Store EBITDA for the year was £55.3 million, an increase of £9.6 million (21%) from £45.7 million for the year ended 31 March 2014. Of this increase £2.3 million relates to the Partnership stores from 1 December 2014. The EBITDA after adjusting for this is £53.0 million, an increase of 16% from the prior year. The overall EBITDA margin for all Big Yellow stores during the year was 66.4%, compared to 63.8% last year. 32 Interest expense on bank borrowings The gross bank interest expense for the year was £10.1 million, a decrease of £0.7 million from the prior year. This reflects the reduction in debt costs after the refinancing during the year, partly offset by the increase in debt in December 2014 following the acquisition of Big Yellow Limited Partnership and the acquisition of the freehold of our Battersea store. The average cost of borrowing during the year was 3.9%, compared to 4.5% in the prior year. Total interest payable has decreased in the statement of comprehensive income from £11.3 million to £10.7 million principally due to the decrease in the gross bank interest expense. Capitalised interest decreased by £0.1 million from the prior year, with the Group constructing its store at Enfield in the current year, compared with constructing Gypsy Corner during the prior year. Profit before tax The Group made a profit before tax in the year of £105.2 million, compared to a profit of £59.8 million in the prior year. After adjusting for the gain on the revaluation of investment properties and other matters shown in the table below, the Group made an adjusted profit before tax in the year of £39.4 million, up 35% from £29.2 million in 2014. Profit before tax analysis Profit before tax Gain on revaluation of investment properties Movement in fair value on interest rate derivatives Gains on surplus land Share of non-recurring (gains)/losses in associates Adjusted profit before tax 2015 £m 105.2 2014 £m 59.8 (64.5) (28.3) 2.3 (1.3) (2.3) 39.4 (2.7) – 0.4 29.2 The movement in the adjusted profit before tax from the prior year is illustrated in the table below: Adjusted profit before tax – year ended 31 March 2014 Increase in gross profit Reduction in net interest payable Increase in administrative expenses Increase in share of recurring profit of associates Decrease in capitalised interest Adjusted profit before tax – year ended 31 March 2015 £m 29.2 9.8 0.8 (0.9) 0.6 (0.1) 39.4 Diluted EPRA earnings per share based on adjusted profit after tax was up 32% to 27.1p (2014: 20.5p) (see note 12). Basic earnings per share for the year was 72.5p (2014: 42.5p) and fully diluted earnings per share was 71.9p (2014: 42.2p). REIT status The Group converted to a Real Estate Investment Trust (“REIT”) in January 2007. Since then the Group has benefited from a zero tax rate on the Group’s qualifying self storage earnings. The Group only pays tax on the profits attributable to our residual business, comprising primarily of the sale of packing materials and insurance, and fees earned from Big Yellow Limited Partnership and from the management of the Armadillo portfolio. REIT status gives the Group exemption from UK corporation tax on profits and gains from its qualifying portfolio of UK stores. Future revaluation gains on developments and our existing open stores will be exempt from corporation tax on capital gains, provided certain criteria are met. The Group has a rigorous internal system in place for monitoring compliance with criteria set out in the REIT regulations. On a monthly basis, a report to the Executive on compliance with these criteria is carried out. To date, the Group has complied with all REIT regulations, including forward looking tests. Taxation There is a tax credit in the current year of £0.4 million. This compares to a tax charge in the prior year of £0.3 million. We received a refund of £0.2 million in the year in respect of the conversion charge paid when the Group converted to a REIT in January 2007. This was in respect of two properties which did not provide REITable supplies prior to their disposal. The balance of the credit relates to a release of part of the prior year tax charge offset by the current year tax provision. Dividends REIT regulatory requirements determine the level of Property Income Dividend (“PID”) payable by the Group. On the basis of the full year distributable reserves for PID purposes, a PID of 16.1 pence per share is payable (31 March 2014: 13 pence per share PID). The Board is recommending the payment of a final dividend of 11.3 pence per share. The table below summarises the declared dividend for the year: Dividend (pence per share) Interim dividend – PID Final dividend Total dividend – discretionary – total – PID – discretionary – total – PID – discretionary – total 31 March 2015 31 March 2014 10.4p nil p 10.4p 5.7p 5.6p 11.3p 16.1p 5.6p 21.7p 8.0p nil p 8.0p 5.0p 3.4p 8.4p 13.0p 3.4p 16.4p Subject to approval by shareholders at the Annual General Meeting to be held on 21 July 2015, the final dividend will be paid on 23 July 2015. The ex-div date is 11 June 2015 and the record date is 12 June 2015. 33 Strategic Report (continued) Financial Review (continued) The cash flow after investing activities was a net outflow of £43.5 million in the year, compared to an inflow of £23.9 million in 2014; the reduction being due to the increase in capital expenditure in the year. The non-recurring finance costs in the year relate to £1.4 million of payments made to cancel interest rate derivatives and £2.6 million relating to arrangement fees paid for the M&G and senior debt loans. Balance sheet Property The Group’s 69 stores and four stores under development at 31 March 2015, which are classified as investment properties, have been valued by Cushman & Wakefield (“C&W”) and this has resulted in an investment property asset value of £1,022.8 million, comprising £965.5 million (94.4%) for the 63 freehold (including two long leaseholds) open stores, £41.6 million (4.1%) for the six short leasehold open stores and £15.7 million (1.5%) for the four investment properties under construction. Analysis of property portfolio Value at 31 March 2015 £m Revaluation movement in year £m Investment property Investment property under construction 1,007.1 15.7 Total 1,022.8 63.6 0.9 64.5 Investment property Each Big Yellow store is reviewed and valued individually by Cushman & Wakefield LLP (“C&W”). The Armadillo stores have been valued by Jones Lang LaSalle. The valuations in the current year have grown from the prior year, with a revaluation surplus of £63.6 million on the open Big Yellow stores. Of this increase 75% is due to an improvement in the cap rate used in the valuations, reflecting transactional evidence and a wider shift in the UK real estate market in the last six months. The balance of the increase (25%) is due to the growth in cash flow from the assets. Cash flow growth The Group is strongly cash generative and draws down from its longer term committed facilities as required to meet obligations. A summary of the cash flow for the year is set out in the table below: Cash generated from operations Net finance costs (including tax) Free cash flow Capital expenditure (including finance lease payments) Acquisition of Big Yellow Limited Partnership Acquisition of Big Storage Limited Asset sales (including Big Storage Limited) Receipt from Capital Goods Scheme Investment in associates (net of dividends received) Cash flow after investing activities Ordinary dividends Issue of share capital Non-recurring finance costs Net movement on Big Storage loans Repayment of Partnership loan Increase/(decrease) in borrowings Net cash inflow/(outflow) Opening cash and cash equivalents Year ended 31 March 2015 £000 Year ended 31 March 2014 £000 51,875 (9,478) 43,290 (10,538) 42,397 32,752 (43,704) (9,570) (37,406) (15,114) 10,429 3,557 (3,620) (43,461) (27,890) 77,094 (4,057) 4,241 (57,000) 55,966 4,893 3,301 – – – 756 – 23,938 (19,591) 42 – – – (8,938) (4,549) 7,850 Closing cash and cash equivalents Debt 8,194 (285,334) 3,301 (229,368) Net debt (277,140) (226,067) Free cash flow pre-capital expenditure increased by 29% to £42.4 million for the year (2014: £32.8 million). In the year capital expenditure outflows were £43.7 million, up from £9.6 million in the prior year. During the year we acquired an existing store in Oxford, the freehold of Chester, the freehold of our store in Battersea and paid the deposit on acquiring a site in Cambridge. We also constructed our Enfield store and invested in Phase 2 fit outs. Additionally, as discussed elsewhere in this report, we acquired the two thirds share of Big Yellow Limited Partnership and acquired, and subsequently disposed of the share capital of Big Storage Limited with four stores excluding the leasehold interest in Chester. 34 The valuation is based on an average occupancy over the 10 year cash flow period of 79.9% across the whole portfolio. Number of stores MLA capacity (sq ft) Valuation at 31 March 2015 (£m) Value per sq ft (£) Occupancy at 31 March 2015 Stabilised occupancy assumed Net initial yield pre-admin expenses Stabilised yield assuming no rental growth The initial yield pre-administration expenses assuming no rental growth is 6.4% (2014: 6.3%) rising to a stabilised yield of 7.4% (2014: 7.8%). The stores are assumed to grow to stabilised occupancy in 26 months on average. Note 14 contains more detail on the assumptions underpinning the valuations. There is very little transaction activity in the prime self storage market, although there has been some activity for secondary assets. As referenced in note 14, C&W’s valuation report further confirms that the properties have been valued individually but that if the portfolio was to be sold as a single lot or in selected groups of properties, the total value could differ significantly. C&W state that in current market conditions they are of the view that there could be a material portfolio premium. Investment property under construction The three wholly owned development sites (excluding Gypsy Corner which was transferred to investment property in the year) have increased in value by £6.0 million, £5.1 million relating to capital expenditure incurred, with the balance of £0.9 million a revaluation surplus. Purchaser’s cost adjustment As in prior years, we have instructed an alternative valuation on our assets using a purchaser’s cost assumption of 2.75% (see note 14 for further details) to be used in the calculation of our adjusted diluted net asset value. This Red Book valuation on the basis of 2.75% purchaser’s costs, results in a higher property valuation at 31 March 2015 of £1,068.4 million (£45.6 million higher than the value recorded in the financial statements). With the share of uplift on the revaluation of the Armadillo stores, this translates to 29.3 pence per share. The revised valuation translates into an adjusted net asset value per share of 510.4 pence (2014: 446.5 pence) after the dilutive effect of outstanding share options. Surplus land At 31 March 2015 the Group owned £3.3 million of land surplus to our requirements at one site. We aim to sell this surplus land once we have maximised its realisable value through planning improvements. The site is held at the lower of cost and net realisable value and has not been externally valued. Mature Leasehold Freehold Established Freehold Developing Freehold 6 398,000 41.6 105 78.1% 81.2% 11.2% 12.0% 44 2,723,000 689.6 253 74.9% 80.2% 6.4% 7.0% 14 883,000 183.9 208 69.4% 82.3% 6.1% 7.6% 5 340,000 92.0 271 63.2% 84.8% 4.7% 7.7% Total 69 4,344,000 1,007.1 232 73.2% 81.1% 6.4% 7.4% In September, the Group sold its surplus site at Guildford Central for £2.8 million, representing a profit over book value of £1.3 million. Receivables At 31 March 2015 we have a receivable of £9.2 million in respect of payments due back to the Group under the Capital Goods Scheme as a consequence of the introduction of VAT on self storage from 1 October 2012. On acquisition of the remaining 66.7% of Big Yellow Limited Partnership, the Group’s receivable under the Capital Goods Scheme increased by £3.4 million. The debtor has been discounted in accordance with International Accounting Standards to the net present value using the Group’s average cost of debt, with £0.5 million of the discount being unwound through interest receivable in the period. The gross value of the debtor before discounting is £10.3 million. The Group received £3.6 million under the Capital Goods Scheme during the year, with the October 2015 receipt accelerated to January 2015 following the merger of the Group’s two VAT groups. Movement in adjusted NAV The year on year movement in adjusted net asset value (see note 12) is illustrated in the table below: Movement in adjusted net asset value 1 April 2014 Share placing 1 April 2014 (restated) Adjusted profit Equity dividends paid Revaluation movements (including share of associate) Movement in purchaser’s cost adjustment Other movements (eg share schemes) Equity shareholders’ funds £m 634.4 76.4 710.8 39.4 (27.9) 67.6 8.9 2.6 EPRA adjusted NAV per share pence 446.5 7.9 454.4 25.1 (17.8) 43.2 5.7 (0.2) 31 March 2015 801.4 510.4 35 Strategic Report (continued) Financial Review (continued) Share capital The share capital of the Company totalled £15.8 million at 31 March 2015 (2014: £14.3 million), consisting of 158,055,735 ordinary shares of 10p each (2014: 143,061,147 shares). The Group placed 14.35 million shares in the year at 547.5 pence per share. Shares issued for the exercise of options during the year amounted to 0.6 million at an average exercise price of 540p (2014: 421,500 shares at an average price of 450p). The Group holds 1.4 million shares in treasury and 1.5 million shares within an Employee Benefit Trust (“EBT”). These shares are shown as a debit in reserves and are not included in calculating net asset value per share. Opening shares Shares issued for the placing Shares issued for the exercise of options Closing shares in issue Shares held in EBT Shares held in treasury 2015 No. 2014 No. 143,061,147 142,639,647 – 14,352,711 641,877 421,500 158,055,735 143,061,147 (1,500,000) (1,418,750) (1,500,000) (1,418,750) Closing shares for NAV purposes 155,136,985 140,142,397 73,136,757 shares were traded in the market during the year ended 31 March 2015 (2014: 54,249,527). The average mid-market price of shares traded during the year was 553.4p with a high of 667.0p and a low of 460.6p. Big Yellow Limited Partnership The Group acquired the remaining two thirds of Big Yellow Limited Partnership that it did not previously own on 1 December. In the consolidated accounts of Big Yellow Group PLC, up to the date of acquisition the Partnership is treated as an associate. We have provided in note 13d the balance sheet and income statement of the Partnership up to the date of acquisition, along with the Group’s share of the income statement captions. The Group earned certain construction and operational fees from the Partnership. For the year to 31 March 2015, these fees amounted to £0.5 million (2014: £0.6 million). The Partnership bank facility was repaid immediately following completion of the acquisition by the Group. Borrowings We focus on improving our cash flows and for the year we had healthy Group interest cover of 5.4 times (2014: 4.1 times) based on cash generated from operations against interest paid, allied to a relatively conservative debt structure secured principally against the freehold estate. During the year we completed the refinancing of our £145 million bank facility with Lloyds and HSBC, extending the maturity to August 2019. 50% of the bank facility is term and 50% is revolving. The term loan attracts a margin of 175 bps and the revolving loan a margin of 150 bps, reflecting a reduction of 75bps for both tranches from the previous facility. This facility was increased to £170 million in December 2014. The Group bank facility contains a covenant requiring us to have 50% of all borrowings fixed. In addition, the Group has further diversified its pool of lenders by signing a new £70 million facility with M&G Investments Limited, the term of which will be seven years from the date of drawdown which can occur at any time in the period up to 29 June 2015. The loan will be secured over a portfolio of 15 freehold self storage centres. 50% of the seven year loan is fixed by way of a forward start interest rate derivative, the balance of the loan is variable based on three month LIBOR plus margin. The average cost of the M&G loan at the current rate of LIBOR will be 3.75%. The Group agreed a short term bridging facility of £70 million with Lloyds Bank plc, which is repayable immediately on the drawdown of the M&G loan. The Group has a £100 million 15 year loan with Aviva Commercial Finance Limited. The loan has a fixed interest rate of 4.9% and amortises to £60 million over the course of the 15 years. The loan outstanding at 31 March 2015 was £94.3 million. During the year the Group cancelled £40 million of its existing interest rate derivatives at a cash cost of £1.4 million, leaving £30 million fixed at 2.8% plus applicable margin. As a result of this refinancing, and prior to the drawing of the M&G facility, our average cost of debt has decreased from 4.6% to 3.3% at the end of the financial year. Following the M&G facility being drawn and the Lloyds bridging loan being repaid we would expect the average cost to be approximately 3.8% based on the current levels of LIBOR and current levels of drawn debt. The Group was in compliance with its banking covenants at 31 March 2015. The Group currently has a net debt to gross property assets ratio of 27%, and a net debt to adjusted net assets ratio of 35%. At 31 March 2015, the fair value on the Group’s interest rate derivatives was a liability of £3.7 million. The Group does not hedge account its interest rate derivatives. As recommended by EPRA (European Public Real Estate Association), the fair value movements are eliminated from adjusted profit before tax, diluted EPRA earnings per share, and adjusted net assets per share. Treasury continues to be closely monitored and its policy approved by the Board. We maintain a keen watch on medium and long-term rates and the Group’s policy in respect of interest rates is to maintain a balance between flexibility and hedging of interest rate risk. Cash deposits are only placed with approved financial institutions in accordance with the Group’s Treasury policy. 36 In the consolidated accounts of Big Yellow Group PLC, our investment in Armadillo 2 is treated as an associate using the equity accounting method. The four stores will be rebranded as Armadillo stores. The occupancy of the stores is 210,000 sq ft, against a total capacity of 270,000 sq ft, with growth of 13,000 sq ft over the year. The stores’ occupancy at 31 March 2015 was 77.8% and the net rent achieved at 31 March 2015 is £15.90 per sq ft. Armadillo 2 made an operating profit of £0.2 million in the period, of which Big Yellow’s share is £0.04 million. After net interest costs, the revaluation of investment properties, deferred tax on the revaluation surplus and interest rate derivatives, the profit for the period from acquisition for Armadillo 2 was £0.7 million, of which the Group’s share was £0.1 million. Big Yellow has a five year management contract in place. For the period from acquisition to 31 March 2015 fees amounted to £0.2 million (including fees in relation to due diligence carried out on acquisition). Going Concern A review of the Group’s business activities, together with the factors likely to affect its future development, performance and position are set out in the Strategic Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are shown in the balance sheet, cash flow statement and accompanying notes in the financial statements. Further information concerning the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk can be found in this Report and in the notes to the financial statements. After reviewing Group and Company cash balances, borrowing facilities, forecast valuation movements and projected cash flows, the Directors believe that the Group and Company have adequate resources to continue operations for the foreseeable future. In reaching this conclusion the Directors have had regard to the Group’s operating plan and budget for the year ending 31 March 2016 and projections contained in the longer-term business plan which covers the period to March 2022. The Directors have considered carefully the Group’s trading performance and cash flows as a result of the uncertain global economic environment and the other principal risks to the Group’s performance and are satisfied with the Group’s positioning. For this reason, they continue to adopt the going concern basis in preparing the financial statements. Armadillo Self Storage In April 2014 we acquired the Armadillo portfolio with an Australian consortium for a total property value of £19.75 million. The Group initially invested £3.6 million representing a stake of 38% in the business (“Armadillo 1”). Our partners had a right to increase their share from 62% to 80% at par, which they exercised in July 2014, reducing the Group’s investment to £1.9 million (20% of the business). In the consolidated accounts of Big Yellow Group PLC, our investment in the vehicle is treated as an associate using the equity accounting method. Armadillo 1 has an £11 million loan from Lloyds Bank which expires in April 2019. The occupancy of the stores is 253,000 sq ft, against a total capacity of 401,000 sq ft, with growth of 13,000 sq ft over the year. The stores’ occupancy at 31 March 2015 was 63.1% (31 March 2014: 59.9%). The net rent achieved at 31 March 2015 by the Armadillo 1 stores is £14.66 per sq ft, an increase of 2.4% from the same time last year. The revenue of the portfolio increased by 12% to £4.5 million for the year to 31 March 2015 compared to £4.0 million last year. Armadillo 1 made an operating profit of £2.0 million in the period from acquisition, of which Big Yellow’s share is £0.5 million (representing 38% until July and 20% thereafter). After net interest costs, the revaluation of investment properties, deferred tax on the revaluation surplus and interest rate derivatives, the profit for the period from acquisition for Armadillo 1 was £9.0 million, of which the Group’s share was £1.8 million. There has been a significant increase in the valuation of the portfolio due to the growth in cash flow and additionally cap rate compression in the valuation of secondary assets following transactional evidence in the year. Big Yellow has a five year management contract in place. For the period from acquisition to 31 March 2015 fees amounted to £0.6 million (including fees in relation to due diligence carried out on acquisition). The Group’s share of the dividend declared for the year is £178,000, representing a 9.3% yield on our investment, which together, with our ongoing management fees of £400,000 per annum, gives a first year cash return of approximately 30% on the investment. Big Storage In January 2015 the Group acquired the entire share capital of Big Storage Limited for a property value of £24.9 million. The net consideration was £15.1 million, taking into account the existing bank debt in the company and adjusted for working capital. The Group repaid the bank debt through a £13.9 million loan from Lloyds Bank, which expires in January 2020. The company owned five self storage centres in North West England. The Group transferred the store at Chester to another subsidiary company of the Group, and the store will be rebranded as a Big Yellow. The Group has subsequently acquired the freehold of the store in Chester. In February 2015, the Group subsequently sold the share capital of Big Storage Limited to a company (“Armadillo 2”) in which it has a 20% interest, with the balance of the equity owned by an Australian consortium, for a net consideration of £7.6 million. This represents a property value of £19.3 million less the £13.9 million Lloyds loan and adjusted for working capital. 37 Strategic Report Risks and uncertainties Principal risks and uncertainties The section below details the principal risks and uncertainties that are considered to have the most material impact on the Group’s strategy and objectives. These key risks are monitored on an ongoing basis by the Executive Directors, and considered fully by the Board in its annual risk review. Risk and impact Self storage market risk There is a risk to the business that the self storage market does not grow in line with our projections, and that economic growth in the UK is below expectations, which could result in falling demand and a loss of income. Property risk There is a risk that we will be unable to acquire new development sites which meet management’s criteria. This would impact on our ability to grow the overall store platform. Mitigation The UK economy is projected to grow at approximately 2.5% in 2015, and is expected to go ahead of the level of output last achieved in 2007 before the global financial crisis. Self storage has proved relatively resilient through the crisis, with our revenue and earnings increasing over the last five years. As the economy has recovered in the past couple of years, the market risk has fallen in line with increasing occupancy. Self storage is a relatively immature market in the UK compared to other self storage markets such as the United States and Australia, and we believe has further opportunity for growth. Awareness of self storage and how it can be used by domestic and business customers is relatively low throughout the UK, although higher in London. The rate of growth of branded self storage on main roads in good locations has historically been limited by the difficulty of acquiring sites at affordable prices and obtaining planning consent. The lack of availability of credit within the economy has further reduced this rate of growth since the start of the downturn, and over the last three or so years new store openings within the sector have slowed to an average of nine stores per year over the past five years, down from a peak of 34 per year in 2005-2009. Our performance during the downturn has been relatively resilient, although not immune. We believe that the resilience of our performance is due to a combination of factors including: > a prime portfolio of freehold self storage properties; > a focus on London and the South East and other large metropolitan cities, which have proved more resilient during the downturn and where the drivers in the self storage market are at their strongest and the barriers to competition are at their highest; > the strength of operational and sales management; > continuing innovation to deliver the highest levels of customer service; > the UK’s leading self storage brand, with high public awareness and online strength; and > strong cash flow generation and high operating margins, from a secure capital structure. We have a large current storage customer base of over 47,000 spread across the portfolio of stores and many thousands more who have used Big Yellow over the years. In any month, customers move in and out at the margin resulting in changes in occupancy. This is a seasonal business and typically we see growth over the spring and the summer months, with the seasonally weaker periods being the winter months. The Group’s occupancy has increased by 5.3% in the year from 67.9% to 73.2%. Our management has significant experience in the property industry generated over many years and in particular in acquiring property on main roads in high profile locations and obtaining planning consents. We do take planning risk where necessary, that said the availability of land, and competition for it makes acquiring new sites challenging. The planning process remains difficult with some planning consents taking in excess of twelve months to achieve, although given we have planning consent on all bar one site, the risk to the Group has reduced significantly from prior years. We manage the construction of our properties very tightly. The building of each site is handled through a design and build contract, with the fit out project managed in-house using an established professional team of external advisors and sub-contractors who have worked with us for many years to our Big Yellow specification. 38 Valuation risk The valuations of the Group’s investment properties may fall due to external pressures or the impact of performance. Lack of transactional evidence in the self storage sector leads to more subjective valuations. Treasury risk The Group may face increased costs from adverse interest rate movements. Credit risk The Group is exposed to a credit risk from its customers. The valuations are carried out by independent, qualified external valuers who value a significant proportion of the UK self storage industry. The portfolio is diverse with over 47,000 customers using the product for a wide variety of reasons. There is significant headroom on our loan to value banking covenants. Our financing policy is to fund our current needs through a mix of debt, equity and cash flow to allow us to selectively build out the remaining development pipeline and achieve our strategic growth objectives, which we believe improve returns for shareholders. We have made it clear that we believe optimal leverage for a business such as ours should be LTV in the range 20% to 30% and this informs our management of treasury risk. We aim to ensure that there are sufficient medium-term facilities in place to finance our committed development programme, secured against the freehold portfolio, with debt serviced by our strong operational cash flows. We have a fixed rate loan in place from Aviva Commercial Finance Limited, with 12 years remaining. For our bank debt, we borrow at floating rates of interest and use swaps to hedge our interest rate exposure. Our policy is to have at least 50% of our total borrowings fixed, with the balance floating paying margin over LIBOR. At 31 March 2015 56% of the Group’s total borrowings were fixed or subject to interest rate derivatives (including forward start derivatives). The Group’s income cover ratio on an annualised basis at 31 March 2015 was 5.9 times. The Group reviews its current and forecast projections of cash flow, borrowing and interest cover as part of its monthly management accounts. In addition, an analysis of the impact of significant transactions is carried out regularly, as well as a sensitivity analysis assuming movements in interest rates and occupancy in the stores on gearing and interest cover. The Group regularly monitors its counterparty risk. The Group monitors compliance with its banking covenants closely. During the year it complied with all its covenants, and is forecast to do so for the foreseeable future. Our customers are required to pay a deposit when they start to rent a self storage room and are also required to pay in advance for their four-weekly storage charges. The Group is therefore not exposed to a significant credit risk. 82% of our current customers pay by direct debit; however of new customers moving into the business in the last year 85% have paid by direct debit. Businesses often prefer to pay by cheque or BACS. Since 2007 we have not seen an increase in the levels of bad debts and arrears. In the year to 31 March 2015 our bad debt expense represented 0.15% of revenue in the year (2014: 0.10%). Taxation risk The Group is exposed to changes in the tax regime affecting the cost of corporation tax, VAT and Stamp Duty Land Tax (“SDLT”), for example the imposition of VAT on self storage from 1 October 2012. We regularly monitor proposed and actual changes in legislation with the help of our professional advisors, through direct liaison with HMRC, and through trade bodies to understand and, if possible, mitigate or benefit from their impact. The Government announced a review of property rates earlier this year. This is a significant cost to the business, and we are monitoring any potential impact from a revision in the basis of assessment or taxation. 39 Strategic Report (continued) Risks and Uncertainties (continued) Real Estate Investment Trust (“REIT”) risk The Group is exposed to potential tax penalties or loss of its REIT status by failing to comply with the REIT legislation. The Group has internal monitoring procedures in place to ensure that the appropriate rules and legislation are complied with. To date all REIT regulations have been complied with, including projected tests. Human resources risk Our people are key to our success and as such we are exposed to a risk of high staff turnover, and a risk of the loss of key personnel. We have developed a professional, lively and enjoyable working environment and believe our success stems from attracting and retaining the right people. We encourage all our staff to build on their skills through appropriate training and regular performance reviews. We believe in an accessible and open culture and everyone at all levels is encouraged to review and challenge accepted norms, so as to contribute to the performance of the Group. With the economy improving and unemployment falling, the risk of higher staff turnover and difficulty in finding the right employees increases. Security risk The Group is exposed to the risk of the damage or loss of store due to vandalism, fire, or natural incidents such as flooding. This may also cause reputational damage. The safety and security of our customers, their belongings, and stores remains a key priority. To achieve this we invest in state of the art access control systems, individual room alarms, digital CCTV systems, intruder and fire alarm systems and the remote monitoring of all our stores outside of our trading hours. We are the only major operator in the UK self storage industry that has every room in every store individually alarmed. We have implemented customer security procedures in line with advice from the Police and continue to work with the regulatory authorities on issues of security, reviewing our operational procedures regularly. The importance of security and the need for vigilance is communicated to all store staff and reinforced through training and routine operational procedures. We have continued to run courses for all our staff to enhance the awareness and effectiveness of our procedures in relation to security. Internal audit The Group does not have a formal internal audit function because the Board has concluded that the internal controls systems are sufficient for the Group at this time. However, the Group employs a Store Compliance Manager responsible for reviewing store operational and financial controls. He reports to the Chief Financial Officer, and also meets with the Audit Committee Chairman at least once a year. This role is supported by an Assistant Store Compliance Manager, enabling additional work and support to be carried out across the Group’s store portfolio. The Store Compliance team visit each operational store twice a year to carry out a detailed store audit. These audits are unannounced and the Store Compliance team carry out detailed tests on financial management within the stores, administrative standards, and operational standards. Part of the store staff’s bonus is based on the scores they achieve in these audits. The results of each audit are reviewed by the Chief Financial Officer, the Financial Controller and the Head of Store Operations. 40 Corporate Social Responsibility Report At Big Yellow, we know the most important space of all is the environment that surrounds us. That’s why we continue to work hard to create an environmentally friendly business. A big green Commitment 1.0 INTRODUCTION Big Yellow recognises that high levels of Corporate Social Responsibility (“CSR”), linked to clear commercial objectives, will create a more sustainable business and increase shareholder and customer value. Our CSR policy covers all of our operations, as a self storage provider, a real estate developer, an employer and a participant in our local communities. Big Yellow seeks to meet the demand for self storage from businesses and private individuals providing the storage space for their commercial and/or domestic needs, whilst aiding local employment creation and contributing to local community regeneration. 2.0 SOCIAL RESPONSIBILITY 2.1 OUR PEOPLE Our people are at the heart of Big Yellow’s business, bringing our values to life through the service that they provide, and bringing the energy and passion that drives us to become an ever more responsible and sustainable business. We recognise that recruiting, retaining, and motivating individuals with talent and integrity – and ensuring that we listen to our people and maximise their skills and performance – is key to the continued success of our Company. We encourage a culture of partnership within the business and believe in staff participating in corporate performance through benefits, such as bonus schemes and share incentives. We recognise and reward the exceptional performance, achievements and ideas of our people through a Points Recognition Scheme, and awarded points worth £50,000 for the year ended 31 March 2015. Wellbeing and Support We aim to promote employee wellbeing through a range of flexible working options which include flexitime, staggered hours, home working and sabbaticals. We provide Childcare Vouchers along with a comprehensive range of medical support and advice though our occupational health providers. We have arranged corporate gym membership on a national basis, as well as a “Cycle to Work” scheme and employee Telephone ‘Help Line’ Assistance Programmes. Communication and Engagement We continue to recognise the importance of communication and consultation with an annual Conference, regular formal and informal meetings, quarterly newsletters, and weekly operational updates. In addition, the Directors and Senior Management spend a significant amount of time in the stores and are accessible to employees at all levels. In October 2014, we ran our first externally managed Employee Engagement Survey, as we had previously carried out internal feedback surveys. The new survey was structured to look at key areas including day to day working life, learning and development, team work, communication, management style and leadership. The survey achieved a response rate of 91% (71% in 2012) and an “Engagement Indicator” of 86%. Management are now utilising the feedback from the survey as the focus for their attention to further improve the working environment at both Big Yellow and Armadillo. Training and Development We continue to promote the development of staff through ongoing training and regular performance appraisals. For the year ended 31 March 2015 a total of 855 days training were provided across the Company, comprising both sales and operational training and personal and management development. Our “Big Impressions” customer experience programme continued throughout the year, with our coaching and development initiatives being specifically designed to further support our people to become more in touch with our customers. During the last year, seven team members completed our personal development programme designed specifically for Assistant Store Managers, with four of those people having subsequently been promoted to the position of Store Manager. 12 Assistant Store Managers are currently participating in the programme, to prepare them for their future progression within the Company. 41 Strategic Report (continued) Corporate Social Responsibility Report (continued) 2.0 SOCIAL RESPONSIBILITY (continued) Community We recognise the importance of contributing within the local community and we encourage our people to develop close links with charities, schools and other institutions, both locally and nationally, to help to build more economically sustainable local environments. For the year ended 31 March 2015, we recognised and supported 15 different Company charities which were elected by our store and head office teams. Our people undertook a variety of activities for both these and other charities, with donations also being made by the Company. Throughout the year a total of £37,000 was raised for our Company charities and £24,000 was raised for other charities. Examples of our fundraising activities have included: The London Marathon One of our team members ran the London Marathon, raising £1,600 for the charity RP Fighting Blindness which supports research to find a treatment or cure for Retinitis Pigmentosa, a disease of the eye that leads to loss of vision and blindness. “We really value the relationship we have with Big Yellow Self Storage - the organisation has a great giving ethos and their range of ideas for fundraising and palpable enthusiasm from the staff is just fantastic! We’re delighted to have built such a solid partnership with Big Yellow and look forward to developing this further in the future. The strong community spirit and great organisational skills of all of those concerned have benefitted RP Fighting Blindness so much, and we’re extremely grateful for such support.” Hannah Hickman, Project Fundraiser, RP Fighting Blindness British Heart Foundation – Donation Stations Nine of our stores have acted as “Donation Stations” for the British Heart Foundation, raising a total of just under £14,900 from bags of unwanted clothes and household goods, which will support the charity’s pioneering heart research, as well as the care of people living with heart disease. “We are delighted with the support we have received from Big Yellow Self Storage staff and customers over the past year. We’re very grateful for the unwanted items that have been donated. By selling these in British Heart Foundation shops Big Yellow have raised money which will help fund our life saving research. It’s wonderful to have the support of Big Yellow and we are looking forward to building on an already successful partnership” Clare Appleby, Corporate Partnerships Account Manager, British Heart Foundation The Three Peaks Challenge This gruelling challenge, which involved climbing Ben Nevis, Scafell Pike and Snowdon in under 30 hours, was completed by seven of our team members and they raised just under £2,600 for Cystic Fibrosis. Free Storage In addition to our fundraising activities for charities and worthy causes, we have also provided free storage space at most of our stores. During the year the space occupied by charities in Big Yellow and Armadillo stores on this basis was 37,800 sq ft, worth approximately £750,000 per annum at standard rents. Some of the many charities that have benefited from this free storage include the National Childbirth Trust, Cancer Research, British Heart Foundation, and a number of food bank charities and local community charities. Young Enterprise A number of team members within our head office and stores are currently supporting students in schools and colleges within their local communities in conjunction with Young Enterprise, a charitable organisation that creates and develops programmes that complement the school experience and encourages young people to realise the extent of their own talents. Our volunteering has taken the form of providing classroom support, mentoring students to create their own businesses and participating in Young Enterprise regional board meetings. “For three years I have been a member of the Reading Area Board for Young Enterprise. The role of the voluntary local board members is to support Young Enterprise in delivering a learning environment for school students on the skills and roles required to lead a successful business. Using my business knowledge to guide the students in various local schools / colleges to establish and trade their companies is hugely motivating, as is the knowledge that I am supporting the development of the business skills of these young people within their local community.” Nicola Crosby, Head of Store Operations, Big Yellow Self Storage 42 We recognise the importance of contributing within the local community to help build more economically sustainable environments. During the year the space occupied by charities in our stores was worth approximately £750,000. 2.2 OUR HEALTH & SAFETY Big Yellow recognises the importance of maintaining high standards of health and safety for everyone who may be affected by our business. The Group’s Health and Safety Policy (for Big Yellow Self Storage and Armadillo Self Storage) is reviewed on an ongoing basis. It is applied in two distinct areas – our construction activities and our routine store operations. The policy states that all employees have a responsibility for health and safety, but that managers have special responsibilities. Additional duties are placed on Adrian Lee, Operations Director, to keep the Board advised on health and safety issues and ensure compliance with the Policy in respect of both construction activity and store operations, respectively. The Group has a Health and Safety Committee, which meets quarterly and comprises of Adrian Lee and appointed Department Heads and other relevant Managers. They meet to discuss any issues that have been reported from meetings held at head office, Maidenhead (our distribution warehouse), the stores and any construction sites. In addition, the Group has appointed an external consultant to review our Policy and to perform audits of our stores on a rolling programme; to ensure the implementation of the Group’s Health and Safety policies. Any actions recommended by our consultant is then considered by the Committee and, if required, then implemented into the operations or construction systems. Health and Safety audits are also carried out by external consultants on each construction site prior to the opening of a store. Our Health and Safety Policy covers all of our stores, our head office, Maidenhead and our ‘Fit-out’ construction sites. Incidents are recorded for staff, customers, contractors and visitors. The Board receives reports every other month which monitor Health and Safety performance in all these areas. Annual Store Health and Safety Meetings take place for all stores and Maidenhead. Agendas are provided for these meetings via the intranet from the Facilities team and the minutes are reviewed by Area Managers to raise any issues with Facilities or Human Resources where necessary. Health and Safety performance and incidents are reported and are displayed in the tables below. 2.2.1 Big Yellow Self Storage Customers, Contractors and Visitors The number of customer move ins, including Armadillo Self Storage, continued to increase this year by 9%, to 79,424. There were a total of 75 reported incidents this year, of which 52 were Minor Injuries sustained by customers, contractors and visitors, and 18 were Minor Incidents sustained by staff. Five of these were reportable injuries (“RIDDOR”) in total; four due to customers and one due to staff, including breaks, cuts and bruises from falls, relating to self storage activities and one personal health problem. Store customer, contractor and visitor health and safety 2011 2012 2013 2014 2015 Number of customer move-ins during the year Number of minor injuries Number of reportable injuries (RIDDOR) RIDDOR* per 100,000 51,049 41 – – 57,604 43 – – 65,807 34 3 4.6 72,772 31 3 5.5 79,424 52+ 4+ 4.8 + * Indicates data reviewed by Deloitte LLP as part of their assurance work. See page 52 for the independent assurance report. RIDDOR – Reporting of Injuries, Diseases and Dangerous Occurrences Regulation 1995. Note – customer move-ins have included Armadillo Self Storage since 2014. The majority of Minor Injuries were predominantly related to the handling of personal or business possessions by our customers. There were no ‘Fatal Injuries’, ‘Notices+’ or ‘Prosecutions’ during the year ended 31 March 2015. 43 Strategic Report (continued) Corporate Social Responsibility Report (continued) 2.2.2 Big Yellow Self Storage Staff Store and head office staff health and safety Year ended 31 March Average number of staff Number of Minor Injuries Number of Reportable Injuries (“RIDDOR”) Annual injury incidence rate (“AIIR”)* /100,000 staff 2011 273 19 1 366 2012 279 12 – – 2013* 315 16 3 949 2014 318 15 1 312 2015 329+ 18+ 1+ 304+ + * Indicates data reviewed by Deloitte LLP. See page 52 for their independent assurance report. From 2013 we included Armadillo staff in our ‘Average number of staff’. In addition, following updated data, we have restated the 2014 ‘Average number of staff’, and in line with reporting assurance, corrected and restated the AIIR (Annual Injury Incidence Rate). Staff numbers increased by 3.5% in 2015 with only one Reportable Injury. There were 18 Minor Injuries, and one reportable foot injury, relating to storage activities. There were no ‘Fatal Injuries’, ‘Notices+’ or ‘Prosecutions’. Staff, ‘Annual Injury Incidence Rate’ decreased by 2.6%, mainly due to training and increased health and safety awareness. 2.2.3 Big Yellow Construction Company Limited During the year, Big Yellow’s new store at Gypsy Corner was opened and the Enfield stores ‘fit out works’ were completed. ‘Strip out’ works were also started at a property acquired in Cambridge. Four existing stores had Phase 2 storage partition extensions installed. Construction fit-out contractors and visitor health and safety Year ended 31 March Number of total Man Days Number of Minor Injuries Number of Reportable Injuries (RIDDOR) 2011 6,431 1 1 2012 6,511 1 – 2013 610 – – 2014 3,315 2 –– 2015 3,005 1 The number of ‘Man Days’ worked was 9% less than the previous year, with our high safety standards being maintained. The Enfield site was also managed under the ‘Considerate Constructors Scheme’ (“CCS”) which also promotes high standards of health and safety management. One ‘Minor Injury’ and one ‘Near Miss’ was reported over 3,005 ‘Man Days’ in the year. No ‘Fatal Injuries’, ‘Notices’, ‘Reportable Injuries’ or ‘Prosecutions’ occurred, indicating a well-controlled environment for staff, contractors and visitors on our construction sites. Health and safety performance continues to be reviewed in preparation for our next new store development at Guildford in 2016. A limited level of assurance is provided for our health and safety data. This assurance was undertaken by Deloitte LLP in accordance with the International Standards on Assurance Engagements 3000 (ISAE 3000). 3.0 ENVIRONMENTAL RESPONSIBILITY Our Corporate Social Responsibility (“CSR”) Policy sets out how we manage the impact of our business on society and the local environment, to control our risks and manage our opportunities in a sustainable way. Big Yellow has been classified as having a “low environmental impact” by the Ethical Investment Research Index Series (“EIRIS”) because it is involved in Support Services. Notwithstanding this, and in order to maintain an efficient and sustainable business for its Stakeholders, Big Yellow has continued to commit significant resources to the environmental and social aspects of its storage operations, real estate portfolio, new store developments and site acquisitions. This year we report again on our energy use and in compliance with the Companies Act, Climate Change Regulation on Reporting Greenhouse Gas (“GHG”) Emissions for listed companies. For the detailed application of our report see our ‘Basis of Reporting’ at: http://corporate.bigyellow.co.uk/csr. We therefore provide a summary in the Directors’ Report of Scope 1 (onsite gas, solar electricity generation and refrigerant use) and Scope 2 (off site power station grid supplied use) for carbon dioxide equivalent (CO2e) emissions. We have used the DEFRA DECC Version 2.1 (2014 Expiry 31 May 2015) conversion factors, for annual GHG emission calculations. 44 Solar electricity generation has increased by 193% since 2011. Electricity use reduced by 30.8% from our 2011 peak, due to our energy efficient re-lamping and increased solar electricity generation. 3.1 Energy Reductions from Financial Year 2011, (Peak Electricity Benchmark Year) Our materiality threshold for energy use is 5% and for carbon emissions is > 1%. A limited level of assurance is provided for our Scope 1 and 2 energy use and GHG emissions. This assurance was undertaken by Deloitte LLP in accordance with the International Standard on Assurance Engagements 3000 (ISAE 3000). Total Electricity and Gas Use Year ended 31 March Electric use (kWh) Electric Reductions (%) Gas use (kWh) Gas Reductions (%) Total Use (kWh) Total Reductions (%) **Gas Materiality % 2011* 2012 2013 2014 2015 – 656,017 – (2.4%) 742,086 +13.1% 13,925,217 13,588,703 13,153,960 11,688,629 (16.1%) 652,181 (0.6%) 9,643,341+ (30.8%) 602,563 (8.1%) 14,581,234 14,330,789 13,870,468 12,340,810 10,245,904 (29.7%) 5.8% (5.5%) 716,508 +9.2% (15.4%) 5.3% (1.7%) 5.2% (4.9%) 5.2% – 4.5% Indicates data reviewed by Deloitte LLP. See page 52 for their independent assurance report. The year ended 31 March 2011 is our peak total electricity and gas use benchmark for medium term assessment. + * ** Gas materiality = > 5%. The year ended 31 March 2015 showed electricity use reduced by 30.8% from our 2011 peak. Pre 2011, electricity use was also decreased due to the installation of energy efficient motion sensor lighting (“MSL”) and “Power Saver Fittings” on older lamps. From 2012, larger capacity (50 kWp) solar panels were installed on new stores; and from 2013, energy efficient LED lamps were installed across the whole portfolio. Gas use is variable due to winter heating demand from flexi offices at eight of our stores. This year our gas use threshold for reporting gas as a percentage of total energy use is just above the materiality level (>5%). The reductions in gas consumption were largely due to a milder winter in 2015, as flexi-office occupancy has been relatively constant over the years. Last year we set a programme target to reduce electricity by 12% by 2015. We have reduced electricity use by 17.5% from 2014. 3.2 Mandatory GHG Emissions Statement – Summary The ISAE 3000 Standard provides an evaluation of both quantitative and qualitative aspects of our CSR management and reporting. We report our energy use for our wholly owned stores; our head office in Bagshot, Surrey; and our packing materials warehouse in Maidenhead, Berkshire. Our environmental report does not include any of the 14 Armadillo stores, in which the Group has a 20% interest. This year Big Yellow acquired and now wholly owns the 12 Big Yellow Limited Partnership (Joint Venture) stores, and continues to manage the buildings and utilities at these sites. In previous years we had opted to capture their energy and carbon operational footprint and have voluntarily reported this in our previous annual emissions reporting. A new store construction ‘fit out’ at Enfield was completed and we also acquired two additional existing stores at Oxford and Chester, to add to our wholly owned Big Yellow portfolio. The year ended 31 March 2011 is our peak energy use and carbon emission benchmark year, due to a previous period of new store openings and increased occupancy. This benchmark is the best year to present information on the most comparable basis. 45 Strategic Report (continued) Corporate Social Responsibility Report (continued) Scope 1 GHG emissions from our real estate portfolio (‘on site’ sources) Scope 1 GHG emissions originate from ‘on site’ natural gas use, which is a variable use for us depending upon winter heating demand for heating flexi-offices. ‘On site’ refrigerant ‘top up’ and / or replacement, in air conditioning units is also very variable. Refrigerant use for cooling store reception areas is only ‘topped up’ when required. Scope 1 Gas and Refrigerant GHG Emissions Year ended 31 March Gas Use (kWh) Emission (tCO2e) Refrigerant Use (Kg) Emissions (tCO2e) Total Scope 1 (tCO2e) 2011 2012 * 2013 2014** 2015 656,017 121.5 – – 121.5 742,086 137.8 2.8 4.3 142.1 716,508 133.0 66.5 286.3 419.0 652,181 120.0 112.4 354.8 474.8 602,563 111.5+ 11.92 20.6+ 132.0+ % change from peak (18.8%) (19.1%) (89.4%) (94.2%) (72.2%) + * ** Indicates data reviewed by Deloitte LLP. See page 52 for their independent assurance report. 2012 peak year for gas use; 2014 peak year for gas emissions, refrigerant emissions, and Total Scope 1 Emissions. The direct emissions from our stores represent only approximately 5% of our combined Scope 1 and 2 emissions that are under our control. In the year ended 31 March 2015, less refrigerant replacement was required and the type used, also had a lower GHG emission conversion factor, resulting in a significant reduction in GHG Emissions. GHG emissions from flexi office gas heating are variable and reduced in the year ended 31 March 2015, due to a mild winter. Our Scope 1 ‘onsite’ roof mounted solar panel generation (on 17 stores) provides an increasing source of annual electricity supply for newer stores. Solar Electricity Generation Materiality for GHG Emission Reporting Year ended 31 March Solar Generation (kWh) Solar % of electric use (kWh) 2011 2012 2013 2014 2015 107,074 0.8% 134,297 1.0% 208,807 1.6% 285,832 2.4% 314,068+ 3.3%+ + Indicates data reviewed by Deloitte LLP. See page 52 for their independent assurance report. Solar generation has increased our self-supply to 3.3% of our total Scope 2 (Grid supplied) electricity in 2015. We have set a target last year of 5% self-supply, but this has not yet been achieved due to the opportunity to invest in more efficient LED re-lamping at our stores. However, we did generate more than our 10% target (+12.5%) of solar electricity (314,068 kWh), as a percentage of the sixteen solar stores Grid supplied electricity (2,505,045 kWh). Low carbon solar electricity reduces our GHG emissions but is still below the materiality threshold of > 5% of Scope 1 and 2 energy use combined (3.1%) for annual reporting requirements. Scope 2 Offsite ‘Grid Supplied’ Electricity and Emissions This electricity supply from ‘off site’ power station emissions remains at around 95% of our annual energy consumption, in the year ended 31 March 2015. Scope 2 ‘Grid Supplied’ Electricity GHG Emissions Year ended 31 March 2011 * 2012 2013 2014 2015 Electric use (kWh) Emissions (tCO2e) 13,925,217 6,758 13,588,703 13,153,960 11,688,629 5,207 6,143 6,051 9,643,341+ 4,776+ % change from peak (30.8%) (29.3%) + * Indicates data reviewed by Deloitte LLP. See page 52 for their independent assurance report. Peak energy use and benchmark year for future reductions. Electricity use has reduced by 30.8% and Scope 2 GHG emissions have reduced by 29.3%. This reduction is due to our continued investments in energy efficient technologies, such as LED re-lamping and larger capacity roof top solar installations at our new stores. Our annual average carbon emission reduction over the last four years has been around 7% per year, double what the commercial property sector needs to do to meet the UK Government’s GHG emissions reduction target of 34% by 2020 (or 3.5% per year to 2050). Over a seven year period, from our longer term peak electricity use benchmark (2008), our GHG emission reductions have averaged around 4% per year, and were mainly reduced by earlier motion sensor lighting, power saver fitting to lighting and small scale renewable energy trails. 46 Total Scope 1 + 2 Emissions In the year ended 31 March 2015 total Scope 1 and 2 GHG emissions achieved a reduction of 28.7% from peak energy use in 2011, exceeding our target of 25% from last year’s report. Total GHG Emission reductions Year ended 31 March Scope 1 Totals Scope 2 Totals Total (tCO2e) 2011 2012 2013 2014 2015 121.5 6,758.0 6,879.5* 140.6 6,143.0 6,283.6 419.0 6,051.0 6,470.0 474.8* 5,207.0 5,681.8 132.0+ 4,776.0+ 4,908.0+ % change from peak year (72.2%) (29.3%) (28.7%) + * Indicates data reviewed by Deloitte LLP. See page 52 for their independent assurance report. Peak energy use and benchmark year for medium term performance assessment. There results were mainly due to the significant reductions in Scope 2 supplied electricity emissions. Our energy use strategy of reduction, efficiency and low carbon solar generation has reduced our annual energy costs and carbon taxation by proportional percentages. It has also created an income from energy company payments for generation and exporting excess electricity to the Grid for “deemed” export payments. GHG Emission Intensity, (Scope 1 + 2) Key emission intensity indicators can be assessed by taking into account annual growth using customer occupancy and revenue, both of which includes new store portfolio growth. GHG Emission Intensity (tCO2e) / Occupied Space (m2) And Revenue (£000) Year ended 31 March Total (tCO2e) Occupancy (m2) kgCO2e / Occupancy Revenue (£000) kgCO2e / £ Revenue 2011 * 2012 2013 2014 2015 6,879.5* 197,884 24.8 61,885 0.11 6,283.6 228,356 27.5 65,663 0.10 6,470.0 244,521 26.5 69,671 0.09 5,681.8 263,101 21.6 72,196 0.08 4,908.0+ 283,732 17.3+ 84,276 0.06+ % change from peak 2011 (28.7%) 43.4% (30.6%) 35.9% (45.5%) + * Indicates data reviewed by Deloitte LLP. See page 52 for their independent assurance report. Peak GHG emissions year. Over the medium term, from our peak electricity use in 2011, kgCO2e emissions have reduced per customer occupied space by 30.6% and 45.5% per revenue. Our future GHG carbon reduction programme is to assess further LED re-lamping and low carbon solar electricity generation investments where viable. 3.3 Emission Reduction Targets Year ended 31 March 2011 * Emissions tCO2e % reductions 6,758 – 2012 6,143 -9% 2013 2014 2015 2016 2017 2018 6,051 -10.5% 5,207 -23.4% 4,776+ -29.3% 4,537 -32.9% 4,310 -36.2% 4,095 -39.4% + * Indicates data reviewed by Deloitte LLP. See page 52 for their independent assurance report. Peak Electricity use year. Our future programmes for continuing re-lamping stores internally and externally with energy efficient LED lighting is to be reviewed during the year ending 31 March 2016. Additional investment in solar PV installations at our new and existing stores will also be assessed in the year ending 31 March 2016. Our target is to reduce our GHG emissions from peak energy use in 2011, by 39% in 2018. 47 Strategic Report (continued) Corporate Social Responsibility Report (continued) 4.0 SCOPE 3 VOLUNTARY SUPPLY CHAIN EMISSIONS GHG Emissions Scope 3 supply chain emissions represent GHG emissions during electricity supplier transmission and distribution to our stores. Scope 3 Electric Supply and Distribution GHG Emission Losses Year ended 31 March 2011 * 2012 2013 2014 2015 Electric use (kWh) Scope 2 (tCO2e) Scope 3 (tCO2e) Total (tCO2e) 13,925,217 6,758 544 7,302 13,588,703 13,153,960 11,688,629 5,207 445 5,652 6,143 525 6,668 6,051 501 6,552 9,643,341+ 4,776+ 417** 5,193 % change from 2011 (31.8%) (28.0%) (23.4%) (28.9%) + * ** Indicates data reviewed by Deloitte LLP. See page 52 for their independent assurance report. Peak energy use and benchmark year. Transmission and Distribution Conversion Factor 2015 (0.04322). Our energy efficiency programmes within our stores have reduced electricity demand and emission from our supplier’s power stations. Transmission and distribution losses have reduced by 23.4% since 2011. In total, Scope 2 and 3 emissions have reduced by 28.9% since 2011, compared to a 22.6% reduction last year. Scope 3 Store Waste Supply Chain Recycling and Landfill GHG Emissions Year ended 31 March Waste Recycling (t) Landfill waste (t) Landfill GHG tCO2e* * FY 2015 Landfill gas conversion factor = 0.2892. 2011 266 37.3 10.8 2012 263 36.8 10.7 2013 259 34.6 10.0 2014 265 37.0 10.7 2015 273 38.2 11.0 Waste generation in self storage is assessed as a “low environmental impact”. The majority of non-hazardous bulk office waste is segregated by our staff and then further recycling by our waste contractor takes place after collection. This year 86% of our waste was recycled and 14% went to landfill. Landfill GHG emissions are estimated to be 11.0 tCO2e. These emission levels represent a negligible percentage of our combined Scope 1 and 2 emissions, well below the materiality threshold for carbon emissions. New Store Construction ‘Fit-Out’ Waste Management Performance Year ended 31 March Tonnage Waste Recycled (%) Plasterboard Recycled (%) 2011 147.5 93.2 100 2012 152.3 96.0 34.0 2013 12.9 100 – 2014 78.9 95 100 2015 14.5 100 100 In January 2015, our new Enfield store ‘Fit Out’ contractors recycled 100% of our waste (14.5 tonnes) as follows: hard-core (38.3%); soil (26.7%); ‘waste to energy’ (15.5%); wood (9.3%); metal (4.4%); concrete (3.9%); plaster-board (2.0%) and residual cardboard and paper. All of our new stores sign up to the ‘Considerate Constructors Scheme’, and aim for high Energy Performance Certification (EPC ‘B’ rating). Water use has been assessed as a “low environmental impact” for self storage (28,486 m3). Our data has provided an average of 20.3 tCO2e emissions per year. This represents less than 0.4% of combined Scope 1 and 2 emissions, which is below the materiality threshold for carbon emissions. Water use monitoring will be continued in order to review water use efficiency. 48 5.0 STAKEHOLDERS Big Yellow engages with its main stakeholders to provide information and gain useful feedback from a variety of groups, as described below. Government Legislation and Standards EU Energy Efficiency Directive, The UK Energy Savings Opportunities Scheme (“ESOS”) ESOS is enforced by the Environment Agency (“EA”) and involves reporting our annual energy savings once every four years in order to identify cost effective energy saving measures. Big Yellow is required to comply with the ESOS scheme as we are ‘a large undertaking’ (> 250+ employees) and have an annual turnover of > €50 million. We have appointed an accredited assessor, measured all our energy consumption, determined significant areas of use and will complete the audit before December 2015. Climate Change Act 2008; Carbon Reduction Commitment (“CRC”) Tax Reporting The Department of Energy and Climate Change (“DECC”) and the Environment Agency (“EA”) are stakeholders in the policy for reducing energy demand from large private sector organisations (energy use > 6,000 MWh / year). The Carbon Reduction Commitment (“CRC”) Tax Reporting Year ended 31 March Electric Use (kWh) Gas Use (kWh) Carbon (tCO2) Tax Rate (£ / tCO2) CRC Tax (£) 2013 2014 2015 13,153,960 11,688,629 652,181 6,415 £12.00 £76,980 716,508 7,598 £12.00 £91,176 9,643,341+ 602,563 4,784 £16.40 £78,464 + Indicates data reviewed by Deloitte LLP. See page 52 for their independent assurance report. The scheme uses carbon dioxide (CO2) conversion factors, and so is not directly comparable to the Companies Act GHG reporting. The current CRC Tax Rate has risen from £12.00 to £16.40 per ton of CO2 for 2015; this will rise again in 2016 to £16.90/tCO2). The CRC is another financial driver for energy and carbon emission reductions and for investing in energy efficient technologies. From 2013, we have reduced CRC tCO2 carbon emissions by 37% and an average of 18.5% per year and are reducing CRC tax payments against future increase in the tax rate. Last year we set a programme target to reduce CRC carbon emission by 10% and we have exceeded this with a reduction of 25.4% from 2014. UK Government Climate Change Act (2008) National Target to Reduce GHG (tCO2e) Carbon Emissions by 34% by 2020 As part of the UK commercial property sector, Big Yellow has been reducing its energy use by energy efficient technology since its first electricity peak use in 2008. Big Yellow Electricity Use (kWh) Long Term Peak Use Benchmark Year ended 31 March 2008* 2009 2010 2011 2012 2013 2014 2015 kWh tCO2e 13,899,604 12,866,186 12,730,855 13,925,217 13,588,703 13,153,960 11,688,629 6,487 6,383 6,287 6,758 6,143 6,051 5,207 9,643,341+ 4,766+ % change from 2008 (30.6%) (26.5%) + * Indicates data reviewed by Deloitte LLP. See page 52 for their independent assurance report. In 2008 the Government set a national target to reduce carbon emissions by 80% by 2050 (against a 1990 base line). Considering approximately 95% of our ‘material’ energy use is Grid supplied electricity, we can estimate an absolute carbon reduction from 2008, of 27%. We can also estimate over the last seven years, an annual average reduction of approximately 4% per year. The UK commercial property sector ‘Real Estate Environmental Benchmark’ recommends a 3.5% annual reduction target to align with the Government’s 2050 goal set in 2008. Our more immediate target is to reduce emissions by 34% by 2020. Last year we set a programme target to reduce electricity and GHG tCO2e by 12 %. We have reduced electricity use by 17.5% and GHG tCO2e emissions by 8.5% from 2014. 49 Strategic Report (continued) Corporate Social Responsibility Report (continued) Investor Communications The Carbon Disclosure Project (“CDP”) 2014 The CDP is a global initiative by investors designed to encourage companies and their suppliers to publish information on their carbon emissions and climate change strategies. Big Yellow CDP Performance Disclosure Score Performance Score Number of Investors Note 1: we did not enter CDP in 2011. Note 2: CDP score – a higher number is good. 2010 65 B 534 2011 – – – 2012 67 C 655 2013 71 D 722 2014 85 B 799 Reporting Transparency Disclosure Score Our disclosure scores have improved from 2010 and last year the CDP Corporate Environmental Report for ‘Financials’ ranked us within the upper quartile of 73 companies’. Only 7 ‘A’ rated ‘Financials’ were ranked above Big Yellow. Last year we set a program target to improve upon our 2013 our ‘Disclosure Score’ of 71 and achieved 85/100 for ‘reporting transparency’ which improved by 20% and the 2014 score was also above the Financials average of 82/100. Our scores were also above the 75/100 average for all other sectors. Addressing Climate Change Performance Rating Our ‘B’ Band performance rating for ‘how we are addressing climate change’ was also above the average ‘C’ Band for ‘Financials’ and other sectors. Big Yellow’s ‘number of investors’ has also been increasing by approximately 10% per year since 2010. The Global Real Estate Sustainability Benchmark (“GRESB”) ‘Green Star Status’ GRESB collects information regarding the sustainability performance of property companies and funds. This includes information on performance indicators, such as energy, GHG emissions, water and waste. The Survey also covers broader issues such as sustainability risk assessments, performance improvement, and engagement with employees, customers, suppliers and the community. GRESB continued to rate Big Yellow with a ‘Green Star Status’ in 2014. ‘Top Quartile’ Management and Policy In Europe and globally, we were ranked with sustainability scores in the top quartile of ‘management and policy’ and ‘implementation and measurement’. The benchmark results allow us to identify the areas we can improve, both in absolute terms and relative to our peers. We are able to provide our existing and potential investors with information regarding our Environmental and Social Governance performance, in the current real estate investment market. 50 6.0 CSR PROGRAMME FOR THE YEAR ENDING 31 MARCH 2016 Big Yellow will continue to focus on its most significant environmental and financial aspects of its business impact, energy use and carbon emissions. Energy efficiency and low carbon supply programmes have been trialled and have been implemented since 2008. We will review and consider further energy reduction strategies within our store operations for carbon and financial savings. This year our programmes, objectives and targets are highlighted in the table below. CSR Strategy Programme Performance against Peak kWh / CO2e / CO2 / £ 2016 Objectives and Targets From 2011 Benchmark Mandatory Greenhouse Gas Emission Reduction by Energy Efficiency Assess remaining store portfolio energy efficient LED kWh / tCO2e re-lamping program viability (-28%, 2015). Remaining reception and external areas for LED re-lamping programme target of -33%, 2016. Carbon Reduction Commitment (CRC) by carbon and tax Review potential tax reduction from initial 2013 CRC tax year, based on kWh Reductions and £ CRC tax (-14%, 2015). Reduce night time internal and external ‘lighting on’ hour settings for a reduction target (-5%, 2016). Increase Solar Energy Generation and Revenue Solar electricity generation and revenue to increase with new portfolio additions of solar installations and selected retrofit from first Feed in Tariff year (measured from 107,074 kWh 2011). New Solar generation on Enfield and Cambridge to generate (+19%), from (2015) 314,068 kWh to 374,975 kWh (2016). FTSE4 Good Investor Environmental, Social, Governance positioning Provide data on: Governance; Risk; Tax; Bio-diversity; Community; Climate Change; Health & Safety (public domain). Maintain position in the FTSE4 Good Index Series ratings by providing links for analyst review. Carbon Disclosure Project (CDP) Investor Communications Global Real Estate Sustainability Benchmark Health and Safety Staff and CSR awareness Use our carbon data in the CDP survey 2015, to improve on ratings: ‘85’ (%) for ‘carbon reporting transparency’; and a ‘B’ rating for ‘Climate Change’ strategy. In Europe and globally, we were ranked with sustainability scores in the top quartile of ‘management and policy’ and ‘implementation and measurement’. Maintain current high standards of recording and reporting customer, staff, visitor, and contractor incidents. Continue raising CSR awareness through presentation of energy performance improvements. To increase or maintain our high score (85% +) and rating ‘A’ / ‘B’, and interest form a wider range of investors. Strengthen and maintain the leading ‘Green Star’ position in the ‘upper quartile’ of the GRESB quadrant. Invest in continued training of staff in routine health and safety. Regular staff meetings and information bulletins on CSR progress. More details of CSR policies, previous reports and awards can be found on our investor relations web site at www.corporate.bigyellow.co.uk/csr.aspx 51 Strategic Report (continued) Corporate Social Responsibility Report (continued) Assurance statement Independent assurance statement by Deloitte LLP (“Deloitte”) to Big Yellow Group PLC (“Big Yellow”) on their Corporate Social Responsibility Report 2015 (“Report”) What we looked at: scope of our work Big Yellow engaged us to perform limited assurance procedures on selected corporate social responsibility (CSR) performance indicators for the year ended 31 March 2015. The assured data are indicated by the + symbol in the Report. Carbon footprint indicators: > Store electricity (tCO2e) > Store flexi-office gas emissions (tCO2e) > Refrigerant emissions (tCO2e) > Absolute carbon dioxide emissions (tCO2e) Store electricity use, CO2 emissions and carbon intensity: > Electricity use (kWh) > Absolute carbon emissions (tCO2e) > Carbon intensity (kgCO2e/m2 gross internal area) > Carbon intensity (kgCO2e/m2 occupied space) > Carbon intensity (kgCO2e/£ revenue) Renewable energy generation and CO2 emissions reductions: > Total renewable energy (kWh) > Carbon dioxide saved by renewable energy (tCO2e) > Renewable energy percentage of total store use (%) Staff health and safety: > Average number of employees > Minor Injuries > Reportable injuries (RIDDOR) > Annual Injury Incidence rate (AIIR) per 100,000 staff > Notices What we found: our assurance opinion Based on the assurance work we performed, nothing has come to our attention that causes us to believe that the selected CSR performance indicators, as noted above, are materially misstated. What standards we used: basis of our work and level of assurance We carried out limited assurance in accordance with the International Standards on Assurance Engagements 3000 (ISAE 3000). To achieve limited assurance ISAE 3000 requires that we review the processes and systems used to compile the areas on which we provide assurance. It does not include detailed testing of source data or the operating effectiveness of processes and internal controls. This is designed to give a similar level of assurance to that obtained in the review of interim financial information. The evaluation criteria used for our assurance are the Big Yellow definitions and basis of reporting as described at: http://corporate.bigyellow.co.uk/csr.aspx 52 What we did: our key assurance procedures Considering the risk of material error, our multi-disciplinary team of CSR assurance specialists planned and performed our work to obtain all the information and explanations we considered necessary to provide sufficient evidence to support our assurance conclusion. Our work was planned to mirror Big Yellow’s own group level compilation processes, tracing how data for each indicator within our assurance scope was collected, collated and validated by corporate head office and included in the Report. Key procedures we carried out included: > gaining an understanding of Big Yellow’s systems through interview with management responsible for CSR management and reporting systems at corporate head office; > reviewing the systems and procedures to capture, collate, validate and process data for the assured performance data included in the Report. We did not test back to source data; and > reviewing the content of the 2015 CSR Report against the findings of our work and making recommendations for improvement where necessary. Big Yellow’s responsibilities The Directors are responsible for the preparation of the Report and for the information and statements contained within it. They are responsible for determining the CSR goals, performance and for establishing and maintaining appropriate performance management and internal control systems from which the reported information is derived. Deloitte’s responsibilities, independence and team competencies Our responsibility is to independently express a conclusion on the performance data for the year ended 31 March 2015. We performed the engagement in accordance with Deloitte’s independence policies, which cover all of the requirements of the International Federation of Accountants Code of Ethics and in some cases are more restrictive. We confirm to Big Yellow that we have maintained our independence and objectivity throughout the year, including the fact that there were no events or prohibited services provided which could impair that independence and objectivity in the provision of this engagement. This report is made solely to Big Yellow in accordance with our engagement letter. Our work has been undertaken so that we might state to the company those matters we are required to state to them in an assurance report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than Big Yellow for our work, for this report, or for the conclusions we have formed. Deloitte LLP London, United Kingdom 18 May 2015 53 Governance Directors, Officers and Advisors Executive Directors Nicholas Vetch, aged 54, Executive Chairman, is a co-founder of Big Yellow in September 1998. Prior to that, he was joint Chief Executive of Edge Properties plc, which he co-founded in 1989 which was subsequently listed on the Official List of the London Stock Exchange in 1996 and then taken over by Grantchester Properties plc in 1998. He is also a Non-Executive Director of Local Shopping REIT plc. James Gibson, aged 54, Chief Executive Officer, is a co-founder of Big Yellow in September 1998. He is a Chartered Accountant having trained with Arthur Andersen & Co. where he specialised in the property and construction sectors, before leaving in 1989. He was Finance Director of Heron Property Corporation Limited and then Edge Properties plc which he joined in 1994. Edge Properties was listed on the Official List of the London Stock Exchange in 1996 and then taken over by Grantchester Properties plc in 1998. He is also a Non-Executive Director and shareholder of AnyJunk Limited, and a member of the Development Board of the London Children’s Ballet. Adrian Lee, aged 49, Operations Director, was previously a Senior Executive at Edge Properties plc, which he joined in 1996. Prior to that he was a corporate financier at Lazard for five years, having previously qualified as a surveyor at Knight Frank. He was appointed to the Board in May 2000. John Trotman, aged 37, Chief Financial Officer, is a Chartered Accountant having trained with Deloitte LLP, where he specialised in the real estate sector and self storage. On leaving Deloitte in 2005, John worked for a subsidiary of the Kajima Corporation. He joined Big Yellow in June 2007, and was appointed to the Board in September 2007. He is a Director of the UK Self Storage Association. Non-Executive Directors Tim Clark, aged 64, Non-Executive Director. He was a partner in Slaughter and May, one of the leading international law firms in the world, for 25 years; initially working as a corporate and M&A advisor to a range of companies and institutions and then for the last seven years as senior partner (before retiring in April 2008). He is the Chair of Water Aid UK, and a Senior Advisor to G3, and to Chatham House. He is also a member of the International Chamber of Commerce UK Governing Body, the Advisory Board of Uria Menendez, the Board of the Royal National Theatre and the Development Committee of the National Gallery. He is Chairman of the trustees of the Economist Trust and a member of the Audit Committee of the Wellcome Trust. He was appointed to the Board in August 2008, and is Chairman of the Remuneration and Nomination Committees, and the Senior Independent Director. Richard Cotton, aged 59, Non-Executive Director, headed the real estate corporate finance team at JP Morgan Cazenove until April 2009, and subsequent to that was a Managing Director of Forum Partners. Richard is currently the Chairman of Centurion Properties and a Non-Executive Director of Hansteen Holdings plc. Richard joined the Board in July 2012. Georgina Harvey, aged 50, Non-Executive Director, started her media career at Express Newspapers plc where she was appointed Advertising Director in 1994. She joined IPC Media Ltd in 1995 and went on to form IPC Advertising in 1998, where she was Managing Director. She was a member of the Board of IPC Media from 2000 and was Managing Director of the Regionals division of Trinity Mirror from 2005 to 2012, overseeing its transition to a digital platform. She is currently a Non-Executive Director of William Hill plc and McColl's Retail Group plc. She joined the Board in July 2013. Steve Johnson, aged 51, Non-Executive Director, started his career at Bain in the 1980s before joining Asda in 1993, where he carried out a number of roles, culminating in Marketing Director. He left Asda in 2000, to join GUS as a Sales & Marketing Director, departing in 2002 to take up his first CEO role at Focus DIY, where he remained until 2007. He joined Woolworths as part of the final turnaround team in late 2008. He has most recently been working as an operating executive for TPG, and was also the Executive Chairman of Dreams plc between July 2011 and October 2012. He joined the Board in September 2010. Mark Richardson, aged 58, Non-Executive Director, retired from Deloitte in 2008 after a career there of 29 years, the last 19 as an audit partner specialising in clients in the Real Estate and Construction sectors. Mark is a co-opted member of the Audit and Risk Committee of the Natural History Museum, a trustee of the Natural History Museum Development Trust, a trustee of WWF-UK, and he is also a trustee and treasurer of the children’s communication charity ICAN. He was appointed to the Board in July 2008 and is chairman of the Audit Committee. Secretary and Registered office Shauna Beavis 2 The Deans Bridge Road Bagshot Surrey GU19 5AT Company Registration No. 03625199 Bankers Lloyds Bank plc HSBC Bank plc Aviva Commercial Finance Limited M&G Investments Limited 54 Solicitors CMS Cameron McKenna LLP Lester Aldridge LLP Financial advisors and stockbrokers J P Morgan Cazenove Independent Auditor Deloitte LLP Chartered Accountant and Statutory Auditors Valuers Cushman & Wakefield LLP Jones Lang LaSalle Directors’ Report The Directors present their annual report on the affairs of the Group, together with the audited financial statements and auditor’s report for the year ended 31 March 2015. The Report on Corporate Governance on pages 58 to 61 forms part of this report. Details of significant events since the balance sheet date are included in note 25 to the financial statements. An indication of likely future developments in the business of the Company is included in the strategic report. Information about the use of financial instruments by the Company and its subsidiaries is given in note 18 to the financial statements. Dividends The Directors are recommending the payment of a final dividend of 11.3 pence per share for the year (2014: 8.4 pence per ordinary share). An interim dividend of 10.4 pence per share was paid in the year (2014: 8 pence per share). A property income dividend of 16.1 pence is payable for the year, of which 10.4 pence per share was paid with the interim dividend, and 5.7 pence per share was proposed for the final dividend. Subject to approval by shareholders at the Annual General Meeting to be held on 21 July 2015, the final dividend will be paid on 23 July 2015. The Ex-div date is 11 June 2015 and the Record date is 12 June 2015. Disclosure of Greenhouse Gas (“GHG”) Emissions Companies Act 2006; Climate Change, the GHG Emissions Director’s Reports Regulations 2013 From October 2013, all listed companies are required to report annual quantities of GHG emissions (measured as Carbon Dioxide Equivalent (CO2e)) as follows: > Scope 1 – significant direct emission sources, such as our flexi-office gas heating and air conditioner coolant replacement – currently fit out ‘gas oil’ use emissions and one Company van diesel fuel use emissions are assessed as ‘not material’*; > Scope 2 – significant indirect or off-site power station electricity supply emissions to our stores; and > Scope 3 – Electricity supplier ‘transmission and distribution’ emissions – currently, voluntary GHG emissions, from our waste and water supply chains are not assessed as material. Summary of Scope 1 and 2 Total Carbon Footprint (GHG carbon equivalent emissions (tCO2e)) Including store electricity, gas, coolant, generator gas oil and van diesel 2011** 2012 2013 2014 2015 Total Scope 1 and 2 GHG Emissions (tCO2e) Scope 3 Electricity Transmission Losses Kg CO2e/Annual Revenue (£) Kg CO2e/Customer Occupancy (m2) 6,879.5 544 0.11 32.0 6,283.6 525 0.10 26.0 6,470.0 501 0.09 26.5 5,681.8 445 0.08 22.6 4,908.0 417 0.06 17.3 * ** Our materiality threshold for carbon emissions is > 1%. Reductions of GHG emissions following the Peak Energy Use/Baseline year (2011) have been restated using the more accurate DEFRA/DECC conversion factors, revised from 5 year, to 1 year, rolling averages. Further information on GHG emissions and on other sustainability initiatives at Big Yellow is provided in our Corporate Social Responsibility Report. Capital structure Details of the authorised and issued share capital, together with details of the movements in the Company's issued share capital during the year are shown in note 22. The Company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The Directors are not aware of any agreements between holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights. Details of employee share schemes are set out in note 23, and details of shares held in treasury and by the Company’s Employee Benefit Trust are set out in note 22. No person has any special rights of control over the Company's share capital and all issued shares are fully paid. With regard to the appointment and replacement of Directors, the Company is governed by its Articles of Association, the Corporate Governance Code, the Companies Acts and related legislation. The Articles themselves may be amended by special resolution of the shareholders. The powers of Directors are described in the Report on Corporate Governance on page 58. There are a number of agreements that take effect, alter or terminate upon a change of control of the Company such as commercial contracts, bank loan agreements, property lease arrangements and employees' share plans. Furthermore, the Directors are not aware of any agreements between the Company and its Directors or employees that provide for compensation for loss of office or employment that occurs because of a takeover bid. During the year the Company issued 641,877 shares to satisfy the exercise of share options (2014: 421,500). 55 Directors’ Report (continued) Directors The Directors of the Company who served throughout the year and to the date of approval of the financial statements were as follows: Tim Clark Richard Cotton James Gibson Georgina Harvey Steve Johnson Adrian Lee Mark Richardson John Trotman Nicholas Vetch Senior Independent Director Non-Executive Director Chief Executive Officer Non-Executive Director Non-Executive Director Operations Director Non-Executive Director Chief Financial Officer Executive Chairman Biographical details of the Executive and Non-Executive Directors standing for re-election are set out on page 54. Directors’ indemnities The Company purchases liability insurance covering the Directors and officers of the Company and its subsidiaries. Political contributions No political donations were made by the Company in either the current or preceding financial year. Substantial shareholdings The Company had been notified, in accordance with Chapter 5 of the Disclosure and Transparency rules, of the following voting rights as a shareholder of the Company at 31 March 2015 and 18 May 2015. Cohen & Steers Inc Blackrock Inc Old Mutual Plc Standard Life Investments PGGM Investments State Street Global Advisors Limited No. of ordinary shares 31 March 2015 12,689,564 11,032,565 9,485,313 6,082,913 5,380,776 4,973,460 Percentage of voting rights and issued share capital 31 March 2015 No. of ordinary shares 18 May 2015 Percentage of voting rights and issued share capital 18 May 2015 8.1% 13,073,943 7.0% 11,042,722 9,395,078 6.1% 6,082,913 3.9% 5,380,776 3.4% 4,952,931 3.2% 8.3% 7.0% 6.0% 3.9% 3.4% 3.2% The interest of the Directors in the share capital of the Company is shown on page 81 of the Remuneration Report. Purchase of own shares The Company was granted authority at the AGM in 2014 to purchase its own shares up to a total aggregate value of 10% of the issued nominal capital. That authority expires at this year’s AGM and a resolution will be proposed for its renewal. During the year the Company made no purchases of its own shares. Employee consultation The Group seeks to ensure employee commitment to its objectives in a number of ways. Strategic changes are communicated directly to all staff who are encouraged to address queries to the Executive Directors. The Directors’ executive meetings are frequently held in stores and in addition Directors and senior management visit the stores on a regular basis. Furthermore, there are regular team briefings at store level to provide employees with information about the performance of and initiatives in their store. A wide range of information is also communicated across the Group’s Intranet, including the e-publication of the Group’s financial results and all press releases, the publication of a quarterly newsletter, and the publication of a weekly operations bulletin. Employees are encouraged to participate in the Group’s performance through Employee Share Schemes and performance related bonuses. 39% of eligible employees participate in the Group’s Sharesave Scheme. The Group’s recruitment policy is committed to promote equality, judging neither by race, nationality, religion, age, gender, disability, sexual orientation, nor political opinion and to treat all stakeholders fairly. Disabled employees Applications for employment by disabled persons are always fully considered, bearing in mind the aptitudes of the applicant concerned. In the event of members of staff becoming disabled every effort is made to ensure that their employment with the Group continues and that appropriate training is arranged. It is the policy of the Group that the training, career development and promotion of disabled persons should, as far as possible, be identical to that of other employees. 56 Human Rights Big Yellow respects Human Rights and aims to provide assurance to internal and external stakeholders that we are committed to human rights and the principles of the Universal Declaration of Human Rights. We are committed to creating and maintaining a positive and professional work environment that reflects and respects the basic rights of freedom to lead a dignified life, free from fear or want, and where stakeholders are free to express their independent beliefs. Our employment policies and practices reflect a culture where decisions are made solely on the basis of individual capability and potential in relation to the needs of the business. Auditor In respect of each Director of the Company, at the date when this report was approved, to the best of their knowledge and belief: > so far as each Director is aware, there is no relevant audit information of which the Company’s auditor is unaware; and > each Director has taken all the steps that he might have reasonably been expected to take as a Director in order to make himself aware of any relevant audit information and to establish that the Company’s auditor is aware of that information. This confirmation is given and should be interpreted in accordance with s418 of the Companies Act 2006. The auditor, Deloitte LLP has expressed their willingness to continue in office as auditor and a resolution to reappoint them will be proposed at the forthcoming Annual General Meeting. Approved by the Board of Directors and signed on behalf of the Board Shauna Beavis Secretary 18 May 2015 57 Corporate Governance Report INTRODUCTION The Company is committed to the principles of corporate governance contained in the UK Corporate Governance Code that was issued in 2010 by the Financial Reporting Council (“the Code”) for which the Board is accountable to shareholders. The Board also takes account of the corporate governance guidelines of institutional shareholders and their representative bodies. At Big Yellow, we aim to create a culture in which integrity, openness and fairness are rewarded. We continue to review the composition of the Board to ensure that it has the appropriate skills, knowledge and balance for the effective stewardship of the Company. There have been no changes to the composition of the Board in the year. The Board has overall responsibility for the manner in which the Company runs its affairs. Statement of compliance with the Code Throughout the year ended 31 March 2015, the Company has been in compliance with the Code provisions set out in section 1 of the 2010 UK Corporate Governance Code. Statement about applying the principles of the Code The Company has applied the principles set out in the Code, including both the main principles and the supporting principles, by complying with the Code as reported above. Further explanation of how the principles and supporting principles have been applied is set out below and in the Nominations Committee Report, the Remuneration Report and the Audit Committee Report. LEADERSHIP The Board’s role is to provide entrepreneurial leadership of the Company within a framework of prudent and effective controls which enables risk to be assessed and managed. Chairman and Chief Executive The division of responsibilities between the Chairman and the Chief Executive has been agreed by the Board and encompasses the following parameters: > the Chairman’s role is to provide continuity, experience, governance and strategic advice, while the Chief Executive provides leadership, drives the day-to-day operations of the business and works with the Chairman on overall strategy; > the Chairman, working with the Senior Independent Non-Executive Director, is viewed by investors as the ultimate steward of the business and the guardian of the interests of all the shareholders; > the Board believes that the Chairman and the Chief Executive work together to provide effective and complementary stewardship; > the Chairman: > takes overall responsibility for the composition and capability of the Board; and > consults regularly with the Chief Executive and is available on a flexible basis for providing advice, counsel and support to the Chief Executive. > the Chief Executive: > manages the Executive Directors and the Group’s day-to-day activities; > prepares and presents to the Board strategic options for growth in shareholder value; > sets the operating plans and budgets required to deliver agreed strategy; and > ensures that the Group has in place appropriate risk management and control mechanisms. The Directors believe it is essential for the Group to be led and controlled by an effective Board that provides entrepreneurial leadership within a framework of sound controls which enables risk to be assessed and managed. The Board is responsible for setting the Group’s strategic aims, its values and standards and ensuring the necessary financial and human resources are in place to achieve its goals. The Board ensures that its obligations to shareholders and other stakeholders are understood and met. The Board also regularly reviews the performance of management. EFFECTIVENESS Composition of the Board The Nominations Committee is responsible for reviewing the Board Composition, and makes recommendations to the Board on the appointment of Directors. There are five independent Non-Executive Directors on the Board, with Tim Clark being the Senior Independent Director. The Company complies with the Combined Code in that at least half of The Board is comprised of independent Non-Executive Directors. All of the Non-Executive Directors bring considerable knowledge, judgement and experience to Board deliberations. Non-Executive Directors do not participate in any of the Company’s share option or bonus schemes and their service is non-pensionable. The Non-Executive Directors are encouraged to communicate directly with Executive Directors between formal Board meetings. The Non-Executive Directors meet at least once a year without the Executive Directors being present. The Non-Executive Directors scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. They are required to satisfy themselves on the integrity of the financial information and that financial controls and systems of risk management are robust and defensible. They are responsible for determining appropriate levels of remuneration for Executive Directors and have a prime role in appointing and, where necessary, removing Executive Directors, and in succession planning. 58 EFFECTIVENESS (continued) Composition of the Board (continued) The tenure of the independent Non-Executive Directors at 31 March 2015 is set out below: Georgina Harvey 1.7 Richard Cotton Steve Johnson Tim Clark Mark Richardson 2.7 4.6 6.7 6.8 0 1 2 3 4 5 6 7 years THE BOARD AND ITS COMMITTEES Standing committees of the Board The Board has Audit, Remuneration and Nominations Committees, each of which has written terms of reference. They deal clearly with the authorities and duties of each Committee and are formally reviewed annually. Copies of these terms of reference are available on the Company’s website. Each of these Committees is comprised of Independent Non-Executive Directors of the Company who are appointed by the Board on the recommendation of the Nominations Committee. All of the Committees are authorised to obtain legal or other professional advice as necessary; to secure, where appropriate, the attendance of external advisors at its meetings and to seek information required from any employee of the Company in order to perform its duties. The Chairman of each Committee reports the outcome of the meetings to the Board. The Company Secretary is secretary to each Committee. Attendance at meetings of the individual Directors at the Board Meetings that they were eligible to attend is shown in the table below: Number of meetings attended Director Tim Clark Richard Cotton James Gibson Georgina Harvey Steve Johnson Adrian Lee Mark Richardson John Trotman Nicholas Vetch attended absent Position Non-Executive Director Non-Executive Director Chief Executive Officer Non-Executive Director Non-Executive Director Operations Director Non-Executive Director Chief Financial Officer Executive Chairman The Board meets approximately once every two months to discuss a whole range of significant matters including strategic decisions, major asset acquisitions and performance. A procedure to enable Directors to take independent professional advice if required has been agreed by the Board and formally confirmed by all Directors. There is a formal schedule of matters reserved for the Board’s attention including the approval of Group strategy and policies; major acquisitions and disposals, major capital projects and financing, Group budgets and material contracts entered into other than in the normal course of business. The Board also considers matters of non-financial risk as part of its review of the Group’s risk register. At each Board meeting, the latest available financial information is produced which consists of detailed management accounts with the relevant comparisons to budget. A current trading appraisal is given by the Executive Directors. 59 Corporate Governance Report (continued) Information and professional development All Directors are provided with detailed financial information throughout the year. On a weekly basis they receive a detailed occupancy report showing the performance of each of the Group’s open stores. Management accounts are circulated to the Executive monthly and a detailed Board pack is distributed a week prior to each Board meeting. All Directors are kept informed of changes in relevant legislation and changing commercial risks with the assistance of the Company’s legal advisors and auditors where appropriate. The professional development requirements of Executive Directors are identified and progressed as part of each individual’s annual appraisal. All new Directors are provided with a full induction programme on joining the Board. Non-Executive Directors are encouraged to attend seminars and undertake external training at the Company’s expense in areas they consider to be appropriate for their own professional development. Each year, the programme of senior management meetings is tailored to enable meetings to be held at the Company’s properties. During the year, the Executive Directors made visits to all of the Group’s open stores. Evaluation The Board conducts an annual review of its performance and of its Committees to ensure they are operating effectively. During the prior year an external evaluation of the Board was carried out. The Board intends to carry out an externally facilitated review every three years. In the intervening years the Board undertakes an evaluation of its own performance and that of its Committee and its individual members, with reference to the most recent external evaluation of its performance. During the year, the Chairman evaluated the performance of the Executive Directors, and the performance of the Chairman was evaluated by the Senior Independent Non-Executive Director. It was considered that the individuals, the Committees and the Board as a whole were operating effectively, with appropriate procedures put in place for minor areas identified for improvement. ACCOUNTABILITY Risk management and internal control The Group operates a rigorous system of risk management and internal control, which is designed to ensure that the possibility of misstatement or loss is kept to a minimum. There is a comprehensive system in place for financial reporting and the Board receives a number of reports to enable it to carry out these functions in the most efficient manner. These procedures include the preparation of management accounts, forecast variance analysis and other ad hoc reports. There are clearly defined authority limits throughout the Group, including those matters which are reserved specifically for the Board. The Board has applied principle C.2 of the UK Corporate Governance Code by establishing a continuous process for identifying, evaluating and managing the significant risks the Group faces and for determining the nature and extent of the significant risks it is willing to take in achieving its strategic objectives. The Board regularly reviews the process, which has been in place from the start of the year to the date of approval of this report and which is in accordance with revised guidance on internal control published in October 2005 (the Turnbull Guidance). The Board is also responsible for the Group's system of internal control and for reviewing its effectiveness. Such a system is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss. In compliance with provision C.2.1 of the Code, the Board regularly reviews the effectiveness of the Group's risk management and internal control systems. The Board's monitoring covers all controls, including financial, operational and compliance controls and risk management. It is based principally on reviewing reports from management to consider whether significant risks are identified, evaluated, managed and controlled and whether any significant weaknesses are promptly remedied and indicate a need for more extensive monitoring. The Board has also performed a specific assessment for the purpose of this annual report. This assessment considers all significant aspects of risk management and internal control arising during the period covered by the report, including the work carried out by the Group’s Store Compliance team. The Audit Committee assists the Board in discharging its review responsibilities. A formal risk identification and assessment exercise has been carried out resulting in a risk framework document summarising the key risks, potential impact and the mitigating factors or controls in place. The Board have a stated policy of reviewing this risk framework at least once a year or in the event of a material change. The risk identification process also considered significant non-financial risks. During the reviews, the Directors: > challenged the framework to ensure that the list of significant risks to business objectives is still valid and complete; > considered new and emerging risks to business objectives and included them in the framework if significant; > ensured that any changes in the impact or likelihood of the risks are reflected in the risk framework; and > ensured that there are appropriate action plans in place to address unacceptable risks. The results of the exercise have been communicated to the Board and the Audit Committee. This was in the form of a summary report which included: > a prioritised summary of the key risks and their significance; > any changes in the list of significant risks or their impact and likelihood since the last assessment; > new or emerging risks that may become significant objectives in the future; > progress on action plans to address significant risks; and > any actual or potential control failures or weaknesses during the period (including “near misses”). During the course of its review of the risk management and internal control systems, the Board has not identified, nor been advised of any failings or weaknesses which it has determined to be significant, consistent with the prior year. Therefore, a confirmation in respect of necessary actions has not been considered appropriate. 60 GOING CONCERN The Group’s activities, and a fair review of the business, are included in the Strategic Report on pages 18 to 40. The financial position of the Group, including its cash flow, liquidity, and committed debt facilities are discussed in the Financial Review on pages 32 to 37. The Directors have a reasonable expectation that the Group and Company have adequate resources to continue operations for the foreseeable future. They have therefore continued to adopt the going concern basis in preparing the financial statements. REMUNERATION The information on remuneration is included in the Remuneration Reports on pages 64 to 83. AUDIT COMMITTEE AND AUDITORS A Separate Audit Committee Report starts on page 84 and provides details of the role and activities of the Committee and its relationship with the external auditors. SHAREHOLDER RELATIONS The Board aims to achieve clear reporting of financial performance to all shareholders and acknowledges the importance of an open dialogue by both Executive and Non-Executive Directors with its institutional shareholders. The Board believes that the Annual Report and Accounts play an important part in presenting all shareholders with an assessment of the Group’s position and prospects. The Company has an active dialogue with its shareholders through a programme of investor meetings which include formal presentation of the full and half year results. The Executive Directors have participated in investor conferences and meetings during the year, throughout the United Kingdom, and also in the United States and the Netherlands. During the year ended 31 March 2015, the Chief Executive and other Executive Directors carried out 142 meetings with UK and overseas institutional shareholders and potential investors. These meetings comprised group and individual presentations and tours of our stores. The Board also welcomes the interest of private investors and believes that, in addition to the Annual Report and the Company’s website, the Annual General Meeting is an ideal forum at which to communicate with investors and the Board encourages their participation. At each Board Meeting, the Board is updated on any shareholding meetings that have taken place, and any views expressed or issues raised by the shareholders in these meetings. Any queries raised by a shareholder, either verbally or in writing, are answered immediately by whoever is best placed on the Board to do so. Directors are introduced to shareholders at the AGM, including the identification of Non-Executive Directors and Committee Chairmen. The number of proxy votes cast in the resolution is announced at the AGM. SHARE CAPITAL Detail on the share capital structure is provided in the Directors’ Report on page 55. 61 Report of the Nominations Committee Introduction The Committee is responsible for reviewing the Composition of the Board. It also makes recommendations for membership of the Board and considering succession planning for Directors. The Committee is also responsible for evaluating Board and Committee performance. Committee members and attendance Member Tim Clark Richard Cotton Georgina Harvey Steve Johnson Mark Richardson attended absent Position Number of meetings attended Chairman and Senior Independent Director Member Member Member Member The Nominations Committee is responsible for regularly reviewing the structure, size and composition of the Board and giving consideration to succession planning for Directors and other senior Executives. Where changes are required, it is also responsible for the identification, selection and proposal to the Board for approval of persons suitable for appointment or reappointment to the Board, whether as Executive or Non-Executive Directors and to seek approval from the Remuneration Committee to the remuneration and terms and conditions of service of any proposed Executive Director appointment. The Chairman of the Committee presents reports to the Board as appropriate to enable the Board as a whole to agree the appointments of new Directors. The Committee meets at least once a year and otherwise as required and as determined by its members. The terms and conditions of appointment for the Non-Executive Directors is available for inspection at the Company’s Head Office during normal working hours. They are also available for inspection at the Company’s AGM. Board performance evaluation In the prior year, the Board engaged Lomond Consulting to undertake an evaluation of the performance of the Board and its Committees. The aim was to seek to identify areas where the performance and the procedures of the Board may be improved. The scope of the review was agreed between the Chairman of the Committee and the Chief Executive. Each Director completed a questionnaire on the performance of the Board, its Committees and the Chairman. The responses were anonymous to enable an open and honest sharing of views. Lomond Consulting then produced a reporting showing the results of the review. The Board has committed to carry out an external performance evaluation every three years. In the intervening years the Board undertakes an evaluation of its own performance and that of its Committee and its individual members, with reference to the most recent external evaluation of its performance. During the current year, the Chairman evaluated the performance of the Executive Directors, and the performance of the Chairman was evaluated by the Senior Independent Non-Executive Director. It was considered that the individuals, the Committees and the Board as a whole were operating effectively, with appropriate procedures put in place for minor areas identified for improvement. Succession planning The Board comprises a team of four Executive Directors, two of whom were co-founders of the Company, complemented by Non-Executive Directors who have wide business experience and skills as well as a detailed understanding of the Group’s philosophy and strategy. Continuity of experience and knowledge, particularly of self storage, within the executive team is particularly important in a focused long-term business such as Big Yellow. It is a key responsibility of the Committee to advise the Board on succession planning. The Committee ensures that any future changes in the Board’s composition are foreseen and effectively managed. In the event of unforeseen changes, the Committee ensures that management and oversight of the Group’s business and long-term strategy will not be affected. The Committee also addresses the development and continuity of the Senior Management team below Board level. 62 Policy on diversity All aspects of diversity, including gender are considered at every level of recruitment. All appointments to the Board are made on merit. The Board’s policy states that the Board seeks a composition with the right balance of skills and diversity to meet the demands of the business. The Board does not consider that quotas are appropriate for its representation and has therefore chosen not to set targets. Gender diversity of the Board and Company is set out below (senior management are defined to be Heads of Department): 100% 11% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 45% 41% 89% 55% 59% Female Male Board Senior Management All employees Directors standing for re-election All of the Directors will retire in accordance with the UK Corporate Governance Code and will offer themselves for re-election at the Annual General Meeting. Following a performance appraisal process, the Board has concluded that the Directors retiring by rotation are effective, committed to their roles and operate as effective members of the Board. The Board, on the advice of the Committee, therefore recommends the re-election of each Director standing for re-election. Full biographical details of each Director are available on page 54. Tim Clark Nominations Committee Chairman 18 May 2015 63 Remuneration Report For the year ended 31 March 2015 INTRODUCTION This report is on the activities of the Remuneration Committee for the period from 1 April 2014 to 31 March 2015. It sets out the remuneration policy and remuneration details for the Executive and Non-Executive Directors of the Company. It has been prepared in accordance with Schedule 8 of the Large and Medium-size Companies and Groups (Accounts and Reports) Regulations 2008 (as amended) (the “Regulations”). The report is divided into three main areas: > the annual statement by the Remuneration Committee Chairman; > the report on Directors’ Remuneration Policy; and > the annual report on Directors’ remuneration. The Companies Act 2006 requires the auditor to report to the shareholders on certain parts of the Remuneration Report and to state whether, in their opinion, those parts of the report have been properly prepared in accordance with the Regulations. The parts of the annual report on Directors’ remuneration that are subject to audit are indicated in the report. The annual statement by the Remuneration Committee Chairman and the Directors’ remuneration policy report are not subject to audit. ANNUAL STATEMENT BY THE REMUNERATION COMMITTEE CHAIRMAN Dear Shareholder, I am very pleased to present the Directors’ Remuneration Report for the year ended 31 March 2015. This report has been prepared by the Remuneration Committee and approved by the Board. Business conditions and Group performance in the year ended 31 March 2015 The business conditions and performance of the Group in the year ended 31 March 2015 are described more fully in the Chairman's Statement on pages 16 and 17 of this Annual Report. In summary: > the business of the Group performed strongly; > in an improving economic environment, Big Yellow remained the clear UK brand leader in self storage and delivered occupancy, cash flow and earnings growth for the sixth year in a row; > revenue, cash flow and adjusted profit before tax increased by 17%, 29% and 35% respectively; > occupancy was increased by 5.3%; > the Group completed the acquisition of the two thirds of Big Yellow Limited Partnership it did not previously own; and > dividends are being increased by 32%. Over the past three years, the Group’s revenue has increased by 28%, with adjusted eps increasing by 49% and dividends declared by 117%. Policy on executive remuneration The policy of the Company is to ensure that the executive remuneration packages are designed to attract, motivate and retain Directors of high calibre and reward the Executive Directors for protecting and enhancing value for shareholders. As a result, a substantial element of the remuneration of the Executive Directors – up to 71% of their potential total remuneration for the next financial year – is structured to be dependent on the performance of the Company. The Company aims to provide remuneration to the Directors which is fair to the Directors both generally and in the context of the remuneration of other staff of the Company and the returns to shareholders. Remuneration consists of a balance of short and long term incentives which provide a strong link between reward and individual and Group performance to align the interests of the Executive Directors with the interests of shareholders. The Remuneration Committee is also concerned to ensure that the Executive Directors have significant interests in the shares of the Company. Each Executive Director has an interest in shares with a value in excess of two times his base salary and, together, and including share incentives, the Executive Directors are interested in shares comprising approximately 9.3% of the share capital of the Company. In the view of the Remuneration Committee, the success of the remuneration policy has been reflected in the length of service and stability of the Executive Director team and the progress of the Company over a number of years, including the recent years of significant and challenging economic slowdown. Two of the Executive Directors were founders of the Company while the other two have been Executive Directors for 16 years and eight years respectively. The Committee noted last year that it was concerned about the total remuneration levels of the Executive Directors when compared with other FTSE 250 companies. In the light of this, and the impending expiry of the vesting period for the 2012 awards under the Long Term Bonus Performance Plan, the Remuneration Committee has reviewed executive remuneration during the year ended 31 March 2015. The Committee appointed PwC to benchmark the Executive Directors’ salaries against a comparable peer group. 64 The findings of the remuneration review highlighted to the Committee the following: 1. Total remuneration “gap” to market – the current remuneration opportunity for Executive Directors is positioned very conservatively, below the lower quartile of other FTSE 250 companies. 2. Alignment with the business strategy – our strategic business plan is designed to deliver long-term sustainable, profitable growth and this should be reflected in the performance measures on the LTIP. The Committee concluded that the focus solely on relative TSR against the FTSE Real Estate Index in the current LTIP (with an EPS underpin) is not sufficiently aligned with the business strategy. 3. Corporate governance best practice – the Committee is keen to adopt the emerging best practice corporate governance requirements around executive remuneration, including simplification of equity-based incentives, and the wider introduction of clawback and malus provisions (the 2014 LTIP includes clawback provisions). Changes proposed 2015 Long Term Bonus Performance Plan In order to address these issues, the Committee wishes to develop a remuneration structure which is focussed around pay for performance to ensure that any increase in reward for Executive Directors is aligned to the value being delivered to shareholders. Hence, it is proposed, subject to shareholder approval, that the remuneration gap is addressed by developing our Long Term Bonus Performance Plan structure which only delivers increased rewards to Executive Directors when the Company has delivered year-on-year corporate performance in line with its business plans. The Long Term Bonus Performance Plan was first introduced in 2009 to bring overall levels of remuneration towards mid-market levels but maintaining the desire to ensure there was a strong performance-based culture within the organisation. Since the inception of the plan, the scheme has helped to align remuneration of the Executive Directors to the performance of the stores and value created to shareholders. The market benchmarking against other FTSE 250 companies of a comparable size to Big Yellow has indicated that current arrangements for the executives are well below lower quartile, which allows scope for incentive levels to be increased without creating a high pay environment. We seek approval from shareholders on the proposed new LTBPP. The table below details the proposed changes compared with the current LTBPP (further details of the new LTBPP are provided in our Notice of AGM): Key change Description Quantum of awards Currently, the maximum award levels do not exceed c.330% of base salary for executives over the three year performance period. Removal of the Joint Ownership Structure (JOS) Remove the “cap” structure (reducing dilution) The proposal is to increase the total quantum of the one-off 2015 award to 4 x 450% of base salary across the four Executive Directors, over the same (i.e. 3 year) performance period. Each individual Director will have the opportunity to be awarded a maximum of 675% of base salary, so long as the total maximum of 4 x 450% base salary is not exceeded. This brings the Company’s overall package more in line with the market range. See below for details of the proposed 2015 award. This structure gave the Executive Directors the opportunity to receive part of their award in a tax efficient manner by acquiring an interest in the underlying shares jointly with the EBT. It is not proposed to provide this opportunity for the 2015 award, but to simplify the structure and reduce the administrative burden. Although the LTBPP is expressed as an award over a number of shares, the actual value received by the participants was capped at a value of £2 per share, which resulted in a highly dilutive mechanism. The proposal is to remove the £2 capped value for the 2015 LTBPP and, instead, the incentive value will be articulated as a “maximum” award as a % of salary, rather than as a maximum number of shares. This has no impact on the commercial value of the awards. Removing the cap will eradicate the need for the Company to hold the initial shares under consideration, increasing the efficiency of the share usage of the Company and decreasing the dilution of the award. Remove the “cash top-up” Under the 2012 award, if the value in the share interests is not enough to cover the value of the award, there is a cash “top-up”. This is intended to remove the risk for executives as it effectively ensures a guaranteed minimum level of payout (as long as Company share price remains above £1). The proposal is to remove the cash “top-up” from the new LTBPP in order to simplify the incentive structure, and also to act as a trade-off from the Company with respect to the proposed increase in incentive opportunity. Removing the cash top up, given the current share price, would have minimal impact on participants and will increase the pay for performance alignment. 65 Remuneration Report (continued) For the year ended 31 March 2015 Key change Description Adopt governance best practice It is proposed to bring the plan in line with emerging UK corporate governance best practice. It is proposed that the new LTBPP will incorporate clawback and malus provisions (the 2014 LTIP included malus provisions when renewed last year). It is proposed to retain the two year holding period post vesting. This is in line with the prevailing shareholder sentiment of longer holding and vesting periods. The Committee sets the performance targets annually, on the basis of business objectives and priorities which it has identified. The performance conditions are not disclosed for the year ahead, given the commercially sensitive nature of a number of the targets. A report on performance targets for the year under review (other than those which remain commercially sensitive) is provided in the Annual Report relating to that year. 2015 Awards proposed to be made under the 2015 LTBPP The table below shows the maximum award value under the 2015 LTBPP for each executive director (subject to the satisfaction of performance conditions) at the end of the three year performance period. This amount is then converted into shares at the prevailing share price (delivered as nil-cost options). Subject to shareholder approval, it is proposed that the 2015 Awards will be made shortly after the AGM. Executive Director Nicholas Vetch James Gibson Adrian Lee John Trotman Total Role Maximum award value after three years Maximum award value at vesting as % of 2015/16 salary Executive Chairman Chief Executive Officer Operations Director Chief Financial Officer £996,900 £1,440,000 £996,900 £996,900 £4,430,700 377% 496% 464% 464% Long Term Incentive Plan Our focus on ensuring alignment with our business strategy is reflected by the proposed change to our LTIP performance measures, with EPS governing 70% of the award and 30% relative TSR (previously the award was wholly determined by relative TSR against the FTSE Real Estate Index with an EPS underpin). The Committee will ensure that the payouts under the LTIP are provided only when the Company hits stretching EPS conditions (with 100% vesting at RPI plus 8% over a three year period), and stretching TSR conditions. This provides alignment to our core strategic priorities of delivering on our growth opportunities and conversion of our competitive advantages into quality earnings. We will seek approval from our shareholders at the 2015 AGM for the adoption of the revised vesting criteria of 70% related to EPS performance and 30% related to relative TSR performance. The previous vesting criteria was 100% based on relative TSR performance with an EPS hurdle. Shareholders will note that the individual limit under the plan is 200% of base salary. The Committee has determined that this increased limit will not form part of the Directors’ remuneration policy to be adopted at the 2015 AGM. Pension contributions The Committee has noted that a pension contribution of 10% of each Executive Director’s base salary is below market. The Committee has therefore increased the maximum annual pension payment to 20% of base salary. The planned payment for the year ended 31 March 2016 is 15% of each Executive Director’s salary. The Committee has increased the minimum shareholding requirement of the Executive Directors from 100% of base salary to 200% of base salary. The Committee is mindful of the current climate around executive pay and guidance from shareholder bodies against upwards pay ratcheting, and has designed these changes with this in mind. The views of the Company’s shareholders are very important to the Remuneration Committee (and the Board). The Committee has actively consulted its major shareholders on the proposed remuneration policy outlined in this report. Full details of the remuneration policy for the Directors of the Company are set out in the Directors Remuneration Policy section of the Directors’ Remuneration Report. 66 Remuneration changes during the year During the year ended 31 March 2015, the aggregate remuneration of the Executive Directors (calculated on the basis of the remuneration regulations introduced in 2013) increased from £1,751,000 to £5,593,000 – an increase of 219%. The increase is due to the vesting of the 2011 LTIP during the year which produced a gain to the Executive Directors of £1,469,000, and the assessment of the three year LTBPP which produced a gain to the Executive Directors of £2,910,000. The 2010 LTIP tested in the prior year, partly vested, producing a lower gain than in the current year to the Executive Directors. This increase compares with significant increases in the year in adjusted profit before tax (35%), adjusted EPS (32%) and declared dividends (32%). Within the overall figure for Executive Director remuneration, the detailed changes were: > Base salary: increased by £35,000 (3.8%) – of which the main change was an increase to the salary of one Director to reflect his progress in the role; the other increases were 2%. > Taxable benefits: decreased by £350 (2%). > Annual bonus: increased to 12.5% of base salary from 10% of base salary in the prior year (being in line with the average for all staff of the Company) and increased by £27,000 (30%). > Pension contributions: remained at 10% of base salary and increased, as a result of the increase in base salaries, by £3,500 (3.8%). > Sharesave Scheme: two Directors’ Sharesave scheme vested in the year, producing a gain of £30,000 (2014: £10,000). > Long term incentives: following the application of the performance conditions (EPS growth compared to RPI and relative TSR), the 2011 award of shares granted under the LTIP vested as to 100% (representing a total gain of £1,470,000). As in the previous year, each of the Executive Directors was granted an award equal to 100% of his base salary (or average salary) subject to performance conditions. The value of these awards was £954,000 – an increase of £35,000 (3.8%) No awards under the LTBPP were made in the year (2014: no awards). The Remuneration Committee reviewed the performance targets for the year and concluded that the awards under the Plan granted in 2012 have vested as to 100% in respect of the year ended 31 March 2015. The final determination of the vesting for the whole three year period of the LTBPP has been determined against performance conditions in the period 2012 to 2015 at 97%. In considering the relative importance of the spend on pay see page 83: > Total employee pay: increased by 18% (and amounted to £13.1 million). > Profit distributed by way of dividend: increased by 42% (and amounted to £27.9 million). > Retained profit for the year: increased by 94% (and amounted to £77.7 million). More details of the changes in the remuneration of the Directors in the year ended 31 March 2015 are set out in the Annual Report on Remuneration section of the Remuneration Report. Recommendation The Remuneration Committee has carefully considered the policy on executive remuneration and the implementation of the approach underlying that policy during the year ended 31 March 2015 and recommends this Remuneration Report to you. I hope that, at the Annual General meeting in July, you will support: > the binding resolution on the revised remuneration policy set out in the Remuneration Policy Report section of this Remuneration Report; > the advisory resolution on the remuneration paid to the Directors in the last financial year set out in the Annual Remuneration Report section of this Remuneration Report; and > the resolution to approve the adoption of the 2015 Long Term Bonus Performance Plan and the 2015 awards to Executive Directors thereunder. Tim Clark Chairman of the Remuneration Committee 67 Remuneration Report (continued) For the year ended 31 March 2015 REPORT ON DIRECTORS’ REMUNERATION POLICY This section of the Remuneration Report contains details of the Company’s Directors’ Remuneration Policy which will govern the Company’s approach to remuneration. Following a remuneration review conducted by the Committee, a revised Remuneration Policy is being proposed which will be put to shareholders for approval at the Company’s AGM on 21 July 2015. If approved, the policy will be applicable from that date until the date of the Company’s 2018 AGM, unless shareholder approval is sought within that period to amend the policy. It is the policy of the Company to ensure that the executive remuneration packages are designed to attract, motivate and retain Directors of a high calibre and reward the executives for enhancing value to shareholders. As a result, a substantial element of the remuneration of the Executive Directors is structured to be dependent on the performance of the Company. The policy aims to support a performance culture where there is appropriate reward for the achievement of strong Company performance without creating incentives which will encourage excessive risk-taking or unsustainable Company performance. The Committee’s aim is to design a total package that rewards the Executive Directors to a median level that is appropriate for the size and nature of the business, and its business strategy. The Committee deals with all aspects of remuneration of the Executive Directors including: > setting salaries; > agreeing conditions and coverage of annual incentive schemes and long term incentives; > policy and scope for pension arrangements; > determining targets for performance related schemes; > scope and content of service contracts; and > deciding extent of compensation (if any) on termination of service contracts. The Committee’s members are currently Tim Clark (Committee Chairman), Richard Cotton, Georgina Harvey, Steve Johnson and Mark Richardson. The Remuneration Committee’s Terms of Reference are available on the Company website. The Committee met four times during the year. Statement of consideration of shareholders’ views The views of our shareholders are very important to us and the Committee and we have actively consulted with our major shareholders to help formulate our amended Remuneration Policy and arrangements proposed in this report. Any consultations on remuneration with shareholders and institutional investors will usually be led by the Chairman of the Remuneration Committee. The Remuneration Committee considers shareholder feedback received in relation to the AGM each year at its first meeting following the AGM. This feedback, as well as any additional feedback received during any other meetings with shareholders throughout the year, is then considered as part of the Company’s annual review of remuneration policy. The Remuneration Committee notes that shareholders do not speak with a single voice, but we engage with our largest shareholders to ensure we understand the range of views which exist on remuneration issues. When any material changes are proposed to the Remuneration Policy, the Remuneration Committee chairman will inform major shareholders in advance, and will offer a meeting to discuss these. Shareholder voting The Group is committed to ongoing shareholder dialogue and takes an active interest in voting outcomes. Where there are substantial votes against resolutions in relation to Directors’ remuneration, the reasons for that voting will be sought and any actions in response will be detailed here. There have been no significant issues raised by shareholders in respect of remuneration in the year. The table below shows the advisory vote on the 2014 Remuneration Report and the binding vote on the Remuneration Policy at the AGM held on 16 July 2014. 2014 Remuneration Report 2014 Remuneration Policy Votes for % Votes against % Votes withheld 101,289,643 101,536,726 99.45 99.72 547,449 271,900 0.54 0.27 1,953 30,419 68 Policy table The main components of the Directors’ Remuneration Policy, and how they are linked to and support the Company’s business strategy, which will take effect subject to approval from shareholders at the AGM on 21 July 2015, are summarised below: Executive Directors Purpose and link to strategy Operation Maximum potential value Base salary To provide competitive fixed remuneration that will attract and retain key employees and reflect their experience and position in the Company. Base salary is normally set annually on 1 April. When considering any increases to base salaries in the normal course (as opposed to a change in role or responsibility), the Committee will take into consideration: > level of skill, experience, scope of responsibilities and performance; > business performance, economic climate and market conditions; > increases provided to Executive Directors in comparable companies; and > pay and employment conditions of employees throughout the Group, including increases provided to staff; and inflation. Salaries are typically set after considering the salary levels in companies of a similar size and complexity in the FTSE 250. Our overall policy is normally to target salaries at close to (but generally below) median levels. Base salaries are intended to increase in line with inflation and general employee increases in salary. Higher increases may apply if there is a change in role, level of responsibility or experience or if the individual is new to the role. There is no maximum salary cap in place. Annual bonus The annual bonus aligns reward to key Group strategic objectives and drives short-term performance. Cash payments. Bonus potential: Executive Directors participate in an annual performance-related bonus scheme. Maximum: 25% of base salary. Target: 10% of base salary Threshold performance: 0% of base salary. Performance conditions and assessment None Assessed annually and determined by the Committee based on corporate performance against the Group’s business plan for each financial year. The bonuses are directly linked to the Group’s profit and operating cash flow performance in the stores (see note 1). 69 Remuneration Report (continued) For the year ended 31 March 2015 Executive Directors (continued) Purpose and link to strategy Operation Maximum potential value Maximum annual grant is 100% of base salary, with normal awards of 100% of annual salary for the Executive Directors. Minimum vesting is 25% of salary assuming achievement of threshold performance, and the maximum vesting is 100% of salary. Long Term Incentive Plan The Long Term Incentive Plan aligns Executive Director interests with those of shareholders and rewards value creation. Awards are made annually to the Executive Directors (and certain senior managers who are in a position to influence significantly the performance of the Group) in the form of nil-paid options. The awards granted under the Long Term Incentive Plan are subject to performance conditions to be met over a performance period of three years. The performance conditions have been chosen to align the LTIP with the performance of the business. Awards granted prior to the 2014 AGM will vest in accordance with the provisions of the previous LTIP rules. The LTIP contains clawback and malus provisions. Performance conditions and assessment Vesting under the LTIP is based on 70% on EPS performance and 30% on relative TSR performance to focus executives on value creation in the Company. Vesting will be as follows for the TSR element: 25% vesting for median TSR performance and 100% vesting for upper quartile performance. Straight-line vesting between these points. (Note 2) Vesting for the EPS element will be as follows: RPI plus 3% – 25% vesting, and RPI plus 8% – 100% vesting, with straight line vesting in between. 70 Performance conditions and assessment Please see pages 77 and 78 for the review of the performance conditions in the financial year. (Note 3) Executive Directors (continued) Purpose and link to strategy Operation Maximum potential value The total maximum incentive value awarded across all four Executive Directors will not exceed 4 x 450% of base salary (over a 3 year performance period); however each individual will have the potential to be awarded a maximum of 675% of base salary (so long as the total maximum is not exceeded). Long Term Bonus Performance Plan To ensure that the total remuneration package is more competitive and supports the Company’s strategy and its ability to react to changing economic and business circumstances. To retain key individuals in the medium term and align rewards with Group performance. Participants are awarded an incentive value which will be articulated as a “maximum” award as a % of salary. The number of shares awarded will be calculated on vesting of the scheme. The awards to the Executive Directors under the plan are made every three years, although the Committee has discretion to make awards to new Directors outside of this period. Vesting depends on an annual assessment of performance (over three years but reviewed annually) against a series of financial and non-financial targets aligned with the annual business plan. The value accrued to participants may be subject to clawback if subsequent performance reflects adversely on achievement of the targets. Following vesting, the award will be converted into nil-cost options based on the market value of the shares and the vested value at that time. A further holding period will apply to 50% of the award, such that 25% will be released one year after vesting, and the remaining 25% will be released two years after vesting, so that full release of vested entitlements takes place over five years. Pension To provide competitive levels of retirement benefit. Contribution made into Executive Directors personal pension plan, or a cash supplement of equivalent value paid in lieu of pension contribution. Maximum contribution of 20% of salary, target of 15% of salary. None Other benefits To provide competitive levels of employment benefits. Shareholding policy To ensure that Executive Directors’ interests are aligned with those of shareholders over a longer time horizon. Benefits include: > Private fuel > Private medical insurance > Permanent health insurance > Life assurance of four times base salary > Relocation allowances The level of benefits provided is reviewed annually to ensure they remain market competitive. Vested shares cannot be sold, other than to pay tax and NI, until the shareholding requirement has been met. There is no time requirement in relation to this policy. Maximum opportunity is the total cost of providing the benefits. There is no monetary cap on benefits. None N/A Requirement to build and maintain a holding of at least 200% of salary in shares of the Company, through retaining at least 50% of shares vesting in Executive incentive plans if this guideline has not been met. 71 Remuneration Report (continued) For the year ended 31 March 2015 Executive Directors (continued) Purpose and link to strategy Operation Maximum potential value Sharesave Scheme To encourage share ownership by all employees. This allows them to align their interests with those of investors and also to share in the long-term success of the Company. Executive Directors may participate in the Big Yellow Group Sharesave Scheme, which is an all-employee tax-favoured share plan open to employees based in the UK. Sharesave Scheme saving periods are in line with HMRC rules as three year contracts. Executive Directors are able to participate in an all-employee share plan on the same terms as other employees in line with the tax-favoured monthly contribution limits. Performance conditions and assessment None Notes to the policy table The key principle for the short and long term incentives is to provide a strong link between reward and individual and Group performance to align the interests of Executive Directors with those of shareholders. 1. Annual bonus performance measures and targets Annual bonuses for the Executive Directors are based on the average of the stores’ performance against their quarterly targets providing direct alignment of the Directors’ bonuses to performance (and the bonus levels) of the staff. The four Key Performance Indicators used to assess store performance are occupancy growth, net contribution, customer satisfaction and store standards. Store targets are set every quarter and an average of the four quarters is taken. 2. Long Term Incentive Plan performance measures and targets The Committee selected the performance conditions on the LTIP as they provide a direct link between the incentive for the Executive Directors and the value created for shareholders. The two metrics for the award are: i. ii. Relative TSR against the FTSE Real Estate Index, as Big Yellow Group’s historic performance has been closely aligned to the performance of this Index. The adjusted EPS figure is as reported in the audited results of the Group for the last complete financial year ending before the start of the performance period and the last complete financial year ending before the end of the performance period. 3. Long Term Bonus Performance Plan performance measures and targets The Committee sets the performance targets for the Long Term Bonus Performance Plan annually, against a series of financial and non-financial targets aligned with the annual business plan. A report on performance targets for the year under review (other than those which remain commercially sensitive) is provided in the accounts for that year. Awards to executive directors are made on a three year cycle, and the Company’s practice is to seek shareholder approval of these awards. Awards may be also made under the Long Term Bonus Performance Plan without separate shareholder approval under the terms approved by shareholders at adoption, though in practice this is only expected to be used for new joiners and following internal promotions. 4. Malus and clawback The LTIP and LTBPP includes best practice malus and/or clawback provisions. Malus is the adjustment of outstanding LTIP and LTBPP awards as a result of the occurrence of one or more circumstances listed below. The adjustment may result in the value being reduced to zero. Malus will apply for the three year period from grant to vesting for the LTIP and the LTBPP. Clawback is the recovery of payments under the LTIP and LTBPP as a result of the occurrence of one or more circumstances listed below. Clawback will apply for three years post vesting for the LTIP and the LTBPP. The circumstances in which malus and clawback could apply are as follows: > discovery of a material misstatement resulting in an adjustment in the audited consolidated accounts of the Company; > the assessment of any performance target or condition in respect of an award was based on error, or inaccurate or misleading information; > the discovery that any information used to determine the amount of an award was based on error, or inaccurate or misleading information; > action or conduct of an award holder which, in the reasonable opinion of the Board, amounts to employee misbehaviour, fraud or gross misconduct; and > events or behaviour of an award holder which have led to the censure of the Company by a regulatory authority or have had a significant detrimental impact on the reputation of any Group Company provided that the Board is satisfied that the relevant award holder was responsible for the censure or reputational damage and that the censure or reputational damage is attributable to the award holder. 5. Discretion The Committee has discretion in several areas of policy as set out in this report. The Committee may also exercise operational and administrative discretions under relevant plan rules approved by shareholders as set out in those rules. In addition, the Committee has the discretion to amend policy with regard to minor or administrative matters where it would be, in the opinion of the Committee, disproportionate to seek or await shareholder approval. In certain circumstances, the Committee will be required to exercise its discretion, taking into consideration the particular circumstances of an Executive Director’s departure and/or the recent performance of the Company in determining the specific level of payments to be made. 72 Executive Directors (continued) 5. Discretion (continued) In addition to the discretions under the terms of the annual bonus plan, Long Term Incentive Plan and the Long Term Bonus Performance Plan, the Committee has discretion to determine whether an individual is classified as a “good leaver”. It should be noted that it is the Committee’s policy to only apply its discretion if the circumstances at the time are, in its opinion, sufficiently exceptional, and to provide a full explanation to shareholders where discretion is exercised. The Committee does not currently intend to amend or waive any performance conditions. 6. Differences in remuneration policy for all employees All employees are entitled to base salary, benefits, pensions and the Sharesave Scheme. Additionally, all employees are eligible for annual bonuses with the maximum opportunity available based on the seniority and responsibility of the role held. Illustrations of application of Remuneration Policy The graph below seeks to demonstrate how pay varies with performance for the Executive Directors based on our stated Remuneration Policy, which is subject to shareholder approval. Element Fixed Annual variable Description Total amount of salary, pension and benefits. Money or other assets received or receivable for the reporting period as a result of the achievement of performance conditions that relate to that period (i.e. annual bonus payments). Multiple period variable Money or other assets received or receivable for multiple reporting periods as a result of the achievement of performance conditions over a given period under the LTIP and LTBPP. Assumptions used in determining the level of pay out under given scenarios are as follows: Scenario Minimum On-target Maximum Description Fixed pay only (no variable payments under annual bonus and Company’s LTIP or LTBPP). 40% of annual bonus award being paid (i.e. 10% of basic salary), 50% vesting of the LTIP and 50% vesting of the three year LTBPP. 100% of annual bonus award being paid (i.e. 25% of basic salary) and 100% vesting of the LTIP, 100% vesting of the three year LTBPP. Executive Chairman CEO £1,200,000 £1,000,000 £800,000 £600,000 £975,000 £637,000 61% £400,000 £312,000 £200,000 100% 47% 4% 49% 7% 32% £0 Minimum Median Maximum Multi-period variable Annual variable Fixed elements £1,400,000 £1,200,000 £1,000,000 £800,000 £600,000 £400,000 £200,000 £0 £1,185,000 £756,000 £342,000 100% 51% 4% 45% 65% 6% 29% Minimum Median Maximum Operations Director CFO £855,000 £549,000 £254,000 100% 50% 4% 46% 64% 6% 30% £900,000 £800,000 £700,000 £600,000 £500,000 £400,000 £300,000 £200,000 £100,000 £0 Multi-period variable Annual variable Fixed elements £855,000 £549,000 £254,000 100% 50% 4% 46% 64% 6% 30% £900,000 £800,000 £700,000 £600,000 £500,000 £400,000 £300,000 £200,000 £100,000 £0 Minimum Median Maximum Minimum Median Maximum Multi-period variable Annual variable Fixed elements Multi-period variable Annual variable Fixed elements 73 Remuneration Report (continued) For the year ended 31 March 2015 Non-Executive Directors Fees Objective and link to the strategy To attract Non-Executive Directors with the requisite skills and experience Operation Maximum potential value Fee levels are normally reviewed annually in March. The Non-Executive Director fee structure is a matter for the full Board. The fees may be paid in the form of shares Fee levels are set at broadly median levels for comparable roles at companies of a similar size and complexity within the FTSE 250. Fees are intended to increase in line with inflation. Performance conditions and assessment N/A Non-Executive Directors’ fees comprises of a base fee, with an additional £2,500 for a Committee Chairman, and an additional £2,500 for the Senior Independent Non-Executive Director. Where a Non-Executive Director provides significant specialist advice to the Group, and hence additional time commitment to the Group, an additional fee of £2,500 may be paid. Approach to recruitment remuneration The table below summarises our key policies with respect to recruitment remuneration: Salary and benefits Maximum variable incentive Sign-on payments > Set by reference to market and taking into account individual experience and expertise in the context of the role. > Salary would also be set with reference to the salary of the departing Executive Director and the remaining Executive Directors. > The Executive Director would be eligible to receive benefits in line with Big Yellow Group’s benefits policy as set out in the remuneration policy table – this includes either a contribution to a personal pension scheme or cash allowance in lieu of pension benefits in line with the policies set out in the policy table. > Annual bonus of up to 25% of base salary in line with our current policy for Executive Directors. > Long term incentive plan award of equivalent to 100% of base salary in line with our current policy for Executive Directors. > An award under the Long Term Bonus Performance Plan (which equates to an annual maximum opportunity of 225% of salary over the life of the plan) may also be made on appointment, recognising that the Company’s basic remuneration is below median. > The Company does not provide sign-on payments to Executive Directors. Share buy-outs > Any previous outstanding share awards which the Executive Director holds which would be forfeited on cessation of his or her previous employment may be compensated. > Where this is the case, the general principle is that the outstanding award will be valued based on the consideration of the following factors: > The proportion of the performance period completed on the date of the Director’s cessation of employment; > The performance conditions attached to the vesting of the incentives and the likelihood of them being satisfied; and > Any other terms and conditions having a material impact on their value. > The valuation will be conducted using a recognised valuation methodology by an independent party and the equivalent ‘fair value’ may be awarded as a one-off LTIP on date of joining under the Company’s existing long term incentive plan. To the extent that this is not possible, a bespoke arrangement will be used. > To ensure effective retention of the Executive Director upon recruitment, any new award will be granted subject to performance conditions and vesting may be over the same period as those forfeited from the previous employer or a new three year period. > The exact terms will be determined by the Remuneration Committee on a case-by-case basis taking into account all relevant factors. Relocation policies > In instances where the new Executive Director is relocating from one work location to another, the Company may provide, as a one-off or otherwise, a relocation allowance as part of the Director’s relocation benefits. > The level of the relocation package will be assessed on a case-by-case basis but will take into consideration any cost of living differences, housing allowance and schooling. 74 Service contracts The Company’s policy on Directors’ service contracts is that they should be on a rolling basis without a specific end-date providing for one year’s notice. All Executive Directors have contracts which reflect this policy. The Non-Executive Directors do not have service contracts with the Company. Their appointments are governed by letters of appointment which are available for inspection on request at the Company’s registered office and which will be available for inspection at the Company’s AGM. Each appointment is for a period of up to three years, although the continued appointment of all Directors is put to shareholders at the AGM on an annual basis. In addition, the appointment is terminable by either party giving notice of three months. Payments for loss of office Element Approach Salary and benefits Salary and benefits may be paid in lieu of notice. In cases where a contract is terminated other than on the terms of the service contract, the Company will seek to mitigate any damages payable. There will be no compensation for normal resignation or in the event of termination by the Company due to misconduct. Annual bonus If the individual is a good leaver, bonus will be paid on a pro-rata basis in respect of the period from the start of the financial year. Good leaver is defined as an individual ceasing employment as a result of ill-health, disability, redundancy or retirement or in any other circumstances which the Committee permits. A bad leaver is an Executive Director who does not fall within the category of “good leaver” and bad leavers will forfeit any entitlement to a bonus payment in respect of the current financial year or any completed financial year in respect of which the bonus has not been paid at the cessation date. Long term incentives (LTIP and LTBPP) A proportion of the LTIP or LTBPP awards held by good leavers will vest at the Committee’s discretion determined by taking into account whether, and to what extent, any performance conditions have been satisfied and the length of time the LTIP or the LTBPP award has been held at the date of cessation of employment. The LTIP awards will not normally vest until the end of the performance period with performance tested at that time, although exceptionally such awards may, at the discretion of the Committee, vest at cessation of employment. Under the LTBPP awards vest at cessation of employment. Good leaver is defined as an individual ceasing employment as a result of death, ill-health, injury, disability, redundancy, retirement, or the sale out of the Group of his employing business for any other reason which the Committee in its absolute discretion permits. A bad leaver is an Executive Director who does not fall within the category of good leaver and bad leavers will forfeit any unvested awards. Other contractual obligations None. Payments for Change of Control Element Annual bonus plan Long term incentives (LTIP and LTBPP) Other contractual obligations Change of Control On a change of control, the Executive Director may receive a bonus payment based on performance level achieved during the performance period and up to the date of change of control. The Committee will take into account such factors as it consider relevant in relation to the bonus plan payment for the year in which the event occurs, including the proportion of the bonus plan year elapsed at the date of the event. On a change of control, a proportion of LTIP or LTBPP Awards will vest at the time of the relevant event. The proportion of LTIP or LTBPP Awards which vest on a change of control event will be determined by the Committee taking into account any relevant factors, including whether, and to what extent, any performance conditions have been satisfied. For the 2014 and 2015 LTIPs, the amount of time the LTIP Awards have been held on the date of the relevant change of control event will also be considered to determine the final vesting of the Awards. None. Approval This policy report was approved by the Board of Directors on 18 May 2015 and signed on its behalf by Tim Clark Remuneration Committee Chairman 75 Remuneration Report (continued) For the year ended 31 March 2015 ANNUAL REPORT ON REMUNERATION This section of the Remuneration Report contains details of how the Remuneration Policy for Directors was implemented during the year ended 31 March 2015. Note that the whole Annual Report is not subject to Audit – the regulations specify individual sections which are subject to audit, which are: > Single figure table and notes; > Scheme interests awarded during the financial year; > Payments to past directors; > Payments for loss of office; and > Statement of directors’ shareholding and share interests Single total figure of remuneration Executive Directors The table below sets out the single total figure of remuneration and breakdown for each Executive Director paid in the year ended 31 March 2015. The figures have been calculated in accordance with the remuneration disclosure regulations (The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013). Year ended 31 March 2015 Nicholas Vetch James Gibson Adrian Lee John Trotman Salary £ Taxable benefits £ Annual bonus £ Long term incentives £ Pensions £ Sharesave Scheme £ Total £ 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 2015 2014 259,300 254,200 284,400 278,800 210,600 206,400 200,000 180,000 3,960 4,676 3,765 1,866 3,853 4,840 3,859 2,066 32,412 35,550 26,325 25,000 25,420 1,071,925 179,509 27,880 1,403,224 196,862 20,640 952,137 145,736 18,000 952,137 101,205 25,930 28,440 21,060 20,000 25,420 27,880 20,640 18,000 – – 15,250 15,250 9,821 1,393,527 498,223 – 1,756,290 536,262 – 1,229,137 397,275 – 1,214,253 319,271 Total 954,300 919,400 14,267 14,618 119,287 91,940 4,379,423 623,312 95,430 91,940 30.500 9,821 5,593,207 1,751,031 Taxable benefits comprise medical cover, permanent health insurance, life insurance and private fuel usage. James Gibson receives salary in lieu of pension contributions. The value shown in long term incentives is: > the LTIP award granted in 2011 which vested on 19 July 2014 to 100% of its maximum value and is valued using the share price on that date of 521p. The award granted for 2015 is 100% of salary for each Executive Director; and > the three-year Long Term Bonus Performance Plan granted in 2012, which has been assessed to 97% of its maximum value. The plan will formally vest in November 2015. The average salary increase across the Group in the year was 2%. The Executive Directors increases were also 2%, with the exception of John Trotman (11%). The salary increase for John Trotman reflects the Committee’s strategy to bring his salary in line with Adrian Lee’s salary, which has been achieved for the year to 31 March 2016. The value shown for the Sharesave Scheme is the value of the shares under option at vesting less each Director’s contributions to the scheme. Annual Bonus Plan awards In respect of the year under review, the Executive Directors’ performance was carefully reviewed by the Committee, in consultation with the Executive Chairman in respect of the other Executive Directors. The bonus paid to the Executive Directors of 12.5% of salary in the year is directly linked to the awards paid to the stores on achieving their targets during the course of the year. The weighting of each target to the bonus paid in the year is: occupancy and net contribution (68%), customer satisfaction (24%) and store standards (8%). Long Term Incentive Plan (“LTIP”) awards The awards granted under the LTIP are subject to performance conditions to be met over a performance period of three years. There is no retesting of performance conditions and if they are not satisfied, the awards will lapse. The performance conditions applicable to the LTIP which vested in the year are set out below. Vesting is conditional on the achievement of an underpin EPS growth of an average of 3% above RPI per annum. This hurdle was met for the 2011 awards. The Committee assessed the extent to which the performance conditions have been satisfied for the 2011 award which vested in 2014, with the following results: Condition Relative TSR Weighting 100% Total 100% Threshold performance required Median of comparator group of real estate companies Maximum performance required Upper quartile of the comparator group LTIP value for meeting threshold and maximum performance (% salary) Performance achieved 25% – 100% 8 out of 32 in comparator group Vesting % 100% 100% 76 Long term incentives awarded in year ended 31 March 2015 The table below sets out the details of the long term incentive awards granted in the year ended 31 March 2015 where vesting will be determined according to the achievement of performance conditions that will be tested in future reporting periods. Director Award type LTIP awarded Nicholas V etch James Gibson Adrian Lee John Trotman LTIP – annual cycle of awards 100% of salary Face value of award(1) £259,300 £284,400 £210,600 £200,000 Percentage of award vesting at threshold performance Maximum percentage of face value that could vest Performance period end date Performance conditions 25% 100% 28 July 2017 EPS growth and relative TSR 1 The face value of the award is calculated using the average share price three days prior to the grant date. The performance conditions applicable to the awards granted in the year ended 31 March 2015 are set out below: Condition Relative TSR Weighting 100% Total 100% Threshold performance required Median of comparator group of real estate companies Maximum performance required Upper quartile of the comparator group LTIP value for meeting threshold and maximum performance (% salary) 25% to 100% Basis for measurement Average of the Group’s closing mid-market share price over the three months preceding the start of the performance period and preceding the end of the performance period will be used. Between threshold and maximum performance, vesting will take place on a straight-line basis. In respect of the EPS underpin (of growth in adjusted EPS of RPI plus 3%), the adjusted EPS figure reported in the audited results of the Group for the last complete financial year ending before the start of the performance period and the last complete financial year ending before the end of the performance period will be used. Long Term Bonus Performance Plan review The performance targets for the LTBPP are not disclosed for the year ahead, given the commercially sensitive nature of a number of the targets (which are derived from the Group’s business plan). Shortly after the end of each year, the Committee assesses the key targets and the extent to which management has been able to meet these targets for that year and reports on this assessment (excluding any that are still commercially sensitive). The targets are only adjusted during the year if material events occur that necessitate a change to the business plan. The report on the targets for the years ended 31 March 2013 and 31 March 2014 were included in the annual report for those years. The report on the targets for the year ended 31 March 2015 is summarised in the table below: Objective Committee comment Grow the Group’s annual free cash flow for the year to 31 March 2015 to £35.7 million from £32.7 million in the year to 31 March 2014 Complete the refinancing of the Group’s banking facilities through extending the bank facility to 5 years, and securing a new seven year loan from M&G Investments. The Group’s free cash flow for the year to 31 March 2015 was £42.4 million. The Group completed on the refinancing of its bank facilities in August 2014, extending the term to 5 years, and reducing the margin by 75 bps. The Group also secured a seven year £70 million loan from M&G Investments secured on a portfolio of 15 stores. Comply with all banking covenants and maintain a net worth in excess of £590 million. All banking covenants were complied with during the year. Net worth has grown by £156.8 million to £750.9 million. Grow the occupancy of the wholly owned stores from 69.8% at 31 March 2014 to 75% by 31 March 2015. The like-for-like wholly owned stores increased in occupancy to 74.3% at 31 March 2015. All stores, including the Partnership stores increased in occupancy by 5.3% from 67.9% to 73.2% over the year, which is ahead of the targeted occupancy growth. Grow the average net rent per square foot across the wholly owned stores from £26.15 per square foot by 2.5% to £26.80 by 31 March 2015. The net rent per sq ft of the like for like wholly owned stores was £26.78 at 31 March 2015, an increase of 2.4% from the prior year. 77 Remuneration Report (continued) For the year ended 31 March 2015 Long Term Bonus Performance Plan review (continued) Objective Committee comment Meet budgeted revenue (£78.1 million) and profit (£34.1 million) targets. Revenue for the year was £84.3 million, 8% ahead of budget. Adjusted profit for the year was £39.4 million, 16% ahead of budget. Maintain the Group’s online market share measured against the top 35 self storage operators by Experian Hitwise, at 35 to 38%. The Group’s average market share over the course of the financial year was 37%. Our nearest competitor had a market share of 17% for the year. Complete on the acquisition of the Armadillo portfolio with an initial 38% stake. Reduce the Group’s investment to 20% once the Australian consortium has completed their second round of fundraising. The Group acquired a 38% stake in the Armadillo portfolio in April 2014. The Australian consortium were successful in their second round of fundraising and increased their stake to 80% in July 2014. Review potential sites (in London and key target towns outside of London) for store acquisition with a view of acquiring at least one new site in the year. The Group acquired a site for refurbishment in Cambridge in November 2014. The Group also acquired the freehold of its existing store in Battersea and adjoining retail units. Construct Enfield on time and on budget, with the store due to open in April 2015. The store was constructed on budget, and opened as planned on 1 April 2015. Sell the surplus land at Guildford Central now that retail planning consent has been obtained. The surplus land at Guildford Central was sold for £2.8 million in September 2014, realising a profit of £1.3 million. Reduce the carbon intensity for the year to 31 March 2015 (KgCO2/m2 of occupied space) by 5% from the year to 31 March 2014. Carbon intensity was reduced by 21% for the year to 31 March 2015. The other targets, covering areas such as real estate, staffing and certain financial targets, were met in all material respects. Following careful consideration of the performance targets and actual performance of the Group and the Executive Directors, the Committee has concluded that the award in respect of the financial year ended 31 March 2015 has provisionally vested as to 100% of its potential amount for the year. The Committee has also then assessed the vesting for the three years of the plan and has determined an overall vesting of 97% for the whole period of the plan. In reaching this determination, the Committee took into account the fact that, over the three years of the plan, substantially all of the annual targets set at the outset of each year (by reference to the relevant business plan) had been met as well as the significant progress which has been made by the Group over the past three years. By way of illustration, over the past three years, the Group’s revenue has increased by 28%, with adjusted eps increasing by 49% and dividends declared by 117%. The plan will formally vest in November 2015. Sharesave Scheme The Group’s Sharesave Scheme is open to all UK employees (including Executive Directors) with a minimum of six months’ service and meets UK HMRC approval requirements, thus enabling all eligible employees the opportunity to acquire shares in the Company in a tax efficient manner. Three of the Executive Directors participated in the scheme during the financial year. Pension entitlements The Company pays pension contributions into the Executive Directors’ personal pension plans or makes a cash contribution in lieu of pension contributions. They do not participate in any defined benefit scheme. For the year ended 31 March 2015, the Company contribution was 10% of salary for the Executive Directors. Payments to past Directors No payments of money or any other assets were made to any former Director of the Company in the financial year ended 31 March 2015 (2014: no payments). 78 Payments on loss of office No payments were made to any Directors in respect of loss of office during the financial year ended 31 March 2015 (2014: no payments). Non-Executive Directors The table below sets out the single total figure of remuneration and breakdown for each Non-Executive Director paid in the year ended 31 March 2015. Fees £ Taxable benefits £ Total £ Year ended 31 March 2015 2015 2014 2015 2014 2015 2014 Philip Burks (to 19 July 2013) Tim Clark Richard Cotton Georgina Harvey (from 1 July 2013) Steve Johnson Mark Richardson – 41,900 39,300 36,800 36,800 39,300 9,000 41,000 38,500 27,000 36,000 38,500 Total 194,100 190,000 Non-Executive Director fees were increased by 2% for the year ended 31 March 2015. – – – – – – – – – – – – – – – 41,900 39,300 36,800 36,800 39,300 9,000 41,000 38,500 27,000 36,000 38,500 194,100 190,000 Implementation of policy in coming year The main elements of Executive Director remuneration effective from 21 July 2015 (being the date of the AGM at which shareholder approval for this report will be sought) for the forthcoming financial year are summarised below: Base salary Executive Role 2015/16 salary 2014/15 salary % increase Nicholas Vetch James Gibson Adrian Lee John Trotman Executive Chairman Chief Executive Operations Director Chief Financial Officer £264,500 £290,100 £215,000 £215,000 £259,300 £284,400 £210,600 £200,000 2% 2% 2% 7.5% The Committee’s policy for John Trotman has been to bring his salary in line with that of Adrian Lee over the short to medium term and this has now been achieved. Pension Contribution of 15% of salary made into Executive Directors personal pension plan, or a cash supplement of equivalent value paid in lieu of pension contribution. Annual Bonus Maximum bonus opportunity of 25% of base salary The annual bonus is based on the stores’ average performance against targets over the four quarters of the year which is then taken and applied to calculate the head office bonus percentage. Performance in the stores is assessed on four Key Performance Indicators of occupancy growth, net contribution, customer satisfaction and store standards. For the year ended 31 March 2015: > Occupancy and net contribution together represent 68% of bonus with the weighting between the two dependent on stores’ occupancy levels, and therefore their sales focus. > Customer satisfaction makes up 24% of bonus; and > Store standards the balance of 8%. The Committee is of the opinion that further disclosure of the performance targets for the bonus plan are commercially sensitive and that it would be detrimental to the interests of the Company to disclose them before the start of the financial year. Actual targets, performance achieved and awards made will be disclosed at the end of the performance period. 79 Remuneration Report (continued) For the year ended 31 March 2015 Long Term Incentive Plan Plan operation Maximum opportunity of 100% of base salary The proposed grants for the Executive Directors as a percentage of salary are:- > Executive Chairman – 100% > CEO – 100% > Operations Director – 100% > Chief Financial Officer – 100% Long Term Bonus Performance Plan Performance metrics used, weightings and time period applicable > 70% adjusted EPS – adjusted EPS growth of RPI+3% for 25% of this element of the award to vest with full vesting occurring for adjusted EPS growth of RPI+8% p.a.; > 30% – relative TSR performance vs. FTSE Real Estate Index with 25% of this element of the award vesting for median TSR comparative performance with full vesting at upper quartile. Plan operation Performance metrics used, weightings and time period applicable The total maximum incentive value awarded across all four Executive Directors will not exceed an aggregate of 450% of base salary (over a 3 year performance period) The performance targets for the LTBPP are not disclosed for the year ahead, given the commercially sensitive nature of a number of the targets (which are derived from the Group’s business plan). Each individual will have the potential to be awarded a maximum value of 675% of base salary (so long as the total Award Pool maximum is not exceeded). The proposed grants for the Executive Directors as a percentage of salary are:- > Executive Chairman – 383% (award value £996,900) > CEO – 504% (award value £1,440,000) > Operations Director – 471% (award value £996,900) > Chief Financial Officer – 471% (award value £996,900) The Committee sets the performance targets annually, and a review of performance is included in the annual report of the following year. Non-Executive Directors Executive Richard Cotton Tim Clark Georgina Harvey Mark Richardson Steve Johnson 2015/16 fee £40,100 £42,800 £37,600 £40,100 £37,600 2014/15 fee £39,300 £41,900 £36,800 £39,300 £36,800 % increase 2% 2% 2% 2% 2% Fees retained for external non-executive directorships The Executive Directors’ contracts do not allow them to engage in any other business outside the Group except where prior written consent from the Board is received. The Company recognises that Executive Directors may be invited to become Non-Executive Directors of other companies and that this can help broaden the skills and experience of a Director. Executive Directors are normally permitted to accept external appointments with the approval of the Board and may retain the fees for the appointment. Nicholas Vetch is a Non-Executive Director of The Local Shopping REIT plc for which he receives a fee of £30,000 per annum. James Gibson is a Non-Executive Director of AnyJunk Limited; he does not receive any fees for his services. 80 Statement of Directors’ shareholding The Executive Directors are required to build and maintain a holding of 200% of base salary (an increase from 100% in the prior year). These requirements have been met by all Executive Directors during the year. Non-Executive Directors are not subject to a shareholding requirement. Details of the Directors’ interests in shares are set out below (all interests are beneficial interests). No changes took place in the interests of the Directors in the shares of the Company between 31 March 2015 and the date of this report. The table below shows, in relation to each Director, the total number of shares and share options in which he is interested. Director Nicholas Vetch James Gibson Adrian Lee John Trotman Richard Cotton Mark Richardson Tim Clark Steve Johnson Georgina Harvey Share ownership requirement (% of salary) Share ownership requirements met 200% 200% 200% 200% N/a N/a N/a N/a N/a Yes Yes Yes Yes N/a N/a N/a N/a N/a Beneficially owned shares 8,960,483 2,538,358 785,547 101,914 68,485 27,225 18,652 10,000 13,013 LTIP awards subject to performance conditions 194,951 213,812 148,858 146,795 – – – – – LTBPP awards subject to performance conditions 337,500 487,500 337,500 337,500 – – – – – Unexercised sharesave options Options exercised in the financial year – 2,965 – – – – – – – 80,072 87,807 60,825 60,825 – – – – – Directors’ share options To provide further context on the shareholding of Directors, options in respect of ordinary shares for Directors who served in the year are as below: Name Nicholas Vetch James Gibson Adrian Lee John Trotman No. of shares under option at 31 March 2014 80,072 84,218 60,266 – 87,807 92,362 66,098 – 57,080 62,065 45,804 – 57,080 62,065 45,804 – Date option granted 19 July 2011 11 July 2012 22 July 2013 29 July 2014 19 July 2011 11 July 2012 22 July 2013 29 July 2014 19 July 2011 11 July 2012 22 July 2013 29 July 2014 19 July 2011 11 July 2012 22 July 2013 29 July 2014 Granted during the year – – – 50,467 – – – 55,352 – – – 40,989 – – – 38,926 Exercised during the year (80,072) – – – (87,807) – – (57,080) – – – (57,080) – – – No. of shares under option at 31 March Exercise price 2015 Lapsed during the year – – – – – – – – – – – – – – – – 84,218 60,266 50,467 – 92,362 66,098 55,352 – 62,065 45,804 40,989 – 62,065 45,804 38,926 nil p nil p nil p nil p nil p nil p nil p nil p nil p nil p nil p nil p nil p nil p nil p nil p Market price at date of exercise 617.5p – – – 617.5p – – – 514.6p – – – 514.6p – – – Date from which first exercisable 19 July 2014 11 July 2015 22 July 2016 29 July 2017 19 July 2014 11 July 2015 22 July 2016 29 July 2017 19 July 2014 11 July 2015 22 July 2016 29 July 2017 19 July 2014 11 July 2015 22 July 2016 29 July 2017 Expiry date 18 July 2021 10 July 2022 21 July 2023 28 July 2024 18 July 2021 10 July 2022 21 July 2023 28 July 2024 18 July 2021 10 July 2022 21 July 2023 28 July 2024 18 July 2021 10 July 2022 21 July 2023 28 July 2024 81 Remuneration Report (continued) For the year ended 31 March 2015 Performance and pay The graph below shows the Group’s performance, measured by TSR, compared with the performance of the FTSE All Share Real Estate Index and the FTSE All Share Index over the last ten years. The FTSE All Share Real Estate Index is used for the assessment of the Company’s LTIP. TSR Performance from flotation 900 800 700 600 500 400 300 200 100 0 5 May 2000 Big Yellow Group FTSE 350 Real Estate Index FTSE All Share Index Mar 2001 Mar 2002 Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008 Mar 2009 Mar 2010 Mar 2011 Mar 2012 Mar 2013 Mar 2014 Mar 2015 Source: Thomson Reuters Datastream CEO Remuneration The table below sets out the details of remuneration of the CEO over the past five financial years. Year 2015 2014 2013 2012 2011 2010 CEO single figure of total remuneration (£) Annual bonus pay out % against maximum of 25% of salary Long term incentive vesting rates against maximum opportunity % 1,756,290 536,262 335,891 1,400,570 325,968 875,593 50% (12.5% of salary) 40% (10% of salary) 40% (10% of salary) 40% (10% of salary) 40% (10% of salary) 40% (10% of salary) 98% 53% 0% 89% 0% 100% The single figure of remuneration for 2015 is higher than in previous years due to the vesting of the 2012 three year Long Term Bonus Performance Plan in this year delivering a reward of £945,750 (similarly for 2012 where the plan delivered a reward of £900,000) for the three year period ended in that year. Percentage increase in the CEO’s remuneration The table below compares the percentage increase in the CEO’s remuneration (including salary, fees, benefits and annual bonus) with the remuneration of Big Yellow Group employees. Salary and fees All taxable benefits Annual bonuses Total % increase in remuneration in 2015 compared with 2014 CEO Employees 2% (3%) 25% 4% 2% 2% 25% 4% Statement of consideration of employment conditions elsewhere in the Group The Committee reviews the reward and retention of the whole employee population periodically throughout the year to ensure that it can attract and retain top talent. Particular consideration is given to the general basic salary increase, remuneration arrangements and employment conditions. Furthermore, the Annual Bonus Plan award for Executive Directors is directly linked to the bonuses award to all staff. The Directors are invited to be present at this review of the proposals for salary increase for the employee population generally and on any other changes to remuneration policy within the Company. The information presented at this review is taken into consideration when setting the pay levels of the executive population. Additionally the Committee has guidelines for the grant of all LTIP awards across the Company and responsibility for approving the total annual bonus cost of the Company. The Company does not invite employees to comment on the Directors’ remuneration policy. 82 Relative importance of spend on pay The graph below sets out the relative importance of spend on pay in the year ended 31 March 2015 and 31 March 2014 compared with other disbursements from profit, being the distributions to shareholders and retained earnings (comprehensive gain for the year less dividends). 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 +94% +42% +18% 2014 2015 0 Total employee pay (including Directors) Profit distributed by way of dividend Retained earnings Advisors to the Remuneration Committee The Committee consults with the Executive Chairman, Nicholas Vetch, about proposals on a range of matters relating to the remuneration of the Executive Directors including the levels of overall remuneration, salary and bonus and awards and distributions under the share incentive and bonus plans. The Committee relies upon remuneration data provided by PwC. In addition, PwC has provided advice to the Committee on the preparation of this report as well as on market practice and trends. PwC is a member of the Remuneration Consultants Group and, as such, voluntarily operates under the Code of Conduct in relation to executive remuneration consulting in the UK. PwC also provided advisory work during the year on pensions auto-enrolment. The Committee is satisfied that advice received from PwC during the year was objective and independent. Advisor PwC Appointed by Services provided to the Committee in 2014/15 Remuneration Committee in 2008 Advice on executive remuneration market practice and trends, including benchmarking of Director remuneration. Fees in relation to remuneration advice £52,000 Support with shareholder consultation for the amendments to the Remuneration Policy. Advice on new Long Term Bonus Performance Plan. 83 Audit Committee Report INTRODUCTION The Audit Committee is appointed by the Board from the Non-Executive Directors of the Group. The Audit Committee’s terms of reference include all matters indicated by Disclosure and Transparency Rule 7.1 and the UK Corporate Governance Code. The terms of reference are considered annually by the Audit Committee and are then referred to the Board for approval. The Audit Committee is responsible for: > monitoring the integrity of the financial statements of the Group and any formal announcements relating to the Group’s financial performance and reviewing significant financial reporting judgements contained therein; > reviewing the Group’s internal financial controls and the Group’s internal control and risk management systems, including consideration of the need for an internal audit function; > making recommendations to the Board for a resolution to be put to the shareholders for their approval in general meetings, on the appointment of the external auditor and the approval of the remuneration and terms of engagement of the external auditor; > reviewing and monitoring the external auditor’s independence and objectivity and the effectiveness of the audit process, taking into consideration relevant UK professional and regulatory requirements; and > developing and implementing a policy on the engagement of the external auditor to supply non-audit services, taking into account relevant guidance regarding the provision of non-audit services by the external audit firm. The Audit Committee is required to report its findings to the Board, identifying any matters on which it considers that action or improvement is needed, and make recommendations on the steps to be taken. This year, the Committee has continued to focus on the narrative reporting and corporate governance disclosures in the Annual Report. The Committee was asked by the Board to review the statement by the Directors that the Annual report presents a fair, balance and understandable view of the Group’s performance, strategy and business model. Mark Richardson Audit Committee Chairman Committee Members and Attendance Member Tim Clark Richard Cotton Georgina Harvey Steve Johnson Mark Richardson attended absent Position Member Member Member Member Chairman Number of meetings attended The Audit Committee structure requires the inclusion of one financially qualified member (as recognised by the Consultative Committee of Accountancy Bodies). Currently Mark Richardson, as a Fellow of the Institute of Chartered Accountants of England and Wales, fulfils this requirement. All Audit Committee members are expected to be financially literate. The Group provides an induction programme for new Audit Committee members and ongoing training to enable all of the Committee members to carry out their duties. The induction programme covers the role of the Audit Committee, its terms of reference and expected time commitment by members and an overview of the Group’s business, including the main business and financial dynamics and risks. New Committee members also meet some of the Group’s staff. Ongoing training includes attendance at formal conferences, internal company seminars and briefings by external advisors. Meetings The Audit Committee is required to meet three times per year and has an agenda linked to events in the Group’s financial calendar. The agenda is predominantly cyclical and is therefore approved by the Audit Committee Chairman on behalf of his fellow members. Each Audit Committee member has the right to require reports on matters of interest in addition to the cyclical items. The Audit Committee invites the Chief Executive, Chief Financial Officer, Financial Controller, and senior representatives of the external auditor to attend all of its meetings in full, although it reserves the right to request any of these individuals to withdraw. Other senior management are invited to present such reports as are required for the Committee to discharge its duties. Overview of the actions taken by the Audit Committee to discharge its duties Since the beginning of the financial year the Audit Committee has: > reviewed published financial information including the year end results, Annual Report, half year results and the Interim Management Statements; > considered whether the Annual Report provides a fair, balanced and understandable view of the Group’s performance, strategy and business model; > considered the output from the Group-wide process used to identify, evaluate and mitigate risks; > reviewed the effectiveness of the Group’s internal controls and disclosures made in the annual report and financial statements on this matter; > reviewed and agreed the scope of the audit work to be undertaken by the external auditor; 84 Overview of the actions taken by the Audit Committee to discharge its duties (continued) > agreed the fees to be paid to the external auditor for their audit of the March 2015 financial statements and September half-yearly report; > undertaken an assessment of the qualification, expertise and resources, and independence of the external auditor and the effectiveness of the audit process; > considered the audit partner and audit firm rotation; > undertaken an evaluation of the performance of the external auditor; > considered the need for an internal audit function; > reviewed the arrangements for “whistleblowing” by employees to ensure that there is a consistent policy in the Group to enable employees to voice concerns particularly in respect of possible financial reporting improprieties. A whistleblowing policy is included in the employee handbook; > met the Group’s external valuers; > met the Group’s Store Compliance Manager; > reviewed the Audit Committee’s Report; and > reviewed its own effectiveness. Financial reporting and significant financial judgements The Committee reviews all financial information published by the Group in year end and half-year financial statements, including the presentation and disclosure of the financial information. It also considers the appropriateness of the accounting policies adopted by the Group and the accounting judgements made by management in the preparation of the financial information. The Committee has considered whether the Annual Report for the year ended 31 March 2015 provides a fair, balance and understandable view of the Group’s performance, strategy and business model and whether it provides the necessary information to enable shareholders and prospective shareholders to assess the Group’s performance, strategy and business model. The Committee is satisfied that the Annual Report for the year ended 31 March 2015 provides a fair, balanced and understandable view and included the necessary information as set out above. The Committee has confirmed this to the Board, whose statement is included in the Statement of Directors’ Responsibilities on page 87. The Committee focuses on matters it considers important in their impact on the reported results of the Group, and on matters where there is a high degree of complexity and/or judgement. The key area of judgement that the Committee focuses on at the reporting date is the valuation of the investment property portfolio. This is carried out by independent external valuers, but by its nature it is subjective, with significant judgement applied to the valuation, particularly given the lack of transactional evidence for prime self storage assets. Members of the Committee met the external valuers to discuss the valuations, review the key judgements and discussed whether there were any disagreements with management. This year the Committee reviewed and challenged the valuers on the cap rates, rental growth assumptions and stabilised occupancy levels, to agree on the appropriateness of the assumptions adopted. The Committee also challenged the valuers, and satisfied itself on, their independence, their quality control processes (including peer partner review) and qualifications to carry out the valuations. Management also have processes in place to review the external valuations. In addition, the external auditors use specialists to review the valuations and report their findings and conclusions to the Audit Committee. The Committee has considered the accounting for the acquisition of Big Yellow Limited Partnership. The key judgements include the fair value of the pre- existing interest of the associate, the fair values of the net assets acquired and the consideration of any identifiable and separable intangibles. The Committee has also considered a number of other judgements made by management in the preparation of the financial statements. It has concluded that there is not a significant level of judgements involved. Management have reported to the Audit Committee that they are satisfied that they are not aware of any material misstatements in the financial statements. The auditors confirmed in their report to the Audit Committee that they had not found any material misstatements during their audit work. Based on the above, the Committee concluded that the financial statements appropriately apply the key estimates and critical judgements, in respect of the disclosures and the amounts reported. The Committee also concluded that the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. External auditor The Audit Committee is responsible for the development, implementation and monitoring of the Group’s policy on external audit. The policy assigns oversight responsibility for monitoring the independence, objectivity and compliance with ethical and regulatory requirements to the Audit Committee, and day-to-day responsibility to the Chief Financial Officer. The policy states that the external auditor is jointly responsible to the Board and the Audit Committee and that the Audit Committee is the primary contact. To fulfil its responsibility regarding the independence of the external auditor, the Audit Committee reviewed: > the external auditor’s plan for the current year, noting the role of the senior statutory audit partner, who signs the audit report and who, in accordance with professional rules, has not held office for more than five years, and any changes in the key audit staff; > the arrangements for day-to-day management of the audit relationship; > a report from the external auditor describing their arrangements to identify, report and manage any conflicts of interest; > the overall extent of non-audit services provided by the external auditor, in addition to its case-by-case approval of the position of non-audit services by the external auditor; and > the past service of the auditor who was first appointed in 2000. 85 Audit Committee Report (continued) Annual auditor assessment The Audit Committee has adopted a formal framework in its review of the effectiveness of the external audit process and audit quality which include the following areas: > the arrangements for ensuring the external auditor’s independence and objectivity; > the lead audit engagement partner and the audit team; > the external auditor’s fulfilment of the agreed audit plan and variations from the plan; > the quality of the formal audit report to shareholders; > the robustness and perceptiveness of the auditor in his handling of the key accounting and audit judgements; and > the content of the external auditor’s comments on control improvement recommendations. Regard is paid to the nature of, and remuneration received, for other services provided by Deloitte LLP to the Group and, inter alia, confirmation is sought from them that the fee payable for the annual audit is adequate to enable them to perform their obligations in accordance with the scope of the audit. Where non-audit services are provided, the fees are based on the work undertaken and are not success related. The Committee considers that the relationship with the auditor is working well, and that they are effective in their role, and the audit process is working well with open dialogue and early discussion of judgements. As a consequence of its satisfaction with the results of the activities outlined above, the Audit Committee has recommended to the Board that the external auditor is re-appointed. Non-audit work The Group’s policy on external audit sets out the categories of non-audit services which the external auditor will and will not be allowed to provide to the Group, including those that are pre-approved by the Audit Committee and those which require specific approval before they are contracted for, subject to de minimis levels. They may not provide a service which places them in a position where they may be required to audit their own work. Specifically, they are precluded from providing services relating to bookkeeping, financial information system design and implementation, appraisal or evaluation services, actuarial services, any management functions, investment banking services, legal services unrelated to the audit or advocacy services. In respect of the year ended 31 March 2015, the auditor’s remuneration comprised £191,000 for audit work and £267,000 for other work, principally relating to VAT and corporation tax work. The Committee has considered the level of fees, noting that non-audit fees are in excess of audit fees. The Committee is satisfied this does not undermine auditor independence given informed management scoped and oversaw the delivery of these services, different delivery teams were used for tax advisory services and the Committee were satisfied that the risk of self review by the auditor was minimal. Over a three year rolling period, the level of non-audit fees is below the audit fee. Audit rotation The auditor, Deloitte LLP, has been in tenure since 2000 and the current audit partner has been in place since the audit of the 2013 financial statements. The Committee is supportive of the new provision in the UK Code in respect of auditor rotation. The Committee has reviewed the performance of the external auditor and the audit process and is satisfied that currently Deloitte LLP provides an appropriate level of service delivered by a team with an in-depth understanding of our business and the broader real estate sector. The Committee’s present intention therefore is that they will tender the external audit by 2022 when required by the new regulations. There are no contractual obligations that act to restrict the Audit Committee’s choice of external auditor. Risk management and internal control The Committee and the Board reviewed the internal control processes of the business and the Group’s risk register during the year. The risks and uncertainties facing the Group, and its internal control processes are considered in the Strategic Report on pages 38 to 40. Internal audit The Committee has considered the Board’s view that, given the relatively straightforward nature of the Group’s business and the control environment in place, no formal internal audit function is required. The Committee concurs with management’s view. Overview As a result of its work during the year, the Audit Committee has concluded that it has acted in accordance with its terms of reference and has ensured the independence and objectivity of the external auditor. The Chairman of the Audit Committee will be available at the Annual General Meeting to answer any questions about the work of the Committee. Approved by the Audit Committee and signed on its behalf by: Mark Richardson Audit Committee Chairman 18 May 2015 86 Statement of Directors’ Responsibilities Directors’ responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable laws and regulations. Company law requires the Directors to prepare such financial statements for each financial year. Under that law the Directors are required to prepare the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and Article 4 of the IAS Regulation and have also chosen to prepare the parent Company financial statements under IFRSs as adopted by the European Union. Under Company law the Directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, International Accounting Standard 1 requires that the Directors: > properly select and apply accounting policies; > present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; > provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and > make an assessment of the Company’s ability to continue as a going concern. The Directors are responsible for keeping proper accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors' responsibility statement We confirm that to the best of our knowledge: 1. 2. 3. the financial statements, prepared in accordance with International Financial Reporting Standards give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; the strategic report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. By order of the Board James Gibson Chief Executive Officer 18 May 2015 John Trotman Chief Financial Officer 18 May 2015 87 Independent Auditors’ Report to the Members of Big Yellow Group PLC Opinion on financial statements of Big Yellow Group PLC In our opinion the financial statements: > the financial statements give a true and fair view of the state of the Group’s and of the parent Company’s affairs as at 31 March 2015 and of the Group’s profit for the year then ended; > the Group financial statements have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union; > the parent Company financial statements have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and > the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. The financial statements comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated and Company Balance Sheets, the Consolidated and Company Statements of Changes in Equity, the Consolidated and Company Cash Flow Statements and the related notes 1 to 34. The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006. Going concern As required by the Listing Rules we have reviewed the Directors’ statement contained within the Strategic Report that the Group is a going concern. We confirm that: > we have concluded that the Directors’ use of the going concern basis of accounting in the preparation of the financial statements is appropriate; and > we have not identified any material uncertainties that may cast significant doubt on the Group’s ability to continue as a going concern. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going concern. Our assessment of risks of material misstatement The assessed risks of material misstatement described below are those that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team: Risk Investment property valuation See also note 14 to the financial statements, and the Audit Committee’s Report on pages 84 to 86. At 31 March 2015, the Group held wholly-owned investment properties and investment properties under construction valued at £1,022.8 million. In addition the Group acquired a 20% equity share in two associate entities, Armadillo Storage Holding Company Limited (the “Armadillo portfolio”) and Armadillo Storage Holding Company 2 Limited (the “Big Store Portfolio”) (together “the Associates”), for which equity accounting has been applied – see note 13. The Associates control investment properties with a combined value of £53.3 million. Investment properties are held at fair value on the balance sheet. The net valuation gain, relating to Group held properties was £64.5 million, which was recognised through the Consolidated Income Statement during the year. The net valuation gain relating to the properties held by the Associates was £11.5 million on a gross basis (£2.3 million Group share). The fair values at 31 March 2015 are calculated using actual and forecast inputs, such as occupancy, capitalisation rates, an assessment of cost to complete for investment properties under construction and net rent per square foot by property. In addition, the valuers apply professional judgment concerning market conditions and factors impacting individual properties. The valuation process is inherently judgemental, which is why we consider this to be a risk of material misstatement. In particular, changes in assumptions such as the capitalisation rates, forecast rent per square foot, forecast occupancy levels and in the case of investment property under construction, cost to complete, can lead to significant movements in the value of the property, as can changes in the underlying market conditions. How the scope of our audit responded to the risk We assessed the design and implementation of controls around the property valuations by considering the level of management oversight and review of the valuations prepared by the external valuation specialists engaged by management, who have been named in note 14; We tested the integrity of the information provided by management to the valuers by agreeing key inputs such as actual occupancy and net rent per square foot to underlying records and source evidence; We modelled eight years of valuations and key valuation inputs of the investment property portfolio, to understand the historical trends of key inputs and compared these against the key forecast assumptions included in the property valuation; We met with the valuers covering both the Group and Associate portfolios. We assessed their independence, the scope of the work they were requested to perform by management, and the valuation methodology applied. For each property we identified as having significant or unusual valuation movements (compared to market data or previous periods), we challenged the valuers on the key assumptions applied. Our challenge was informed by input from our internal valuation specialists, utilising their knowledge and expertise in the market at a macro level and the relevant geographies to challenge the key judgmental inputs noted adjacent. We also researched comparable transactions and understood trends in analogous industries. We understood the rationale for outlying valuations or movements and obtained corroborative evidence. We also assessed the valuations for a sample of other properties; and We visited a sample of properties to assess the condition of the buildings. 88 Risk How the scope of our audit responded to the risk Fair value assessments in the acquisition of the Partnership See also note 13 to the financial statements and the Audit Committee’s Report on pages 84 to 86. On 1 December 2014 (the “Acquisition Date”), the Group acquired the residual 66.7% interest in the Big Yellow Partnership Limited (“the Partnership”). The Group had a pre-existing interest of 33.3%. IFRS 3: Business Combinations require management to make the following assessments as part of the step acquisition accounting; > Determine the fair value of the consideration; > Determine the fair value of the pre-existing associate interest; > Determine the fair value of the net assets acquired; and > Identify and recognise any intangible assets that are identifiable and separable. The material asset was the investment property assets acquired. The fair valuation of the pre-existing associate interest and the fair value of the investment properties acquired are particularly subjective in that they rely on the application of management’s judgment. We tested the design and implementation of controls associated with business combination accounting. This centred around assessing whether the financial accounting was subject to sufficient management and technical review; We reviewed in detail the acquisition agreement and related documents to understand the commercial terms of the transaction; We agreed the consideration to the cash paid; We considered management’s assessment of the factors which impact the fair value of the pre-existing interest and consulted with our valuation specialists to challenge these assumptions; We challenged the Directors’ valuation prepared by management and met with the valuers of the investment properties, given the Directors’ valuation was based on the September 2014 valuations, adjusted for two months growth to the Acquisition Date. We have challenged the valuers and management on the assumptions incorporated in the investment property valuation; We tested the completeness of management’s assessment of intangibles by considering the application guidance offered in IFRS 3 and, including a consultation with our valuation specialists, to challenge the conclusion that there were no identifiable and separable intangible assets; and We have tested the other material components of the acquisition balance sheet in detail. Last year, our report included one other risk which is not included in our report this year: > Valuation of VAT capital goods scheme (CGS) receivable – the complexity arising from the VAT structure of the Group and in particular its impact on the recovery of the capital goods scheme receivable of £9.2m (2014: £9.0m), was simplified in the year ended 31 March 2015 due to the merging of VAT groups. Furthermore, the successful claim by a competitor of Big Yellow has established a precedent for Big Yellow’s proposed basis of recovery. > The only fluctuation in this balance in the year ended 31 March 2015 relates to the unwinding of the discount applied on initial recognition and annual repayment of the receivable, neither of which are judgmental in nature. The description of risks above should be read in conjunction with the significant issues considered by the Audit Committee discussed on pages 84 to 86. Our audit procedures relating to these matters were designed in the context of our audit of the financial statements as a whole, and not to express an opinion on individual accounts or disclosures. Our opinion on the financial statements is not modified with respect to any of the risks described above, and we do not express an opinion on these individual matters. Our application of materiality We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope of our audit work and in evaluating the results of our work. We determined materiality for the Group to be £6.9 million (2014: £4.2 million), based on professional judgment, the requirements of auditing standards and the financial measures most relevant to users of the financial statements. We have used 1.0% of net assets (2014: 0.5% of non-current assets) as the benchmark for determining materiality. We concluded that determining materiality based on net assets was more consistent with industry peers, in particular real estate investment trusts, and because it reflects the measure of most interest to investors. We note the change in base accounted for £1.7m of the £2.7m increase in materiality. In addition to net assets, we consider adjusted profit before tax to be a critical financial performance measure for the Group on the basis that it is a key metric to analysts and investors and has substantial prominence in the Annual Report. Adjusted profit before tax is £39.4m (2014: £29.2m), which is reconciled to IFRS profit after tax attributable to equity holders of the parent in Note 10 of the financial statements. We applied a lower threshold of £1.9 million (2014: £1.4 million) for testing all balances impacting adjusted profit before tax. This lower threshold was based on 5% (2014: 5%) of adjusted profit before tax. We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of £138,000 (2014: £80,000), which in both years equates to 2% of materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also reported to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. 89 Independent Auditors’ Report to the Members of Big Yellow Group PLC (continued) An overview of the scope of our audit Our audit was scoped by obtaining an understanding of the Group and its environment, including group-wide controls, and assessing the risks of material misstatement. As in the prior year the Group audit team performed the audits of all non-dormant entities within the Group given they are all located in the United Kingdom and operate from a single location with consistent financial systems. As such, the scope of our audit covered 100% of both consolidated profit before tax and consolidated net assets. During the year, the Group acquired 20% of the equity of the Associates. The Group equity accounts for these interests and the equity interest in Armadillo Storage Holding Company Limited and Armadillo Storage Holding Company 2 Limited amounts to £3.6m and £1.9m respectively. The Group also manages these portfolios. We have performed audit procedures on the significant balances and transactions in these entities for the purposes of supporting the Group audit opinion. In each case, we have attended a valuation meeting with the external valuer to challenge key assumptions and obtain comfort over the investment property values in these vehicles. The Group audit team continued to follow a programme of planned visits. At each site visited we undertook a stock count, tested the design and implementation of key controls around cash such as bank reconciliations and cash holding limits, agreed cash balances to bank reconciliations and held discussions with store staff. We also verified a sample of fixed assets. In our opinion: > the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; and > the information given in the Strategic Report and the Directors’ Report for the financial year for which the financial statements are prepared is consistent with the financial statements. Under the Companies Act 2006 we are required to report to you if, in our opinion: > we have not received all the information and explanations we require for our audit; or > adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or > the Parent Company financial statements are not in agreement with the accounting records and returns. We have nothing to report in respect of these matters. Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of Directors’ remuneration have not been made or the part of the Directors’ Remuneration Report to be audited is not in agreement with the accounting records and returns. We have nothing to report arising from these matters. Under the Listing Rules we are also required to review the part of the Corporate Governance Statement relating to the Company’s compliance with nine provisions of the UK Corporate Governance Code. We have nothing to report arising from our review. Under International Standards on Auditing (UK and Ireland), we are required to report to you if, in our opinion, information in the annual report is: > materially inconsistent with the information in the audited financial statements; or > apparently materially incorrect based on, or materially inconsistent with, our knowledge of the group acquired in the course of performing our audit; or > otherwise misleading. In particular, we are required to consider whether we have identified any inconsistencies between our knowledge acquired during the audit and the Directors’ statement that they consider the annual report is fair, balanced and understandable and whether the annual report appropriately discloses those matters that we communicated to the audit committee which we consider should have been disclosed. We confirm that we have not identified any such inconsistencies or misleading statements. Opinion on other matters prescribed by the Companies Act 2006 Matters on which we are required to report by exception Adequacy of explanations received and accounting records Directors’ remuneration Corporate Governance Statement Our duty to read other information in the Annual Report 90 Respective responsibilities of Directors and auditor Scope of the audit of the financial statements As explained more fully in the Directors’ Responsibilities Statement, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. We also comply with International Standard on Quality Control 1 (UK and Ireland). Our audit methodology and tools aim to ensure that our quality control procedures are effective, understood and applied. Our quality controls and systems include our dedicated professional standards review team, strategically focused second partner reviews and independent partner reviews. This report is made solely to the Company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed. An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s and the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Darren Longley FCA (Senior Statutory Auditor) For and on behalf of Deloitte LLP Chartered Accountants and Statutory Auditor Reading, United Kingdom 18 May 2015 91 Consolidated Statement of Comprehensive Income Year ended 31 March 2015 Revenue Cost of sales Gross profit Administrative expenses Operating profit before gains and losses on property assets Gain on the revaluation of investment properties Profit on disposal of surplus land Operating profit Share of profit of associates Investment income – interest receivable Finance costs – fair value movement of derivatives – interest payable – fair value movement of derivatives Profit before taxation Taxation Profit for the year (attributable to equity shareholders) Total comprehensive income for the year (attributable to equity shareholders) Basic earnings per share Diluted earnings per share EPRA earnings per share are shown in Note 12. All items in the consolidated statement of comprehensive income relate to continuing operations. Note 3 13a,14 15 13d 7 7 8 8, 18 9 5 12 12 2015 £000 84,276 (27,351) 56,925 (8,505) 48,420 64,465 1,318 114,203 3,516 495 – (10,704) (2,274) 105,236 351 2014 £000 72,196 (25,040) 47,156 (7,619) 39,537 28,350 – 67,887 180 415 2,681 (11,315) – 59,848 (300) 105,587 59,548 105,587 59,548 72.5p 42.5p 71.9p 42.2p 92 Consolidated Balance Sheet Year ended 31 March 2015 Non-current assets Investment property Investment property under construction Interests in leasehold property Plant, equipment and owner-occupied property Goodwill Investment in associates Capital Goods Scheme receivable Current assets Surplus land Inventories Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Borrowings Obligations under finance leases Non-current liabilities Derivative financial instruments Borrowings Obligations under finance leases Total liabilities Net assets Equity Called up share capital Share premium account Reserves Equity shareholders’ funds Note 13a 13a 13a 13b 13c 13d 16 15 16 17 19 21 2015 £000 2014 £000 1,007,110 15,681 20,829 3,050 1,433 5,572 9,039 776,390 22,303 23,814 2,985 1,433 17,861 7,620 1,062,714 852,406 3,315 304 16,379 8,194 28,192 6,059 290 13,531 3,301 23,181 1,090,906 875,587 (32,612) (72,136) (1,705) (26,818) (2,034) (1,615) (106,453) (30,467) 18c 19 21 (3,679) (210,736) (19,124) (2,813) (226,044) (22,199) (233,539) (251,056) (339,992) (281,523) 750,914 594,064 22 15,806 44,922 690,186 14,306 44,278 535,480 750,914 594,064 The financial statements were approved by the Board of Directors and authorised for issue on 18 May 2015. They were signed on its behalf by: James Gibson Director John Trotman Director Company Registration No. 03625199 93 Consolidated Statement of Changes in Equity Year ended 31 March 2015 At 1 April 2014 Total comprehensive gain for the year Issue of share capital Dividend Credit to equity for equity-settled share based payments Share capital £000 14,306 – 1,500 – Share premium account £000 44,278 – 644 – Other non- distributable reserve £000 Capital redemption reserve £000 – – 74,950 – 1,653 – – – Retained earnings £000 539,450 105,587 (27,890) Own shares £000 (5,623) – – – Total £000 594,064 105,587 77,094 (27,890) – – – – 2,059 – 2,059 At 31 March 2015 15,806 44,922 74,950 1,653 619,206 (5,623) 750,914 The other non-distributable reserve arose in the year following the placing of 14.35 million ordinary shares. Year ended 31 March 2014 At 1 April 2013 Total comprehensive gain for the year Issue of share capital Dividend Credit to equity for equity-settled share based payments At 31 March 2014 Share capital £000 14,264 – 42 – – 14,306 Share premium account £000 44,278 – – – – 44,278 Capital redemption reserve £000 1,653 – – – – 1,653 Retained earnings £000 498,056 59,548 – (19,591) 1,437 Own shares £000 (5,623) – – – – Total £000 552,628 59,548 42 (19,591) 1,437 539,450 (5,623) 594,064 94 Consolidated Cash Flow Statement Year ended 31 March 2015 Operating profit Gain on the revaluation of investment properties Profit on disposal of surplus land Depreciation Depreciation of finance lease capital obligations Employee share options (Increase)/decrease in inventories Increase in receivables Increase in payables Cash generated from operations Interest paid Interest received Tax credit received Cash flows from operating activities Investing activities Sale of surplus land Purchase of non-current assets Additions to surplus land Receipts from Capital Goods Scheme Acquisition of Big Yellow Limited Partnership (net of cash acquired) Acquisition of Big Storage Limited Disposal of Big Storage Limited Net investment in associates Dividend received from associate Cash flows from investing activities Financing activities Issue of share capital Payment of finance lease liabilities Equity dividends paid Payments to cancel interest rate derivatives Refinancing fees Repayment of Big Yellow Limited Partnership loan Repayment of Big Storage AIB loan Drawing of Big Storage Lloyds loan Increase/(reduction) in borrowings Cash flows from financing activities Net increase/(decrease) in cash and cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents Reconciliation of Net Cash Flow to Movement in Net Debt Year ended 31 March 2015 Net increase/(decrease) in cash and cash equivalents in the year Cash flow from (increase)/decrease in debt financing Change in net debt resulting from cash flows Movement in net debt in the year Net debt at the start of the year Net debt at the end of the year Note 13a, 14 15 13b 13a 6 13d 13a 13a 13d 13d 13a 11 2015 £000 114,203 (64,465) (1,318) 566 918 2,059 (14) (1,172) 1,098 51,875 (9,692) 27 187 2014 £000 67,887 (28,350) – 526 974 1,437 10 (1,652) 2,458 43,290 (10,558) 20 – 42,397 32,752 2,815 (42,555) (231) 3,557 (37,406) (15,114) 7,614 (3,709) 89 (84,940) 77,094 (918) (27,890) (1,408) (2,649) (57,000) (9,659) 13,900 55,966 – (8,460) (136) 756 – – – – – (7,840) 42 (974) (19,591) – – – – – (8,938) 47,436 (29,461) 4,893 3,301 8,194 (4,549) 7,850 3,301 Note 2015 £000 4,893 (55,966) (51,073) 2014 £000 (4,549) 8,938 4,389 (51,073) (226,067) 4,389 (230,456) 18 (277,140) (226,067) 95 Notes to the Financial Statements Year ended 31 March 2015 1. GENERAL INFORMATION Big Yellow Group PLC is a Company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is 2 The Deans, Bridge Road, Bagshot, Surrey, GU19 5AT. The nature of the Group’s operations and its principal activities are set out in note 4 and in the Strategic Report on pages 18 to 40. These financial statements are presented in pounds sterling because that is the currency of the economic environment in which the Group operates. 2. SIGNIFICANT ACCOUNTING POLICIES Adoption of new and revised standards The following new and revised Standards and Interpretations have been adopted in the current year, but have not had a material impact on the Group: > IAS 1 (amendment) – Presentation of Financial Statements > IAS 12 (amendment) – Income Tax > IFRS 7 (amendment) – Financial Instruments: Disclosures Below are details of accounting standards and interpretations which have been issued but are not yet effective, or have not yet been endorsed by the EU, which may be relevant to the Group. None of these standards or interpretations have been early adopted by the Group. The Group is in the process of assessing the impact of these new standards and interpretations on its financial reporting. None of these standards are expected to have a significant impact on the Group’s reporting, although some may require additional disclosures to be included in the notes to the financial statements. Issued, not yet effective and not yet endorsed for use in the EU: > IFRS 9 – Financial Instruments > IFRS 15 – Revenue from contracts with customers Issued and endorsed for use in the EU, but not yet effective: > IAS 36 (amendment) – Impairment of Assets > IAS 39 (amendment) – Financial Instruments: Recognition and Measurement > IFRS 10 – Consolidated Financial Statements > IFRS 11 – Joint Arrangements > IFRS 12 – Disclosure of Interests in Other Entities > IAS 27 (revised) – Separate Financial Statements > IAS 28 (revised) – Associates and Joint Ventures > Amendments to IFRS 10, IFRS 11, IFRS 12 (transition guidance) > IAS 24 (amendments resulting from Annual Improvements 2010-2012 Cycle) > IAS 40 (amendments resulting from Annual Improvements 2011-2013 Cycle) > IAS 16 (amendments regarding the clarification of acceptable methods of depreciation and amortisation) Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs). The financial statements have also been prepared in accordance with IFRSs adopted by the European Union and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation. The financial statements have been prepared on the historical cost basis, except for the revaluation of certain properties and financial instruments. Historical cost is generally based on the fair value of the consideration given in exchange for the assets. The principal accounting policies adopted, which have been applied consistently to the results, other gains and losses, assets, liabilities and cash flows of entities included in the consolidated financial statements in the current and preceding year, are set out below: Going concern A review of the Group’s business activities, together with the factors likely to affect its future development, performance and position are set out on in the Strategic Report. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are shown in the balance sheet, cash flow statement and accompanying notes to the financial statements. Further information concerning the Group’s objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposures to credit risk and liquidity risk can be found in the Strategic Report and in the notes to the financial statements. After reviewing Group and Company cash balances, borrowing facilities, forecast valuation movements and projected cash flows, the Directors believe that the Group and Company have adequate resources to continue operations for the foreseeable future. In reaching this conclusion the Directors have had regard to the Group’s operating plan and budget for the year ending 31 March 2016 and projections contained in the longer term business plan which covers the period to March 2022. The Directors have considered carefully the Group’s trading performance and cash flows as a result of the uncertain global economic environment and the other principal risks to the Group’s performance, and are satisfied with the Group’s positioning. For this reason, they continue to adopt the going concern basis in preparing the financial statements. 96 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company made up to 31 March each year. Control is achieved where the Company has the power to direct the relevant activities of an investee entity so as to obtain benefits from its activities. The Group consolidates the financial results and balance sheets of Big Yellow Group PLC and all of its subsidiaries at the year end using acquisition accounting principles. All intra-Group transactions, balances, income and expenses are eliminated on consolidation. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group. The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Any costs directly attributable to the business combination are recognised in the income statement. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations, which are recognised and measured at the lower of their carrying amount and fair value less costs to sell. Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in the statement of comprehensive income. Investment in subsidiaries These are recognised at cost less provision for any impairment. Investment in associates An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control, through participation in the financial and operating policy decisions of the investee. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting except when classified as held for sale. Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group’s interest in that associate (which includes any long-term interests that, in substance, form part of the Group’s net investment in the associate) are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Where necessary, adjustments are made to the financial statements of associates to bring the accounting policies used into line with those used by the Group. Where a Group Company transacts with an associate of the Group, profits and losses are eliminated to the extent of the Group’s interest in the relevant associate. Losses may provide evidence of an impairment of the asset transferred in which case appropriate provision is made for impairment. Goodwill Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset and reviewed for impairment at least annually. Any impairment is recognised immediately in the statement of comprehensive income and is not subsequently reversed. The goodwill in the balance sheet has an indefinite useful economic life. Revenue recognition Revenue represents amounts derived from the provision of services which fall within the Group’s ordinary activities after deduction of trade discounts and any applicable value added tax. Income is recognised over the period for which the storage room is occupied by the customer on a straight-line basis. The Group recognises non-storage income on a straight-line basis over the period in which it is earned. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. Management fees earned are recognised on a straight-line basis over the period for which the services are provided. 97 Notes to the Financial Statements (continued) Year ended 31 March 2015 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Operating leases Rentals payable under operating leases are charged to the statement of comprehensive income on a straight-line basis over the term of the relevant lease. In the event that lease incentives are received to enter into operating leases, such incentives are recognised as a liability. The aggregate benefit of incentives is recognised as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Borrowings Interest-bearing loans and overdrafts are recorded at the proceeds received, net of direct issue costs. Premiums payable on settlement or redemption and direct issue costs are accounted for on an accruals basis in the statement of comprehensive income using the effective interest rate method and are added to the carrying value amount of the instrument to the extent that they are not settled in the period in which they arise. Finance costs All borrowing costs are recognised in the statement of comprehensive income in the period in which they are incurred, unless the costs are incurred as part of the development of a qualifying asset, when they will be capitalised. Commencement of capitalisation is the date when the Group incurs expenditure for the qualifying asset, incurs borrowing costs and undertakes activities that are necessary to prepare the assets for their intended use when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably. In the case of suspension of activities during extended periods, the Group suspends capitalisation. The Group ceases capitalisation of borrowing costs when substantially all of the activities necessary to prepare the asset for use are complete. Operating profit Operating profit is stated after gains and losses on surplus land, movements on the revaluation of investment properties and before the share of results of associates, investment income and finance costs. Taxation The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from the net profit as reported in the statement of comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary differences arise from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates substantively enacted at the balance sheet date that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the statement of comprehensive income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 98 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Plant, equipment and owner occupied property All property, plant and equipment, not classified as investment property, are carried at historic cost less depreciation and any recognised impairment loss. Depreciation is charged so as to write off the cost or valuation of assets, other than land and investment properties, over their estimated useful lives, using the straight-line method, on the following bases: Freehold property Leasehold improvements Plant and machinery Motor vehicles Fixtures and fittings Computer equipment 50 years Over period of the lease 10 years 4 years 5 years 3 years The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in income. Investment property The criteria used to distinguish investment property from owner-occupied property is to consider whether the property is held for rental income and for capital appreciation. Where this is the case, the Group recognises these owned or leased properties as investment properties. Investment property is initially recognised at cost and revalued at the balance sheet date to fair value as determined by professionally qualified external valuers. In accordance with IAS 40, investment property held as a leasehold is stated gross of the recognised finance lease liability. Gains or losses arising from the changes in fair value of investment property are included in the statement of comprehensive income of the period in which they arise. In accordance with IAS 40, as the Group uses the fair value model, no depreciation is provided in respect of investment properties including integral plant. Leasehold properties that are leased under operating leases are classified as investment properties and included in the balance sheet at fair value. The obligation to the lessor for the buildings element of the leasehold is included in the balance sheet at the present value of the minimum lease payments at inception, and is shown within note 21. Lease payments are apportioned between finance charges and a reduction of the outstanding lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Investment property under construction Investment property under construction is initially recognised at cost and revalued at the balance sheet date to fair value as determined by professionally qualified external valuers. Gains or losses arising from the changes in fair value of investment property under construction are included in the statement of comprehensive income in the period in which they arise. Surplus land Surplus land, which can include assets held for development and future sale, is recognised at the lower of cost and net realisable value. Any gains and losses on surplus land are recognised through the statement of comprehensive income. Impairment of assets At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). The recoverable amount is the higher of an asset’s net selling price and its value-in-use (i.e. the net present value of its future cash flows discounted at the Group’s average pre-tax interest rate that reflects the borrowing costs and risk for the asset). Inventories Inventories, representing the cost of packing materials, are stated at the lower of cost and net realisable value. Financial instruments Financial assets and financial liabilities are recognised on the Group’s balance sheet when the Group becomes a party to the contractual provisions of the instrument. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on re-measurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘other gains and losses’ line item in the income statement. 99 Notes to the Financial Statements (continued) Year ended 31 March 2015 2. SIGNIFICANT ACCOUNTING POLICIES (continued) A – Derivative financial instruments and hedge accounting The Group’s activities expose it primarily to the financial risks of interest rates. The Group uses interest rate swap contracts to hedge these exposures. The Group does not use derivative financial instruments for speculative purposes. The use of financial derivatives is governed by the Group’s policies approved by the Board of Directors. The policy in respect of interest rates is to maintain a balance between flexibility and the hedging of interest rate risk. Derivatives are initially recognised at fair value and are subsequently reviewed at each balance sheet date. The fair value of interest rate derivatives at the reporting date is determined by discounting the future cash flows using the forward curves at the reporting date and the credit risk inherent in the contract. Changes in the fair value of derivative financial instruments are recognised in the statement of comprehensive income as they arise. The Group has not adopted hedge accounting. Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of host contracts and the host contracts are not carried at fair value with unrealised gains or losses reported in the statement of comprehensive income. B – Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. C – Impairment of financial assets Financial assets are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. D – Cash and cash equivalents Cash and cash equivalents comprises cash on hand and demand deposits, and other short term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. The carrying amounts of these assets approximates to the fair value. E – Financial liabilities and equity Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. F – Equity instruments Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs. G – Trade payables Trade payables are not interest bearing and are stated at their nominal value. Retirement benefit costs Pension costs represent contributions payable to defined contribution schemes and are charged as an expense to the statement of comprehensive income as they fall due. The assets of the schemes are held separately from those of the Group. Share-based payments The Group issues equity-settled share-based payments to certain employees. These are measured at fair value at the date of grant. The fair value determined at the grant date of the share-based payment is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of shares that will eventually vest. Fair value is measured by use of the Black-Scholes model and excludes the effect of non-market based vesting conditions. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations. At each balance sheet date, the Group revises its estimate of the number of equity instruments expected to vest as a result of the effect of non-market based vesting conditions. The impact of the revision of the original estimates, if any, is recovered in profit and loss such that the cumulative expenses reflects the revised estimate with a corresponding adjustment to equity reserves. For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value of the liability. At each balance sheet date until the liability is settled, and at the date of settlement, the fair value of the liability is re-measured, with any changes in fair value recognised in profit or loss for the year. 100 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Critical accounting estimates and judgements In the application of the Group’s accounting policies, which are described above, the Directors are required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. a) Estimate of fair value of Investment Properties and Investment Property Under Construction (critical accounting estimate) The Group’s self storage centres and stores under development are valued using a discounted cash flow methodology which is based on projections of net operating income. The Group employs expert external valuers, Cushman & Wakefield LLP, who report on the values of the Group’s stores on a biannual basis. The stores within the Armadillo Partnerships are valued by Jones Lang LaSalle. Principal assumptions underlying the estimation of the fair value are those related to: stabilised occupancy levels; the absorption period to these stabilised 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 investment properties is set out in note 14 to the accounts. b) Acquisition of Big Yellow Limited Partnership (critical accounting judgement) The key judgements include the fair value of the pre-existing interest of the associate, the fair values of the net assets acquired and the consideration of any identifiable and separable intangibles. Prior to accounting for the acquisition of the assets of the Partnership, an assessment of fair value is required of the pre-existing 33% interest in the Partnership. In particular in relation to assessing whether a control premium or discount is attached to the pre-existing interest with reference to the rights attached to the minority interest. The fair value of net assets acquired requires an assessment of the market value that a third party would pay to obtain control over the identified assets and liabilities. Finally, IFRS 3 Business Combinations requires an assessment of whether any identified and separable intangible assets require separate recognition on balance sheet at the Acquisition Date. 3. REVENUE Analysis of the Group’s operating revenue can be found below and in the Portfolio Summary on page 24. Open stores Self storage income Other storage related income Ancillary store rental income Other revenue Non-storage income Fees earned from Big Yellow Limited Partnership Other management fees earned Revenue per statement of comprehensive income Interest receivable on bank deposits (see note 7) Total revenue per IAS 18 2015 £000 2014 £000 70,631 11,849 251 82,731 268 458 819 59,994 10,475 237 70,706 420 640 430 84,276 72,196 27 20 84,303 72,216 Non-storage income derives principally from rental income earned from tenants of properties awaiting development. 4. SEGMENTAL INFORMATION IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. Given the nature of the Group’s business, there is one segment, which is the provision of self storage and related services. Revenue represents amounts derived from the provision of self storage and related services which fall within the Group's ordinary activities after deduction of trade discounts and value added tax. The Group’s net assets, revenue and profit before tax are attributable to one activity, the provision of self storage and related services. These all arise in the United Kingdom in the current year and prior year. 101 Notes to the Financial Statements (continued) Year ended 31 March 2015 5. PROFIT FOR THE YEAR a) Profit for the year has been arrived at after charging/(crediting): Depreciation of plant, equipment and owner-occupied property Leasehold property depreciation Gain on the revaluation of investment property Profit on disposal of surplus land Cost of inventories recognised as an expense Employee costs (see note 6) Operating lease rentals Auditor’s remuneration for audit services (see below) b) Analysis of auditor’s remuneration: Fees payable to the Company’s auditor for the audit of the Company’s annual accounts Other services – audit of the Company’s subsidiaries’ annual accounts Total audit fees Interim review Tax services – advisory Assurance of CSR report Other services Real estate advice (planning) Total non-audit fees 2015 £000 566 918 (64,465) (1,318) 977 13,084 95 191 2014 £000 526 974 (28,350) – 923 11,075 188 167 2015 £000 160 31 191 34 131 22 80 – 267 2014 £000 140 27 167 33 21 20 21 1 96 Fees payable to Deloitte LLP and their associates for non-audit services to the Company are not required to be disclosed because the consolidated financial statements are required to disclose such fees on a consolidated basis. Fees charged by Deloitte LLP to Armadillo Storage Holding Company Limited and Armadillo Storage Holding Company 2 Limited in the year amounted to £211,000, of which £156,000 related to non-audit services. 6. EMPLOYEE COSTS The average monthly number of full-time equivalent employees (including Executive Directors) was: 2015 Number 2014 Number 256 44 300 2015 £000 8,982 1,655 388 2,059 246 43 289 2014 £000 8,007 1,275 356 1,437 13,084 11,075 Sales Administration At 31 March 2015 the total number of Group employees was 337 (2014: 325). Their aggregate remuneration comprised: Wages and salaries Social security costs Other pension costs Share-based payments Details of Directors’ Remuneration is given on pages 64 to 83. 102 7. INVESTMENT INCOME Bank interest receivable Unwinding of discount on Capital Goods Scheme receivable Total interest receivable Fair value movement on interest rate derivatives Total investment income 8. FINANCE COSTS Interest on bank borrowings Capitalised interest Interest on obligations under finance leases Total interest payable Change in fair value of interest rate derivatives Total finance costs 9. TAXATION 2015 £000 27 468 495 – 495 2014 £000 20 395 415 2,681 3,096 2015 £000 10,080 (399) 1,023 2014 £000 10,768 (484) 1,031 10,704 11,315 2,274 – 12,978 11,315 The Group converted to a REIT in January 2007. As a result the Group does not pay UK corporation tax on the profits and gains from its qualifying rental business in the UK provided that it meets certain conditions. Non-qualifying profits and gains of the Group are subject to corporation tax as normal. The Group monitors its compliance with the REIT conditions. There have been no breaches of the conditions to date. UK current tax Current tax: – Current year – Prior year – Conversion charge refund A reconciliation of the tax (credit)/charge is shown below: Profit before tax Tax charge at 21% (2014 – 23%) thereon Effects of: Revaluation of investment properties Share of results of associates Permanent differences Profits from the tax exempt business Gain on disposal of surplus land Utilisation of brought forward losses Movement on other unrecognised deferred tax assets Current year tax charge Prior year adjustment Total tax (credit)/charge 2015 £000 90 (254) (187) (351) 2015 £000 105,236 22,100 (12,109) (739) (1,475) (7,234) (278) (438) 263 90 (441) (351) 2014 £000 300 – – 300 2014 £000 59,848 13,765 (6,368) – 147 (6,386) – (41) (817) 300 – 300 At 31 March 2015 the Group has unutilised tax losses of £32.8 million (2014: £36.5 million) available for offset against certain types of future taxable profits. All losses can be carried forward indefinitely. 103 Notes to the Financial Statements (continued) Year ended 31 March 2015 10. ADJUSTED PROFIT BEFORE TAX AND ADJUSTED EBITDA Profit before tax (Gain)/loss on revaluation of investment properties – wholly owned – in associate (net of deferred tax) Change in fair value of interest rate derivatives – Group – in associate Profit on disposal of surplus land Share of non-recurring losses in associate Adjusted profit before tax Net bank interest Depreciation (see note 13b) Adjusted EBITDA 2015 £000 105,236 (64,465) (2,731) 2,274 124 (1,318) 285 39,405 9,654 566 49,625 2014 £000 59,848 (28,350) 662 (2,681) (258) – – 29,221 10,264 526 40,011 Adjusted profit before tax which excludes gains and losses on the revaluation of investment properties, changes in fair value of interest rate derivatives, net gains and losses on surplus land, and non-recurring items of income and expenditure have been disclosed to give a clearer understanding of the Group’s underlying trading performance. EPRA earnings are £39,756,000 for the year after the tax credit of £351,000 (2014: £28,921,000 after a tax charge of £300,000). 11. DIVIDENDS Amounts recognised as distributions to equity holders in the year: Final dividend for the year ended 31 March 2014 of 8.4p (2013: 6.0p) per share. Interim dividend for the year ended 31 March 2015 of 10.4p (2014: 8.0p) per share. Proposed final dividend for the year ended 31 March 2015 of 11.3p (2014: 8.4p) per share. 2015 £000 2014 £000 11,774 8,384 16,116 27,890 11,207 19,591 17,541 11,774 Subject to approval by shareholders at the Annual General Meeting to be held on 21 July 2015, the final dividend will be paid on 23 July 2015. The ex-div date is 11 June 2015 and the record date is 12 June 2015. The Property Income Dividend (“PID”) payable for the year is 16.1 pence per share (2014: 13 pence per share). 104 12. EARNINGS AND NET ASSETS PER SHARE Earnings per ordinary share Basic Dilutive share options Diluted Adjustments: Gain on revaluation of investment properties Change in fair value of interest rate derivatives Profit on disposal of surplus land Share of associate non-recurring (gains)/losses EPRA – diluted EPRA – basic Year ended 31 March 2015 Year ended 31 March 2014 Earnings £m 105.6 – 105.6 (64.5) 2.3 (1.3) (2.3) 39.8 39.8 Shares million 145.7 1.2 146.9 – – – – 146.9 145.7 Pence per share Earnings £m 72.5 (0.6) 71.9 (43.9) 1.6 (0.9) (1.6) 27.1 27.3 59.5 – 59.5 (28.3) (2.7) – 0.4 28.9 28.9 Shares million 139.9 1.2 141.1 – – – – 141.1 139.9 Pence per share 42.5 (0.3) 42.2 (20.1) (1.9) – 0.3 20.5 20.7 The calculation of basic earnings is based on profit after tax for the year. The weighted average number of shares used to calculate diluted earnings per share has been adjusted for the conversion of share options. EPRA earnings and earnings per ordinary share before non-recurring items, movements on revaluation of investment properties, gains on surplus land, the change in fair value of interest rate derivatives, and share of associate non-recurring gains and losses (including deferred tax on revaluation surpluses) have been disclosed to give a clearer understanding of the Group’s underlying trading performance. The European Public Real Estate Association (“EPRA”) has issued recommended bases for the calculation of net assets per share information and this is shown in the table below: Basic net asset value Exercise of share options EPRA NNNAV Adjustments: Fair value of derivatives Fair value of derivatives – share of associate Share of deferred tax in associates EPRA NAV Basic net assets per share (pence) EPRA NNNAV per share (pence) EPRA NAV per share (pence) EPRA NAV (as above) (£000) Valuation methodology assumption (see note 14) (£000) Adjusted net asset value (£000) Adjusted net assets per share (pence) Shares in issue Own shares held in treasury Own shares held in EBT Basic shares in issue used for calculation Exercise of share options Diluted shares used for calculation 31 March 2015 £000 750,914 452 31 March 2014 £000 594,064 483 751,366 594,547 3,679 46 425 2,813 (26) – 755,516 597,334 484.0 478.5 481.1 755,516 45,927 801,443 510.4 423.9 418.5 420.5 597,334 37,057 634,391 446.5 No. of shares No. of shares 158,055,735 143,061,147 (1,418,750) (1,500,000) (1,418,750) (1,500,000) 155,136,985 140,142,397 1,926,527 1,896,437 157,033,422 142,068,924 Net assets per share are shareholders’ funds divided by the number of shares at the year end. The shares currently held in the Group’s Employee Benefit Trust and in treasury are excluded from both net assets and the number of shares. Adjusted net assets per share include the effect of those shares issuable under employee share option schemes and the effect of alternative valuation methodology assumptions (see note 14). 105 Notes to the Financial Statements (continued) Year ended 31 March 2015 13. NON-CURRENT ASSETS a) Investment property, investment property under construction and interests in leasehold property At 31 March 2013 Additions Capital Goods Scheme adjustment Transfer to surplus land Adjustment to present value Revaluation (see note 14) Depreciation At 31 March 2014 Additions Acquisition of Partnership stores Transfer from surplus land Reclassification Adjustment to present value Acquisition of Big Storage Disposals Revaluation (see note 14) Depreciation At 31 March 2015 Investment property under construction £000 Interests in leasehold property £000 17,277 5,860 – – – (834) – 22,303 5,157 – – (12,650) – – – 871 – 21,803 – – – 2,985 – (974) 23,814 – – – – (2,067) – – – (918) Investment property £000 745,605 1,745 1,186 (1,330) – 29,184 – 776,390 36,343 111,055 1,478 12,650 – 24,900 (19,300) 63,594 – Total £000 784,685 7,605 1,186 (1,330) 2,985 28,350 (974) 822,507 41,500 111,055 1,478 – (2,067) 24,900 (19,300) 64,465 (918) 1,007,110 15,681 20,829 1,043,620 The income from self storage accommodation earned by the Group from its investment property is disclosed in note 3. Direct operating expenses, which are all applied to generating rental income, arising on the investment property in the year are disclosed in the Portfolio Summary on page 24. Included within additions is £0.4 million of capitalised interest (2014: £0.5 million), calculated at the Group’s average borrowing cost for the year of 3.9%. 55 of the Group’s investment properties are pledged as security for loans, with a total external value of £861.0 million. The adjustment to present value in leasehold properties in the year arises due to the acquisition of the freehold of the Battersea store and extinguishment of the lease liability. Accounting for the acquisition of Big Storage Limited In January 2015 the Group acquired the entire share capital of Big Storage Limited for a property value of £24.9 million. The net consideration is shown below. The company owned five self storage centres in North West England. The Group subsequently transferred the store at Chester to another subsidiary company of the Group. This store will be rebranded as a Big Yellow. To determine the assets and liabilities acquired at the date of completion of Big Storage Limited the Group have used the balance sheet at the date of acquisition. The following provides a breakdown of the fair value of the assets and liabilities acquired. Investment property Other non-current assets Current assets Current liabilities Non-current liabilities Net assets (100%) Net assets acquired (100%) Satisfied by cash consideration 106 £000 24,900 17 1,701 (1,619) (9,885) 15,114 £000 15,114 (15,114) – 13. NON-CURRENT ASSETS (continued) a) Investment property, investment property under construction and interests in leasehold property (continued) In February 2015, the Group sold the share capital of Big Storage Limited to a company (“Armadillo 2”) in which it has a 20% interest, with the balance of the equity owned by an Australian consortium. The disposal was at book and fair value, so there was no profit or loss recorded on disposal. The following provides a breakdown of the assets and liabilities disposed of. Between transactions the Group controlled Big Storage Limited and contractually controlled the assets. Investment property Other non-current assets Current assets Current liabilities Non-current liabilities Net assets (100%) Net assets disposed (100%) Satisfied by cash consideration On a net basis, the Group acquired property of £5.6 million, cash of £1.9 million and invested £1.8 million into Armadillo 2. b) Plant, equipment and owner occupied property Freehold property £000 Leasehold improvements £000 Plant and machinery £000 Motor vehicles £000 Fixtures, fittings & office equipment £000 Cost At 31 March 2013 Reclassification Retirement of fully depreciated assets Additions At 31 March 2014 Retirement of fully depreciated assets Additions At 31 March 2015 Depreciation At 31 March 2013 Reclassification Retirement of fully depreciated assets Charge for the year At 31 March 2014 Retirement of fully depreciated assets Charge for the year At 31 March 2015 Net book value At 31 March 2015 At 31 March 2014 c) Goodwill 1,867 (9) (15) – 1,843 – 42 1,885 (261) 2 15 (49) (293) – (35) (328) 1,557 1,550 44 9 – – 53 – – 53 (44) (2) – (3) (49) – (1) (50) 3 4 826 – (418) 17 425 (52) 171 544 (609) – 418 (27) (218) 52 (53) (219) 325 207 25 – – – 25 – – 25 (15) – – (7) (22) – (3) (25) – 3 6,958 – (5,813) 744 1,889 (891) 418 1,416 (6,041) – 5,813 (440) (668) 891 (474) (251) 1,165 1,221 £000 19,300 17 3,942 (1,519) (14,126) 7,614 £000 7,614 (7,614) – Total £000 9,720 – (6,246) 761 4,235 (943) 631 3,923 (6,970) – 6,246 (526) (1,250) 943 (566) (873) 3,050 2,985 The goodwill relates to the purchase of Big Yellow Self Storage Company Limited in 1999. The asset is tested bi-annually for impairment. The carrying value remains unchanged from the prior year as there is considered to be no impairment in the value of the asset. 107 Notes to the Financial Statements (continued) Year ended 31 March 2015 13. NON-CURRENT ASSETS (continued) d) Investment in associates The table below shows the movement for all associates in the period and reconciles to the income statement and the balance sheet. At the beginning of the year Subscription for partnership capital and advances Part disposal of Partnership interest Share of results (see below) Dividends Acquisition of remaining interest Investment at the end of year Big Yellow Limited Partnership 17,861 – – 1,564 – (19,425) – Armadillo 1 Armadillo 2 – 3,648 (1,728) 1,807 (89) – 3,638 – 1,789 – 145 – – 1,934 Total associates 17,861 5,437 (1,728) 3,516 (89) (19,425) 5,572 Big Yellow Limited Partnership At the start of the year the Group had a 33.3% interest in Big Yellow Limited Partnership. This interest was accounted for as an associate, using equity accounting. The Partnership commenced trading on 1 December 2007. On 1 December 2014, the Group acquired the remaining 66.7% of the Partnership interest that it did not previously own. From this date, the Partnership is accounted for as a wholly owned subsidiary of the Group. The results up to this date are equity accounted as shown in the note below: At the beginning of the year Share of results (see below) Acquisition of remaining interest 31 March 2015 £000 17,861 1,564 (19,425) – 31 March 2014 £000 17,681 180 – 17,861 The figures below show the trading results of Big Yellow Limited Partnership, and the Group’s share of the results and the net assets of the Partnership. Big Yellow Limited Partnership Income statement (100%) Revenue Cost of sales Administrative expenses Operating profit Gain/(loss) on the revaluation of investment properties Net interest payable Fair value movement of interest rate derivatives Profit before and after tax Balance sheet (100%) Investment property Other non-current assets Current assets Current liabilities Derivative financial instruments Non-current liabilities Net assets (100%) 108 1 April 2014 to 30 November 2014 £000 Year ended 31 March 2014 £000 7,476 (3,367) (86) 4,023 2,473 (1,569) (233) 4,694 31 March 2015 £000 – – – – – – – 9,529 (4,846) (112) 4,571 (1,985) (2,820) 774 540 31 March 2014 £000 108,110 3,588 3,009 (3,201) 77 (58,000) 53,583 13. NON-CURRENT ASSETS (continued) d) Investment in associates (continued) Group share of (33.3%) Operating profit Gain/(loss) on the revaluation of investment properties Net interest payable Fair value movement of interest rate derivatives Profit for the year Associate net assets 1 April 2014 to 30 November 2014 £000 Year ended 31 March 2014 £000 1,341 824 (523) (78) 1,564 1,524 (662) (940) 258 180 – 17,861 Accounting for the acquisition The following provides a breakdown of the fair value of the assets and liabilities acquired. The investment properties have been valued by the Directors with regard to the September 2014 property valuations performed by Cushman & Wakefield LLP uplifted for the capital movement in the two month period to the Acquisition date. Investment property Other non-current assets Current assets Current liabilities Non-current liabilities Net assets (100%) Net assets acquired (66.67% of £58.9 million) Satisfied by cash consideration £000 111,055 3,566 3,312 (2,058) (57,000) 58,875 £000 39,250 (39,250) – From the date of acquisition of the Partnership on 1 December 2014 to 31 March 2015, the revenue of the Partnership was £3.7 million, and the statutory profit before tax was £4.3 million. The profit for the Partnership for the full year from 1 April 2014 was £9.0 million. Excluding the share of results of the Partnership as an associate of £1.6 million, the combined statutory profit before tax of the Group and the Partnership for the full year would have been £112.6 million. Armadillo The Group has a 20% interest in Armadillo Storage Holding Company Limited (“Armadillo 1”) and a 20% interest in Armadillo Storage Holding Company 2 Limited (“Armadillo 2”). Both interests are accounted for as associates, using the equity method of accounting. At the beginning of the year Subscription for partnership capital and advances Part disposal of Partnership interest Share of results (see below) Dividends Armadillo 1 Armadillo 2 31 March 2014 £000 31 March 2015 £000 31 March 2014 £000 – – – – – – – 1,789 – 145 – 1,992 – – – – – – 31 March 2015 £000 – 3,648 (1,728) 1,807 (89) 3,638 The Group’s total subscription for partnership capital and advances in Armadillo Storage Holding Company Limited is £1,920,000 and £1,789,000 in Armadillo Storage Holding Company 2 Limited. The investment properties owned by Armadillo 1 and Armadillo 2 have been valued at 31 March 2015 by Jones Lang LaSalle. 109 Notes to the Financial Statements (continued) Year ended 31 March 2015 13. NON-CURRENT ASSETS (continued) d) Investment in associates (continued) The figures below show the trading results of the Partnerships, and the Group’s share of the results and the net assets of the Partnerships. Armadillo Storage 1 Armadillo Storage 2 Period from Period from 16 April 2014 3 February 2015 to 31 March 2015 £000 to 31 March 2015 £000 4,321 (2,258) (100) 1,963 10,078 (504) (467) (197) (1,833) 9,040 (447) 8,593 30,125 1,005 1,132 (2,151) (197) (11,721) 627 (335) (75) 217 1,449 (73) (540) (35) (290) 728 – 728 23,175 1,465 1,256 (1,406) (35) (14,785) 18,193 9,670 471 2,042 (123) (177) (39) (367) 1,807 (89) 1,718 3,638 43 290 (15) (108) (7) (58) 145 – 145 1,934 Income statement (100%) Revenue Cost of sales Administrative expenses Operating profit Gain on the revaluation of investment properties Net interest payable Acquisition costs written off Fair value movement of interest rate derivatives Deferred tax Profit attributable to shareholders Dividends paid Retained profit Balance sheet (100%) Investment property Other non-current assets Current assets Current liabilities Derivative financial instruments Non-current liabilities Net assets (100%) Group share Operating profit Gain on the revaluation of investment properties Net interest payable Acquisition costs written off Fair value movement of interest rate derivatives Deferred tax Profit attributable to shareholders Dividends paid Retained profit Associates’ net assets 110 14. VALUATION OF INVESTMENT PROPERTY Freehold stores At 31 March 2014 Transfer from surplus land Acquisition of Partnership stores Transfer from investment property under construction Transfer on freehold acquisition Movement in year At 31 March 2015 Leasehold stores At 31 March 2014 Transfer on freehold acquisition Movement in year At 31 March 2015 Total of open stores At 31 March 2014 Transfer from surplus land Acquisition of Partnership stores Transfer from investment property under construction Movement in year At 31 March 2015 Investment property under construction At 31 March 2014 Transfer to investment property Movement in year At 31 March 2015 Valuation of all investment property At 31 March 2014 Transfer from surplus land Acquisition of Partnership stores Movement in year At 31 March 2015 Deemed cost £000 Revaluation on deemed cost £000 373,503 1,478 111,055 12,990 1,762 41,678 352,857 – – (340) 6,948 63,609 Valuation £000 726,360 1,478 111,055 12,650 8,710 105,287 542,466 423,074 965,540 16,199 (1,762) 265 33,831 (6,948) (15) 50,030 (8,710) 250 14,702 26,868 41,570 389,702 1,478 111,055 12,990 41,943 386,688 – – (340) 63,594 776,390 1,478 111,055 12,650 105,537 557,168 449,942 1,007,110 29,642 (12,990) 5,157 (7,339) 340 871 22,303 (12,650) 6,028 21,809 (6,128) 15,681 419,344 1,478 111,055 47,100 379,349 – – 64,465 798,693 1,478 111,055 111,565 578,977 443,814 1,022,791 The Group has classified the fair value investment property and the investment property under construction within Level 3 of the fair value hierarchy. There has been no transfer to or from Level 3 in the year. The wholly owned freehold and leasehold investment properties have been valued at 31 March 2015 by external valuers, Cushman & Wakefield LLP (“C&W”). The valuation has been carried out in accordance with the RICS Valuation – Professional Standards, published by The Royal Institution of Chartered Surveyors (“the Red Book”). The valuation of each of the investment properties and the investment properties under construction has been prepared on the basis of either Fair Value or Fair Value as a fully equipped operational entity, having regard to trading potential, as appropriate. The valuation has been provided for accounts purposes and as such, is a Regulated Purpose Valuation as defined in the Red Book. In compliance with the disclosure requirements of the Red Book, C&W have confirmed that: > Of the members of the RICS who have been the signatories to the valuations provided to the Group for the same purposes as this valuation, one has done so since September 2004 and the other has done so since September 2014; > C&W have been carrying out this bi-annual valuation for the same purposes as this valuation on behalf of the Group since September 2004; > C&W do not provide other significant professional or agency services to the Group; > In relation to the preceding financial year of C&W, the proportion of the total fees payable by the Group to the total fee income of the firm is less than 5%; and > The fee payable to C&W is a fixed amount per store, and is not contingent on the appraised value. 111 Notes to the Financial Statements (continued) Year ended 31 March 2015 14. VALUATION OF INVESTMENT PROPERTYS (continued) Market uncertainty C&W’s valuation report comments on valuation uncertainty resulting from low liquidity in the market for self storage property. C&W note that in the UK since Q1 2013 there have only been four transactions involving multiple assets and 8 single asset transactions. C&W state that due to the lack of comparable market information in the self storage sector, there is greater uncertainty attached to their opinion of value than would be anticipated during more active market conditions. Portfolio Premium C&W’s valuation report further confirms that the properties have been valued individually but that if the portfolio was to be sold as a single lot or in selected groups of properties, the total value could differ significantly. C&W state that in current market conditions they are of the view that there could be a material portfolio premium. Valuation methodology C&W have adopted different approaches for the valuation of the leasehold and freehold assets as follows: Freehold and long leasehold The valuation is based on a discounted cash flow of the net operating income over a ten year period and notional sale of the asset at the end of the tenth year. Assumptions A. Net operating income is based on projected revenue received less projected operating costs together with a central administration charge of 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. C. The net operating income in future years is calculated assuming either straight-line absorption from day one actual occupancy or variable absorption over years one to four of the cash flow period, to an estimated stabilised/mature occupancy level. In the valuation the assumed stabilised occupancy level for the 69 trading stores (both freeholds and leaseholds) open at 31 March 2015 averages 81.1% (31 March 2014: 81.1%). The projected revenues and costs have been adjusted for estimated cost inflation and revenue growth. The average time assumed for the 69 stores to trade at their maturity levels is 24 months (31 March 2014: 31.5 months). 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 student housing and hotels, bank base rates, ten year money rates, inflation and the available evidence of transactions in the sector. The valuation included in the accounts assumes rental growth in future periods. If an assumption of no rental growth is applied to the external valuation, the net initial yield pre-administration expenses for the 69 stores is 6.4% (31 March 2014: 6.3%) rising to a stabilised net yield pre-administration expenses of 7.4% (31 March 2014: 7.8%). D. The future net cash flow projections (including revenue growth and cost inflation) have been discounted at a rate that reflects the risk associated with each asset. The weighted average annual discount rate adopted (for both freeholds and leaseholds) is 10.4% (31 March 2014: 11.0%). E. Purchaser’s costs of 5.8% (see below) have been assumed initially and sale plus purchaser’s costs totalling 6.8% are assumed on the notional sales in the tenth year in relation to the freehold stores. Short leasehold The same methodology has been used as for freeholds, except that no sale of the assets in the tenth year is assumed but the discounted cash flow is extended to the expiry of the lease. The average unexpired term of the Group’s six short leasehold properties is 16.5 years (31 March 2014: seven short leasehold properties with 16.8 years unexpired). Investment properties under construction C&W have valued the stores in development adopting the same methodology as set out above but on the basis of the cash flow projection expected for the store at opening and after allowing for the outstanding costs to take each scheme from its current state to completion and full fit-out. C&W have allowed for holding costs and construction contingency, as appropriate. One scheme does not yet have planning consent and C&W have reflected the planning risk in their valuation. 112 14. VALUATION OF INVESTMENT PROPERTYS (continued) Immature stores: value uncertainty C&W have assessed the value of each property individually. However, two of the Group’s stores are relatively immature and have low initial cash flows. C&W have endeavoured to reflect the nature of the cash flow profile for these properties in their valuation, and the higher associated risks relating to the as yet unproven future cash flows, by adjustment to the capitalisation rates and discount rates adopted. However, immature low cash flow stores of this nature are rarely, if ever, traded individually in the market, unless as part of a distressed sale or similar situation. Although, there is more evidence of immature low cash flow stores being traded as part of a group or portfolio transaction. Please note C&W’s comments in relation to market uncertainty in the self storage sector due to the lack of comparable market transactions and information. The degree of uncertainty relating to the two immature stores is greater than in relation to the balance of the properties due to there being even less market evidence that might be available for more mature properties and portfolios. C&W state that in practice, if an actual sale of the properties were to be contemplated then any immature low cash flow stores would normally be presented to the market for sale lotted or grouped with other more mature assets owned by the same entity, in order to alleviate the issue of negative or low short term cash flow. This approach would enhance the marketability of the group of assets and assist in achieving the best price available in the market by diluting the cash flow risk. C&W have not adjusted their opinion of Fair Value to reflect such a grouping of the immature assets with other properties in the portfolio and all stores have been valued individually. However, they highlight the matter to alert the Group to the manner in which the properties might be grouped or lotted in order maximise their attractiveness to the market place. C&W consider this approach to be a valuation assumption but not a Special Assumption, the latter being an assumption that assumes facts that differ from the actual facts existing at the valuation date and which, if not adopted, could produce a material difference in value. As noted above, C&W have not assumed that the entire portfolio of properties owned by the entity 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 (either higher or lower) from the aggregate of the individual values for each property in the portfolio, reflecting the lotting assumption described above. Valuation assumption for purchaser’s costs The Group’s investment property assets have been valued for the purposes of the financial statements after deducting notional purchaser’s cost of 5.8% of gross value, as if they were sold directly as property assets. The valuation is an asset valuation which is entirely linked to the operating performance of the business. They would have to be sold with the benefit of operational contracts, employment contracts and customer contracts, which would be very difficult to achieve except in a corporate structure. This approach follows the logic of the valuation methodology in that the valuation is based on a capitalisation of the net operating income after allowing a deduction for operational cost and an allowance for central administration costs. Sale in a corporate structure would result in a reduction in the assumed Stamp Duty Land Tax but an increase in other transaction costs reflecting additional due diligence resulting in a reduced notional purchaser’s cost of 2.75% of gross value. All the significant sized transactions that have been concluded in the UK in recent years were completed in a corporate structure. The Group therefore instructed C&W to carry out a Red Book valuation on the above basis, and this results in a higher property valuation at 31 March 2015 of £1,068.4 million (£45.6 million higher than the value recorded in the financial statements). The total valuations in the two Armadillo Partnerships performed by Jones Lang LaSalle are £1.6 million higher than the value recorded in the financial statements, of which the Group’s share is £0.3 million. The sum of these is £45.9 million and translates to 29.3 pence per share. We have included this revised valuation in the adjusted diluted net asset calculation (see note 14). 15. SURPLUS LAND At 31 March 2014 Transfer to investment property Disposal Additions At 31 March 2015 During the year a gain of £1,318,000 arose on the disposal of surplus land at one site (2014: no disposals). £000 6,059 (1,478) (1,497) 231 3,315 113 Notes to the Financial Statements (continued) Year ended 31 March 2015 16. TRADE AND OTHER RECEIVABLES Current Trade receivables Capital Goods Scheme receivable Other receivables Prepayments and accrued income Non-current Capital Goods Scheme receivable 31 March 2015 £000 31 March 2014 £000 3,062 184 371 12,762 16,379 2,594 1,344 384 9,209 13,531 9,039 7,620 Trade receivables are net of a bad debt provision of £19,000 (2014: £42,000). The Directors consider that the carrying amount of trade and other receivables approximates their fair value. The Financial Review contains commentary on the Capital Goods Scheme receivable. Trade receivables The Group does not typically offer credit terms to its customers, requiring them to pay in advance of their storage period and hence the Group is not exposed to significant credit risk. 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 on a specific basis. 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 determined by reference to past default experience. For individual storage customers, the Group does not perform credit checks, however this is mitigated by the fact that these customers are required to pay in advance, and also to pay a deposit ranging from between one week to 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. Included in the Group’s trade receivable balance are debtors with a carrying amount of £210,000 (2014: £285,000) 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 average age of these receivables is 43 days past due (2014: 37 days past due). Ageing of past due but not impaired receivables 1 – 30 days 30 – 60 days 60 + days Total Movement in the allowance for doubtful debts Balance at the beginning of the year Amounts provided in year Amounts written off as uncollectible Balance at the end of the year 2015 £000 44 33 133 210 2015 £000 42 99 (122) 19 2014 £000 136 52 97 285 2014 £000 45 73 (76) 42 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 credit provision required in excess of the allowance for doubtful debts. 114 16. TRADE AND OTHER RECEIVABLES (continued) Ageing of impaired trade receivables 1 – 30 days 30 – 60 days 60 + days Total 17. TRADE AND OTHER PAYABLES Current Trade payables Other payables Accruals and deferred income Amounts owed to associate VAT repayable under Capital Goods Scheme 2015 £000 – 3 16 19 2014 £000 – 5 37 42 31 March 2015 £000 31 March 2014 £000 11,653 7,286 13,640 – 33 32,612 10,758 5,647 10,330 2 81 26,818 The Group has financial risk management policies in place to ensure that all payables are paid within the credit terms. The Directors consider the carrying amount of trade and other payables and accruals and deferred income approximates fair value. 18. 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 debt, which includes the borrowings disclosed in note 19, cash and cash equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings. The Group’s debt facilities require 50% of total drawn debt to be fixed. The Group has complied with this during the year. With the exception of derivative instruments which are classified as a financial liability at fair value through the profit and loss (“FVTPL”), financial liabilities are categorised under amortised cost. All financial assets are categorised as loans and receivables. Exposure to credit, interest rate and currency risks arises in the normal course of the Group’s business. Derivative financial instruments are used to manage exposure to fluctuations in interest rates, but are not employed for speculative purposes. Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements. A. Balance sheet management 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: Debt Cash and cash equivalents Net debt Balance sheet equity Net debt to equity ratio 31 March 2015 £000 (285,334) 8,194 (277,140) 750,914 36.9% 31 March 2014 £000 (229,368) 3,301 (226,067) 594,064 38.1% Debt is defined as long-term and short-term borrowings, as detailed in note 19, excluding finance leases and debt issue costs. Equity includes all capital and reserves of the Group attributable to equity holders of the Company. Net debt is defined as gross bank borrowings less cash and cash equivalents. 115 Notes to the Financial Statements (continued) Year ended 31 March 2015 18. FINANCIAL INSTRUMENTS (continued) B. Debt management The Group currently borrows through a senior term loan, secured on 40 self storage assets and sites, and through a 15 year loan with Aviva Commercial Finance Limited secured on a portfolio of 15 self storage assets. The Group also has a short term bridging loan from Lloyds of £70 million, which is to be repaid through a £70 million seven year loan from M&G Investments Limited, which will be drawn in June 2015, and secured on a portfolio of 15 self storage assets. Borrowings are arranged to ensure an appropriate maturity profile and to maintain short term liquidity. Funding is arranged in the Group through banks and financial institutions with whom the Group has a strong working relationship. C. Interest rate risk management The Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, and by the use of interest rate swap contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite; ensuring optimal hedging strategies are applied, by either positioning the balance sheet or protecting interest expense through different interest rate cycles. At 31 March 2015 the Group had two interest rate derivatives in place; £30 million fixed at 2.80% (excluding the margin on the underlying debt instrument) until September 2016, and £35 million fixed at 2.635% (excluding the margin on the underlying debt instrument) with a forward start date of 29 June 2015. This forward start swap is included in the total amount of fixed debt for the purposes of meeting the requirement to have at least 50% of debt fixed. Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of issued fixed rate debt held and the cash flow exposures on the issued variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the curves at the reporting date and the credit risk inherent in the contract, and is disclosed below. The average interest rate is based on the outstanding balances at the end of the financial year. The £30 million interest rate swap settles on a monthly basis. The floating rate on the interest rate swap is one month LIBOR. The Group settles the difference between the fixed and floating interest rate on a net basis. The £35 million forward start interest rate swap settles on a three-monthly basis. The floating rate on the interest rate swap is three month LIBOR. The Group will settle the difference between the fixed and floating interest rate on a net basis. The Group does not hedge account for its interest rate swaps and states them at fair value, with changes in fair value included in the statement of comprehensive income. The loss in the statement of comprehensive income for the year on the fair value of interest rate derivatives was £2,274,000 (2014: gain of £2,681,000). The fair value of the above derivatives at 31 March 2015 was a liability of £3,679,000 (2014: liability of £2,813,000). D. Interest rate sensitivity analysis In managing interest rate risks 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 March 2015, it is estimated that an increase of 0.5 percentage points in interest rates would have reduced the Group’s adjusted profit before tax and net equity by £805,000 (2014: reduced adjusted profit before tax by £315,000) and a decrease of 0.5 percentage points in interest rates would have increased the Group’s adjusted profit before tax and net equity by £805,000 (2014: increased adjusted profit before tax by £315,000). The sensitivity has been calculated by applying the interest rate change to the variable rate borrowings, net of interest rate swaps, at the year end. The Group’s sensitivity to interest rates has increased during the year, following the drawing of further floating rate debt. The Board monitors closely the exposure to the floating rate element of our debt. 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 19 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 does not have any foreign currency exposure. 116 18. FINANCIAL INSTRUMENTS (continued) G. Credit risk The credit risk management policies of the Group with respect to trade receivables are discussed in note 16. The Group has no significant concentration of credit risk, with exposure spread over 47,000 customers in our stores. The credit risk on liquid funds is limited because the counterparties are banks with high credit-ratings assigned by international credit-rating agencies. H. Financial maturity analysis In respect of interest-bearing financial liabilities, the following table provides a maturity analysis for individual elements. 2015 Maturity Debt Aviva mortgage Bank loan payable at variable rate Debt fixed by interest rate derivatives Total Total £000 Less than one year £000 One to two years £000 Two to five years £000 More than five years £000 94,334 161,000 30,000 285,334 2,136 70,000 – 72,136 2,243 – – 2,243 7,427 91,000 30,000 128,427 82,528 – – 82,528 The £70 million loan showing as due within one year will be repaid through the drawing of the seven year £70 million facility from M&G Investments Limited in June 2015. 2014 Maturity Debt Aviva mortgage Bank loan payable at variable rate Debt fixed by interest rate derivatives Total I. Fair values of financial instruments Total £000 Less than one year £000 One to two years £000 Two to five years £000 More than five years £000 96,368 63,000 70,000 229,368 2,034 – – 2,034 2,136 – – 2,136 7,073 63,000 70,000 140,073 85,125 – – 85,125 The fair values of the Group’s cash and short term deposits and those of other financial assets equate to their book values. Details of the Group’s receivables at amortised cost are set out in note 16. The amounts are presented net of provisions for doubtful receivables, and allowances for impairment are made where appropriate. Trade and other payables, including bank borrowings, are carried at amortised cost. Finance lease liabilities are included at the fair value of their minimum lease payments. Derivatives are carried at fair value. For those financial instruments held at valuation, the Group has categorised them into a three level fair value hierarchy based on the priority of the inputs to the valuation technique in accordance with IFRS 7. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure fair value fall within different levels of the hierarchy, the category level is based on the lowest priority level input that is significant to the fair value measurement of the instrument in its entirety. The fair value of the Group’s outstanding interest rate derivative, as detailed in note 18C, has been estimated by calculating the present value of future cash flows, using appropriate market discount rates, representing Level 2 fair value measurements as defined by IFRS 7. There are no financial instruments which have been categorised as Level 1 or Level 3. 117 Notes to the Financial Statements (continued) Year ended 31 March 2015 18. FINANCIAL INSTRUMENTS (continued) J. Maturity analysis of financial liabilities The contractual maturities based on market conditions and expected yield curves prevailing at the year end date are as follows: Interest rate swaps £000 Borrowings and interest £000 2015 From five to twenty years From two to five years From one to two years Due after more than one year Due within one year Total 2014 From five to twenty years From two to five years From one to two years Due after more than one year Due within one year Total Trade and other payables £000 – – – – 32,612 32,612 Trade and other payables £000 – – – – 26,818 26,818 885 1,213 916 3,014 1,175 4,189 Interest rate swaps £000 – 306 1,062 1,368 1,558 2,926 Finance leases £000 24,529 5,207 1,735 31,471 1,735 Total £000 140,042 164,586 15,306 319,934 117,789 114,628 158,166 12,655 285,449 82,267 367,716 33,206 437,723 Borrowings and interest £000 115,534 155,696 12,279 283,509 12,279 Finance leases £000 28,355 6,308 1,646 36,309 1,646 Total £000 143,889 162,310 14,987 321,186 42,301 295,788 37,955 363,487 K. Reconciliation of maturity analyses The maturity analysis in note 18J shows non-discounted cash flows for all financial liabilities including interest payments. The table below reconciles the borrowings column in note 19 with the borrowings and interest column in the maturity analysis presented in note 18J. Borrowings £000 82,528 128,427 2,243 213,198 72,136 285,334 Borrowings £000 85,125 140,073 2,136 227,334 2,034 229,368 Unamortised borrowing costs £000 1,210 1,252 – 2,462 – 2,462 Unamortised borrowing costs £000 1,290 – – 1,290 – 1,290 Interest £000 30,890 28,487 10,412 69,789 10,131 79,920 Interest £000 29,119 15,623 10,143 54,885 10,245 65,130 Borrowings and interest £000 114,628 158,166 12,655 285,449 82,267 367,716 Borrowings and interest £000 115,534 155,696 12,279 283,509 12,279 295,788 2015 From five to twenty years From two to five years From one to two years Due after more than one year Due within one year Total 2014 From five to twenty years From two to five years From one to two years Due after more than one year Due within one year Total 118 19. BORROWINGS Secured borrowings at amortised cost Current liabilities Aviva mortgage Bank borrowings Non-current liabilities Bank borrowings Aviva mortgage Unamortised loan arrangement costs Total non-current borrowings Total borrowings 31 March 2015 £000 2,136 70,000 72,136 31 March 2014 £000 2,034 – 2,034 121,000 92,198 (2,462) 133,000 94,334 (1,290) 210,736 226,044 282,872 228,078 The weighted average interest rate paid on the borrowings during the year was 3.9% (2014: 4.5%). The Group has £49,000,000 in undrawn committed bank borrowing facilities at 31 March 2015, which expire between four and five years (2014: £22,000,000 expiring between two and three years). Additionally, the Group has a £70 million committed facility from M&G Investments Limited which it intends to draw in June 2015 to repay the bridging facility from Lloyds. The M&G facility expires in June 2022. In April 2012, the Group completed a £100 million 15 year fixed rate loan with Aviva Commercial Finance Limited. The loan is secured over a portfolio of 15 freehold self storage centres. The annual fixed interest rate on the loan is 4.9%. The loan amortises to £60 million over the course of the 15 years. The debt service is payable monthly based on fixed annual amounts. The loan outstanding on the fifth anniversary will be £89.8 million; £76.7 million outstanding on the tenth anniversary, with £60 million remaining at expiry in April 2027. The Group has a £170 million 5 year bank facility with Lloyds and HSBC expiring in August 2019. £85 million of the facility is term loan with £85 million revolving. The blended margin on the facility is 1.625%. The Group was in compliance with its banking covenants at 31 March 2015 and throughout the year. Interest rate profile of financial liabilities Interest rate profile of financial liabilities At 31 March 2015 Gross financial liabilities At 31 March 2014 Gross financial liabilities Total £000 Floating rate £000 Fixed rate £000 Weighted average interest rate Period for which the rate is fixed Weighted average period until maturity 285,334 161,000 124,334 3.3% 8.0 years 5.0 years 229,368 63,000 166,368 4.5% 7.4 years 6.1 years All monetary liabilities, including short term receivables and payables are denominated in sterling. The weighted average interest rate includes the effect of the Group’s interest rate derivatives. The Directors have concluded that the carrying value of borrowings equates to its fair value. Narrative disclosures on the Group’s policy for financial instruments are included within the Strategic Report and in note 18. 20. DEFERRED TAX Deferred tax assets in respect of share based payments (£0.2 million), interest rate swaps (£0.7 million), corporation tax losses (£5.4 million), capital allowances in excess of depreciation (£0.4 million) and capital losses (£1.1 million) in respect of the non-REIT taxable business have not been recognised due to uncertainty over the projected tax liabilities arising in the short term within the non-REIT taxable business. 119 Notes to the Financial Statements (continued) Year ended 31 March 2015 21. OBLIGATIONS UNDER FINANCE LEASES Amounts payable under finance leases: Within one year Within two to five years inclusive Greater than five years Less: future finance charges Present value of lease obligations Minimum lease payments 2015 £000 2014 £000 Present value minimum of lease payments 2015 £000 2014 £000 1,735 6,942 24,529 33,206 1,646 7,954 28,355 37,955 1,705 6,077 13,047 20,829 1,615 6,973 15,226 23,814 (12,377) (14,141) 20,829 23,814 All lease obligations are denominated in sterling. Interest rates are fixed at the contract date. All leases are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments. The carrying amount of the Group’s lease obligations approximates their fair value. 22. SHARE CAPITAL Authorised 2015 £000 2014 £000 Called up, allotted and fully paid 2015 £000 2014 £000 Ordinary shares of 10 pence each 20,000 20,000 15,806 14,306 Movement in issued share capital Number of shares at 31 March 2013 Exercise of share options – Share option schemes Number of shares at 31 March 2014 Exercise of share options – Share option schemes Share placing Number of shares at 31 March 2015 The Company has one class of ordinary shares which carry no right to fixed income. At 31 March 2015 options in issue to Directors and employees were as follows: Date option Granted 9 July 2008 3 August 2009 12 July 2010 28 February 2011 19 July 2011 12 March 2012 11 July 2012 12 March 2013 19 July 2013 25 February 2014 29 July 2014 16 March 2015 Option price per ordinary share nil p** nil p** nil p** 263p* nil p** 240p* nil p** 305.5p* nil p** 442.6p* nil p** 494.6p* Date first exercisable 9 July 2011 3 August 2012 12 July 2013 28 February 2014 19 July 2013 1 April 2015 11 July 2015 1 April 2016 19 July 2016 1 April 2017 29 July 2017 1 April 2018 Date on which the exercise period expires 8 July 2018 2 August 2019 11 July 2020 29 August 2014 19 July 2021 1 October 2015 10 July 2022 1 October 2016 19 July 2023 1 October 2017 29 July 2024 1 October 2018 * SAYE (see note 23) ** LTIP (see note 23) 142,639,647 421,500 143,061,147 641,877 14,352,711 158,055,735 Number of ordinary shares 2015 – 2,075 5,807 – 14,587 92,347 616,977 32,254 511,821 24,711 511,091 106,541 Number of ordinary shares 2014 7,320 5,625 14,049 24,471 485,582 99,088 621,977 38,954 514,821 25,686 – – 1,918,211 1,837,573 120 22. SHARE CAPITAL (continued) Own shares The own shares reserve represents the cost of shares in Big Yellow Group PLC purchased in the market, and held by the Big Yellow Group PLC Employee Benefit Trust, along with shares issued directly to the Employee Benefit Trust. 1,500,000 shares are held in the Employee Benefit Trust (2014: 1,500,000), and 1,418,750 shares are held in treasury (2014: 1,418,750). 23. SHARE-BASED PAYMENTS The Company has four equity share-based payment arrangements, namely approved and unapproved share option schemes, an LTIP scheme, an Employee Share Save Scheme (“SAYE”) and a Long Term Bonus Performance Plan. The Group recognised a total expense in the year related to equity-settled share-based payment transactions of £2,059,000 (2014: £1,437,000). Equity-settled share option plans The Group granted options to employees under Approved and Unapproved Inland Revenue Share option schemes between November 1999 and November 2003. Since 2004 the Group has operated an Employee Share Save Scheme (“SAYE”) which allows any employee who has more than six months service to purchase shares at a 20% discount to the average quoted market price of the Group shares at the date of grant. The associated savings contracts are three years at which point the employee can exercise their option to purchase the shares or take the amount saved, including interest, in cash. The scheme is administered by Yorkshire Building Society. On an annual basis since 2004 the Group awarded nil-paid options to senior management under the Group’s Long Term Incentive Plan (“LTIP”). The awards are conditional on the achievement of challenging performance targets as described on page 70 of the Remuneration Report. The awards granted in 2004, 2005 and 2006 vested in full. The awards granted in 2007 and 2009 lapsed, and the awards granted in 2008 and 2010 partially vested. The awards granted in 2011 fully vested in the year. The weighted average share price at the date of exercise for options exercised in the year was £5.40 (2014: £4.50). 14,350 options were exercised in the prior year for the “ESO” share option scheme. These were the last options remaining under this scheme. LTIP scheme Outstanding at beginning of year Granted during the year Lapsed during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year The weighted average fair value of options granted during the year was £907,000 (2014: £759,000). 2015 No. of options 2014 No. of options 1,649,374 724,345 (93,955) (617,406) 1,746,765 514,821 (213,310) (398,902) 1,662,358 1,649,374 22,469 – Employee Share Save Scheme (“SAYE”) Outstanding at beginning of year Granted during the year Forfeited during the year Exercised during the year Outstanding at the end of the year Exercisable at the end of the year 2015 Weighted average exercise price £ 2.84 4.95 2.83 2.63 3.74 – 2015 No. of options 188,199 106,541 (14,416) (24,471) 255,853 – 2014 Weighted average exercise price £ 2.61 3.04 2.74 2.55 2.84 – 2014 No. of options 198,646 25,686 (27,885) (8,248) 188,199 – 121 Notes to the Financial Statements (continued) Year ended 31 March 2015 23. SHARE-BASED PAYMENTS (continued) Options outstanding at 31 March 2015 had a weighted average contractual life of 2 years (2014: 1.8 years). The inputs into the Black-Scholes model are as follows: Expected volatility Expected life Risk-free rate Expected dividends LTIP SAYE 22% 3 years 0.7% 4.1% 24% 3 years 0.7% 4.1% Expected volatility was determined by calculating the historical volatility of the Group’s share price over the year prior to grant. Long Term bonus performance plan The Group has a joint share ownership plan in place. This is accounted for as an equity instrument. The plan was set up in November 2012. Directors have a partial interest in 1,500,000 shares with the Group’s Employee Benefit Trust. The fair value of each award is £2 subject to the vesting criteria as set out in the Directors’ Remuneration Report. At 31 March 2015 the weighted average contractual life was 0.6 years. 24. CAPITAL COMMITMENTS At 31 March 2015 the Group had capital commitments of £4.4 million in respect of the acquisition of a property in Cambridge, which completed on 1 April 2015. There were no other amounts contracted but not provided in respect of the Group’s properties as at 31 March 2015 (2014: no capital commitments). 25. EVENTS AFTER THE BALANCE SHEET DATE There are no reportable post balance sheet events. 26. RELATED PARTY TRANSACTIONS Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions with Big Yellow Limited Partnership As described in note 13, the Group had a 33.3% interest in Big Yellow Limited Partnership, and entered into transactions with the Partnership during the year on normal commercial terms as shown in the table below. From 1 December 2014 the Partnership was wholly owned by the Group and therefore from this date activity with the Partnership is no longer shown in this note. Transactions with Armadillo Storage Holding Company Limited As described in note 13, the Group has a 20% interest in Armadillo Storage Holding Company Limited, and entered into transactions with Armadillo during the period on normal commercial terms as shown in the table below. In the prior year fees earned from Armadillo were not a related party transaction. Transactions with Armadillo Storage Holding Company 2 Limited As described in note 13, the Group has a 20% interest in Armadillo Storage Holding Company 2 Limited, and entered into transactions with Armadillo during the period on normal commercial terms as shown in the table below. Fees earned from Big Yellow Limited Partnership (to 30 November 2014) Fees earned from Armadillo 1 (since 16 April 2014) Fees earned from Armadillo 2 Balance due from the Partnership Balance due from Armadillo 1 Balance due from Armadillo 2 31 March 2015 £000 31 March 2014 £000 458 560 208 – 287 71 640 – – 338 – – 122 26. RELATED PARTY TRANSACTIONS (continued) The remuneration of the Executive and Non-Executive Directors, who are the key management personnel of the Group, is set out below in aggregate. Further information on the remuneration of individual Directors is found in the audited part of the Directors’ Remuneration Report on pages 76 to 83. Short term employee benefits Post-employment benefits Share based payments 31 March 2015 £000 1,282 95 4,410 5,787 31 March 2014 £000 1,216 92 633 1,941 AnyJunk Limited James Gibson is a Non-Executive Director and shareholder in AnyJunk Limited and Adrian Lee is a shareholder in AnyJunk Limited. During the year AnyJunk Limited provided waste disposal services to the Group on normal commercial terms, amounting to £24,000 (2014: £32,000). No other related party transactions took place during the years ended 31 March 2015 and 31 March 2014. 123 Company Balance Sheet Year ended 31 March 2015 Non-current assets Plant, equipment and owner-occupied property Investment in subsidiary companies Current assets Trade and other receivables Cash and cash equivalents Total assets Current liabilities Trade and other payables Non-current liabilities Derivative financial instruments Bank borrowings Total liabilities Net assets Equity Called up share capital Share premium account Reserves Equity shareholders’ funds Note 29a 29b 2015 £000 2014 £000 1,557 13,157 14,714 1,551 9,443 10,994 30 606,104 33 504,280 1,055 606,137 505,335 620,851 516,329 31 (2,757) (2,757) (2,096) (2,096) 32 32 (955) (189,747) (2,813) (133,000) (190,702) (135,813) (193,459) (137,909) 427,392 378,420 22 15,806 44,922 366,664 14,306 44,278 319,836 427,392 378,420 The financial statements were approved by the Board of Directors and authorised for issue on 18 May 2015. They were signed on its behalf by: James Gibson Director John Trotman Director Company Registration No. 03625199 124 Company Cash Flow Statement Year ended 31 March 2015 Operating loss Depreciation (Increase)/decrease in receivables Increase in payables Cash (used)/generated by operations Interest paid Interest received Tax credit received Cash flows from operating activities Purchase of non-current assets Cash flows from investing activities Financing activities Issue of share capital Equity dividends paid Payments to cancel interest rate derivative Refinancing fees Increase/(reduction) in borrowings Cash flows from financing activities Net decrease in cash and cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents 2015 £000 (974) 36 (100,333) 661 2014 £000 (529) 34 31,097 623 (100,610) 31,225 (5,126) 9 184 (5,784) 8 – (105,543) 25,449 (41) (41) – – 77,094 (27,890) (1,408) (1,234) 58,000 42 (19,591) – (7,000) 104,562 (26,549) (1,022) 1,055 33 (1,100) 2,155 1,055 125 Company Statement of Changes in Equity Year ended 31 March 2015 At 1 April 2014 Total comprehensive loss for the year Equity dividends paid Issue of share capital Credit to equity for equity-settled share based payments Share capital £000 14,306 – – 1,500 Share premium accounts £000 44,278 – – 644 Other non- distributable reserve £000 Capital redemption reserve £000 – – – 74,950 1,653 – – – Retained earning £000 323,806 (2,291) (27,890) – Own shares £000 (5,623) – – – Total £000 378,420 (2,291) (27,890) 77,094 – – – – 2,059 – 2,059 At 31 March 2015 15,806 44,922 74,950 1,653 295,684 (5,623) 427,392 The Company’s share capital is disclosed in note 22. The own shares balance represents amounts held in treasury and by the Employee Benefit Trust (see note 22). The other non-distributable reserve arose in the year following the placing of 14.35 million ordinary shares. Year ended 31 March 2014 At 1 April 2013 Total comprehensive gain for the year Equity dividends paid Issue of share capital Credit to equity for equity-settled share based payments Share capital £000 14,264 – – 42 Share premium account £000 44,278 – – – Capital redemption reserve £000 1,653 – – – Retained earnings £000 339,054 2,906 (19,591) – Own shares £000 (5,623) – – – Total £000 393,626 2,906 (19,591) 42 – – – 1,437 – 1,437 At 31 March 2014 14,306 44,278 1,653 323,806 (5,623) 378,420 126 Notes to the Financial Statements (continued) Year ended 31 March 2015 27. (LOSS)/PROFIT FOR THE YEAR As permitted by section 408 of the Companies Act 2006, the statement of comprehensive income of the Company is not presented as part of these financial statements. The loss for the year attributable to equity shareholders dealt with in the financial statements of the Company was £2.3 million (2014: profit of £2.9 million). 28. BASIS OF ACCOUNTING The separate financial statements of the Company are presented as required by the Companies Act 2006. As permitted by that Act, the separate financial statements have been prepared in accordance with International Financial Reporting Standards. The financial statements have been prepared on the historic cost basis except that derivative financial instruments are stated at fair value. The Company’s principal accounting policies are the same as those applied in the Group financial statements. See note 23 for details of share based payments affecting the Company. Going concern See note 2 for the review of going concern for the Group and the Company. IFRIC 11, IFRS 2 Group and Treasury Share Transactions The Company makes equity settled share based payments to certain employees of certain subsidiary undertakings. Equity settled share based payments that are made to the employees of the Company’s subsidiaries are treated as increases in equity over the vesting period of the award, with a corresponding increase in the Company’s investments in subsidiaries, based on an estimate of the number of shares that will eventually vest. This is the only addition to investment in subsidiaries in the current year. The Company does not have any employees. 29. NON-CURRENT ASSETS a) Plant, equipment and owner occupied property Cost At 31 March 2014 Additions At 31 March 2015 Accumulated depreciation At 31 March 2014 Charge for the year At 31 March 2015 Net book value At 31 March 2015 At 31 March 2014 b) Investments in subsidiary companies Cost At 31 March 2014 Additions At 31 March 2015 Freehold property £000 Leasehold improvements £000 1,843 42 1,885 (293) (35) (328) 1,557 1,551 18 – 18 (17) (1) (18) – – Total £000 1,861 42 1,903 (310) (36) (346) 1,557 1,551 Investment in subsidiary undertakings £000 9,443 3,714 13,157 127 Notes to the Financial Statements (continued) Year ended 31 March 2015 29. NON-CURRENT ASSETS (continued) b) Investments in subsidiary companies (continued) The Group comprises a large number of companies so has taken advantage of the exemption under section 410(2) of the Companies Act 2006 in providing information only in relation to subsidiary undertakings whose results or financial position, in the opinion of Directors, principally affect the financial statements. The principal subsidiaries, wholly-owned and, except where stated, registered and operating in England and Wales, are: Name of subsidiary .Big Yellow Self Storage Company Limited Big Yellow Self Storage Company A Limited Big Yellow Self Storage Company 8 Limited BYSSCo Limited Big Yellow Limited Partnership Big Yellow Self Storage Company M Limited Big Yellow Holding Company Limited BYRCo Limited Big Yellow Construction Company Limited .Big Yellow Self Storage (GP) Limited Place of incorporation ownership (or registration) and operation Proportion of ownership interest % Proportion of voting power held % Principal activity UK UK UK UK UK UK UK UK UK UK 100 100 100 100 100 100 100 100 100 100 Self storage 100 Self storage 100 Self storage 100 Self storage 100 Self storage 100 Self storage 100 Holding Company 100 100 Property management 100 Construction management General Partner 100 Details of the Company’s associates at 31 March 2015 are as follows: Name of associate Armadillo Storage Holding Company Limited Armadillo Storage Holding Company 2 Limited Place of incorporation ownership (or registration) and operation Proportion of ownership interest % Proportion of voting power held % Principal activity UK UK 20 20 20 Self Storage 20 Self Storage Big Yellow Limited Partnership was a 33.3% associate until its acquisition by the Group on 1 December 2014. 31 March 2015 £000 606,001 103 31 March 2014 £000 504,174 106 606,104 504,280 31 March 2015 £000 31 March 2014 £000 2,277 480 2,757 1,631 465 2,096 30. TRADE AND OTHER RECEIVABLES Amounts owed by Group undertakings Prepayments and accrued income 31. TRADE AND OTHER PAYABLES Current Other payables Accruals and deferred income 128 32. BANK BORROWINGS AND FINANCIAL INSTRUMENTS Interest rate derivatives The Company has one interest rate swap in place at the year end; £30 million fixed at 2.80% (excluding the margin on the underlying debt instrument) until September 2016. The floating rate at 31 March 2015 was paying a margin of 1.4% above one month LIBOR, the fixed rate debt was paying a weighted average margin of 1.75%. The Group’s policy on risk management is set out in the Report on Corporate Governance on page 60 and in note 18. Bank borrowings Unamortised loan arrangement fees Maturity profile of financial liabilities Between one and two years Between two and five years Gross financial liabilities 31 March 2015 £000 191,000 (1,253) 31 March 2014 £000 133,000 – 189,747 133,000 2015 Financial liabilities £000 70,000 121,000 2014 Financial liabilities £000 – 133,000 191,000 133,000 The fair value of interest rate derivatives at 31 March 2015 was a liability of £955,000 (2014: liability of £2,813,000). See note 18 for detail of the interest rate profile of financial liabilities. 33. FINANCIAL INSTRUMENTS The disclosure relating to the Company’s financial instruments are disclosed in note 18 to the Group financial statements. These disclosures are relevant to the Company’s bank borrowings and derivative financial instruments. In addition, the Company has trade and other payables of £2,757,000 in the current year (2014: £2,096,000), which are held at amortised cost in the financial statements. 34. RELATED PARTY TRANSACTIONS Included within these financial statements are amounts owing from Group undertakings of £606,001,000 (2014: £504,174,000), including intercompany interest receivable of £5,892,000 (2014: £6,545,000). 129 Ten Year Summary Year ended 31 March 2015 Results Revenue Operating profit before gains and losses on property assets Cash flow from operating activities Profit/(loss) before taxation Adjusted profit before taxation 2015 £000 2014 £000 2013 £000 2012 £000 2011 £000 2010 £000 2009 £000 2008 £000 2007 £000 2006 £000 84,276 72,196 69,671 65,663 61,885 57,995 58,487 56,870 51,248 41,889 48,420 39,537 37,454 35,079 32,058 29,068 30,946 29,342 27,067 21,645 42,397 32,752 30,186 27,388 23,534 19,063 10,203 14,388 16,726 16,125 105,236 59,848 31,876 (35,551) 6,901 10,209 (71,489) 102,618 152,837 118,547 39,405 29,221 25,471 23,643 20,207 16,514 13,791 15,006 14,233 12,601 Net assets 750,914 594,064 552,628 494,500 544,949 547,285 502,317 580,886 487,979 244,139 EPRA earnings per share Declared total dividend per share Key statistics Number of stores open Sq ft occupied (000) Occupancy increase in year 000 sq ft) Number of customers Average no. of employees during the year 27.1p 20.5p 19.3p 18.2p 15.5p 13.0p 11.9p 11.7p 10.0p 8.9p 21.7p 16.4p 11.0p 10.0p 9.0p 4.0p 0p 9.5p 9.0p 5.0p 69 3,178 66 2,832 66 2,632 65 2,458 62 2,130 60 1,915 54 1,775 48 1,850 43 1,835 37 1,672 346 47,250 200 41,800 174 38,500 328 36,300 215 32,800 140 30,500 (75) 28,500 15 30,500 163 30,100 202 27,800 300 289 286 279 273 252 239 218 191 178 130 The paper used in this report is produced with FSC® mixed sources pulp which is partially recyclable, biodegradable, pH Neutral, heavy metal absence and acid-free. It is manufactured within a mill which complies with the international environmental ISO 14001 standard. Pureprint Ltd is FSC certified, PEFC certified and ISO 14001 certified showing that it is committed to all round excellence and improving environmental performance is an important part of this strategy. We aim to reduce at source the effect our operations have on the environment, and are committed to continual improvement, prevention of pollution and compliance with any legislation or industry standards. Pureprint Ltd is a Carbon Neutral® Printing Company. Designed and produced by MAGEE www.magee.co.uk Printed by Pureprint Ltd You can access more information about us on our website bigyellow.co.uk Big Yellow Group PLC 2 The Deans, Bridge Road, Bagshot, Surrey GU19 5AT Tel: 01276 470190 Fax: 01276 470191 e-mail: info@bigyellow.co.uk i B g Y e l l o w G r o u p P L C A n n u a l R e p o r t & A c c o u n t s 2 0 1 5 Big Yellow Group PLC Annual Report & Accounts 2015 Why ? think… Big Yellow Because we are about more than just storage. people service security locations facilities innovation growth Get some space in your life.™ think… people service security locations facilities innovation growth 

Continue reading text version or see original annual report in PDF format above