Big Yellow Group
Annual Report 2017

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 7 Big Yellow Group PLC Annual Report & Accounts 2017 The UK’s brand leader in Self Storage Get some space in your life.™ WE HAVE DELIVERED A STRONG PERFORMANCE IN 2017, ANOTHER YEAR OF REVENUE, CASH FLOW, EARNINGS AND DIVIDEND GROWTH. Big Yellow Group PLC is the UK’s brand leader in self storage. Big Yellow now operates from a platform of 92 stores, including 19 stores branded as Armadillo Self Storage, in which the Group has a 20% interest. We own a further eight Big Yellow self storage development sites (including two extensions sites), of which two have planning consent. The current maximum lettable area of this platform is 5.4 million sq ft. When fully built out the portfolio will provide approximately 5.8 million sq ft of flexible storage space. Of the Big Yellow stores and sites, 96% by value are held freehold and long leasehold; with the remaining 4% short leasehold. The Group has 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 Big Yellow stores, coupled with our excellent customer service and our market leading online platform, has created the most recognised brand name in the UK self storage industry. WE ARE… BRITAIN’S FAVOURITE SELF STORAGE COMPANY ifc1 WELCOME We continue to deliver year on year growth in all of our key operating metrics. Since flotation, we have delivered a total shareholder return with dividends reinvested of 14.7% per annum. Occupancy +2.7ppts Closing net rent per sq ft (£m) +1% Revenue (£m) +8% 78.0 75.3 73.2 69.8 64.8 2013 2014 2015 2016 2017 +13.2 ppts over 5 years £27.00 £26.00 £25.00 £24.00 £23.00 £22.00 £21.00 £20.00 26.15 25.90 26.03 25.23 24.65 2013 2014 2015 2016 2017 +6% over 5 years 120.0 110.0 100.0 90.0 80.0 70.0 60.0 50.0 109.1 101.4 84.3 72.2 69.7 2013 2014 2015 2016 2017 +57% over 5 years (%) 80% 75% 70% 65% 60% 55% 50% Adjusted profit before tax (£m) +11% Adjusted earnings per share (pence) +11% Dividend per share (pence) +11% 60 55 50 45 40 35 30 25 20 15 54.6 49.0 39.4 29.2 25.5 2013 2014 2015 2016 2017 +114% over 5 years 40 35 30 25 20 15 10 34.5 31.1 27.1 20.5 19.3 2013 2014 2015 2016 2017 Carbon intensity (per sq m occupied) (13%) Net Promoter Score 30.0 25.0 20.0 15.0 10.0 5.0 0.0 +79% over 5 years +7% 27.6 24.9 21.7 16.4 11.0 2013 2014 2015 2016 2017 +151% over 5 years 30 25 20 15 10 5 0 26.5 22.6 17.3 14.6 12.7 2013 2014 2015 2016 2017 (52%) over 5 years 80 75 70 65 60 55 50 76.6 71.6 66.5 60.1 2014 2015 2016 2017 +27% over 5 years Over the following pages: We outline the core qualities of our business and explain how we stay ahead of the game. 1 HIGHLIGHTS OF THE YEAR CONTINUED GROWTH IN OUR KEY OPERATING METRICS. FINANCIAL HIGHLIGHTS Financial metrics Revenue Like-for-like revenue(1) Adjusted profit before tax(2) Adjusted diluted EPRA earnings per share(3) Dividend – final – total Free cash flow (after net finance costs and pre working capital)(5) Store metrics Occupancy growth(4) Occupancy – like-for-like stores (%)(1,4) Average net achieved rent per sq ft(4) Statutory metrics Year ended 31 March 2017 £109.1m £107.3m £54.6m 34.5p 14.1p 27.6p £58.3m Year ended 31 March 2016 £101.4m £101.4m £49.0m 31.1p 12.8p 24.9p £53.3m % Growth 8 6 11 11 10 11 10 188,000 sq ft 78.1% £26.16 185,000 sq ft 75.3% £25.73 2 2.8 ppts 2 Profit before tax Cash flow from operating activities (after net finance costs) Basic earnings per share £99.8m £56.0m 63.6p £112.2m £55.5m 71.9p (11) 1 (12) (1) Like-for-like metrics exclude Nine Elms and Twickenham 2 (acquired April 2016). (2) See note 10. (3) See note 12. (4) See Portfolio Summary and Operating and Financial Review. (5) See reconciliation in Financial Review. 2 THE MARKET LEADING BRAND, WITH THE LARGEST ONLINE MARKET SHARE. 3 CONTINUED GROWTH > Like-for-like occupancy increased by 2.8 ppts to 78.1% > 11% increase in adjusted earnings per share and total dividend > Free cash flow (after net finance costs and pre working capital movements5) up 10% to £58.3 million > Acquisition of four store Lock and Leave portfolio in April 2016 for £21 million – Nine Elms and Twickenham acquired by Big Yellow (combined MLA of 87,000 sq ft) – Canterbury and West Molesey acquired by Armadillo (combined MLA of 65,000 sq ft) > Acquisition by Armadillo of three stores from the Quickstore portfolio (Exeter, Plymouth and Torquay, combined MLA 92,000 sq ft) in April 2017 for £4.75 million > Acquisition in May 2017 of prime London site on the Highway in Wapping, just east of the City, for future redevelopment WE BELIEVE THAT BIG YELLOW’S MARKET LEADING BRAND AND OPERATING PLATFORM CAN DELIVER ATTRACTIVE AND SUSTAINABLE GROWTH OVER THE MEDIUM TO LONG TERM FROM ITS EXISTING PORTFOLIO. A Year of Further Achievement But our focus remains on the Future Nicholas Vetch, Executive Chairman of Big Yellow, commented: “Trading over the last few months has been better than we anticipated, and is encouraging as we head into our seasonally stronger summer trading period. Nevertheless, these are uncertain times and we remain fully prepared for any economic reversals which could cause demand to fluctuate. We can expect to break through 80% occupancy this summer putting us within touching distance of our (for the time being) long held goal of 85%. Occupancy gain remains the primary point of focus. As our vacant capacity reduces, it increases the imperative to create more. The tight supply of land in our core areas of activity, and a planning regime broadly focussed on housing, remain very significant barriers for our competitors and ourselves. We have the required property and planning skills, an ability to take the necessary risks, a strong balance sheet and we are prepared to take long term views. These factors work in our favour but unlocking new opportunities for new stores remains challenging. That said, we believe that Big Yellow’s market leading brand and operating platform can deliver attractive and sustainable growth over the medium to long term from its existing portfolio.” +2.8PPTS +2% Like-For-Like Closing Occupancy Average Achieved Net Rent Per Sq Ft +8% Revenue +11% Adjusted Profit Before Tax +10% Free Cash Flow (after net finance costs and pre working capital) +11% Adjusted EPRA Diluted Earnings Per Share DRIVING OCCUPANCY, REVENUE AND CASH FLOW GROWTH 4 BY CREATING A POWERFUL NATIONWIDE BRAND, BIG YELLOW IS FRONT OF MIND FOR MORE CUSTOMERS IN OUR MARKET THAN OUR COMPETITORS, WITH SIGNIFICANT POTENTIAL TO INCREASE THIS BRAND AWARENESS. Our Competitive Advantage The things that set us apart > UK 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 > Strong customer satisfaction and NPS scores reflecting excellent customer service > Largest UK self storage footprint by Maximum Lettable Area (“MLA”) capacity (Big Yellow and Armadillo combined) > 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 WE PUT THE CUSTOMER AT THE HEART OF OUR BUSINESS 5 BIG YELLOW IS WELL PLACED TO BENEFIT FROM THE GROWING DEMANDS FOR SELF STORAGE. Reasons For Using Big Yellow Businesses 35% by space 20% by customer numbers Domestics 65% by space 80% by customer numbers Overall Occupied Space 31 March 2017 Other 12% Student 10% Travelling 6% Business 12% Moving 43% Decluttering 11% Home Improvements 6% Demand Profile of Move-ins only year ended 31 March 2017 6 HOUSE MOVERS, EITHER IN THE RENTAL OR OWNER OCCUPIED SECTOR, CONTINUE TO BE A KEY SEGMENT OF OUR CUSTOMER BASE. 7 Our Marketplace Demand for self storage comes from a number of different market segments House movers, either in the rental or owner occupied sector, continue to be a key segment of our customer base. Demand also comes from people decluttering their space constrained homes, treating Big Yellow as a spare room. Key life events which invariably create a need for storage are also an important driver of demand; maybe moving abroad for a job, inheriting possessions, getting married or separating, homeowners carrying out home improvements or students needing space during the holidays. 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. There is a growing trend towards self-employment and smaller business start-ups in the UK, dynamics which are positive for self storage. Additionally, businesses in the UK are increasingly seeking more flexible lease arrangements for their office and storage space. The deindustrialisation of big cities also points to a structural growth in demand for storage for businesses. STRONG GROWTH OPPORTUNITIES WE ARE ALWAYS LOOKING FOR INNOVATIVE WAYS TO HELP OUR CUSTOMERS’ LIVES AND MAKE THE BUSINESS MORE ENVIRONMENTALLY SUSTAINABLE. Innovation Always looking to the future We continuously improve our digital channels to provide our website visitors with an online experience which is quick, user friendly and provides comprehensive information on how Big Yellow works. Online FAQs, live chat, video guides, intuitive room size guides and online prices help guide people through the process when choosing space. The ability to reserve space online and a speedy online check in service also help provide our customers with a stress free experience. Our online BoxShop allows customers to buy boxes and packing materials online and have them either delivered to their home or pick them up from store with our Click and Collect service. Innovative building design is part of our commitment to a more sustainable business. We incorporate the latest technologies such as energy efficient LED lighting and solar panels to reduce our carbon footprint and produce our own renewable energy. CONTINUALLY IMPROVING OUR DIGITAL PLATFORMS 8 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. 9 Security Ensuring our customers have peace of mind We take security very seriously and are the only major UK operator where every room is individually alarmed. Customers access the storage areas and their own rooms using a PIN code which is unique to them. We have staff on site seven days a week and CCTV which is monitored 24 hours a day. Perimeter fencing and electronic gates provide an additional layer of security. All of our stores are modern and brightly lit and are situated in safe locations, easily accessible from main roads. Security and vigilance is communicated to all store staff and reinforced through regular training. THE HIGHEST LEVELS OF SECURITY IN THE UK SELF STORAGE INDUSTRY WE HAVE AN UNRIVALLED PORTFOLIO OF STORES ACROSS LONDON, THE SOUTH EAST AND LARGE METROPOLITAN CITIES. 5.4 MILLION SQ FT Current maximum lettable area 450,000 SQ FT Development pipeline is in excess of 450,000 sq ft with an estimated cost to complete of £70 million London – 44 stores and sites WATFORD A1(M) ENFIELD EDMONTON STAPLES CORNER NORTH FINCHLEY EAST FINCHLEY M40 HANGER LANE EALING ILFORD ROMFORD KINGS CROSS GYPSY CORNER BOW BARKING DAGENHAM HOUNSLOW CHISWICK NORTH KENSINGTON KENNINGTON WAPPING RICHMOND TWICKENHAM x2 FULHAM SHEEN NINE ELMS CAMBERWELL WANDSWORTH BATTERSEA NEW CROSS BALHAM M4 KINGSTON NEW MALDEN TOLWORTH ELTHAM MERTON WEST NORWOOD BECKENHAM BROMLEY M2 WEST MOLESEY SUTTON CROYDON ORPINGTON BYFLEET M3 M20 Our Portfolio An extensive national network Our customers like our modern, highly visible, purpose built stores which are situated in easily accessible locations. In the year, Big Yellow has acquired two stores from Lock and Leave at Nine Elms and Twickenham. Armadillo purchased Canterbury and West Molesey from the same operator. In April 2017, Armadillo acquired three stores in the South West from QuickStore. In May 2017, Big Yellow acquired a prime development site in Wapping. This adds to our development pipeline which also includes Kings Cross, Camberwell, Battersea and an extension to our Wandsworth site in London with other sites in Guildford, Manchester and Newcastle. We have an unrivalled portfolio across London, the South East and large metropolitan cities, with a network of 92 stores. HIGHLY VISIBLE STORES REINFORCE OUR BRAND 24/7 10 KEY 73 Big Yellow stores 6 New Big Yellow stores under development 19 Armadillo stores 73 EASY TO FIND, HIGH PROFILE LOCATIONS PROVIDE CONVENIENCE FOR CUSTOMERS AND UNMISSABLE EXPOSURE FOR THE BIG YELLOW BRAND. 19 ARMADILLO STORES FURTHER BROADEN OUR NATIONAL COVERAGE. High profile locations. DUNDEE EDINBURGH NEWCASTLE STOCKTON MORECAMBE Outside London – 54 stores and sites LIVERPOOL NORTH LIVERPOOL LIVERPOOL SOUTH CHESTER LEEDS HULL MANCHESTER WARRINGTON STOCKPORT SHEFFIELD HILLSBOROUGH SHEFFIELD WESTBAR CHEADLE SHEFFIELD PARKWAY SHEFFIELD BRAMALL LANE MACCLESFIELD STOKE-ON-TRENT DERBY BIRMINGHAM CHELTENHAM GLOUCESTER OXFORD X2 SWINDON NOTTINGHAM NORWICH PETERBOROUGH CAMBRIDGE COLCHESTER MILTON KEYNES LUTON HIGH WYCOMBE CHELMSFORD CARDIFF BRISTOL CENTRAL READING BRISTOL ASHTON GATE CAMBERLEY SLOUGH SOUTHEND London CANTERBURY GUILDFORD GUILDFORD CENTRAL PORTSMOUTH TUNBRIDGE WELLS POOLE BRIGHTON EXETER TORQUAY PLYMOUTH 11 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. Our Unrivalled Service A Brand based on People We are about much more than just storage. We are about people and their possessions. Whether it’s a house move, setting up a business or a DIY project, we understand these are all key life moments where it can get a bit stressful. At Big Yellow, our people help to take the stress away. We work hard to understand our customers’ 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 also on hand seven days a week to provide an additional layer of customer service. Excellent customer service is at the heart of our business. We measure customer service standards through a programme of mystery shopping and online customer reviews which are externally managed. Over the year, we have achieved an average net promoter score of 77 which we believe compares favourably to other consumer facing businesses. Customer reviews are 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. OUR PEOPLE ARE OUR MOST IMPORTANT ASSET 12 CONTENTS 14 16 60 61 64 68 70 85 88 89 94 95 96 97 97 Chairman’s Statement Strategic Report Our Strategy and Business Model 16 Operational and Marketing Review 18 Portfolio Summary – Big Yellow Stores 22 Our Stores 23 Portfolio Summary – Armadillo Stores 27 Store Performance 28 Financial Review 31 37 Principal Risk and Uncertainties 40 Corporate Social Responsibility Report 58 Independent Assurance Statement on the Corporate Social Responsibility Report Directors, Officers and Advisers 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 98 Notes to the Financial Statements 125 Company Balance Sheet 126 Company Cash Flow Statement 127 Company Statement of Changes in Equity 128 Notes to the Financial Statements ibc Ten Year Summary 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 13 Chairman’s Statement OUR MAIN FOCUS REMAINS ON DRIVING EARNINGS THROUGH OCCUPANCY GROWTH, AS WE TARGET OUR NEXT GOAL OF AN AVERAGE OF 85% OCCUPANCY ACROSS THE PORTFOLIO. 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 its results for the year ended 31 March 2017. Against a backdrop of increased economic uncertainty, we are pleased to have delivered another year of occupancy, revenue and adjusted earnings growth. Our main focus remains on driving earnings through occupancy growth, as we target our next goal of an average of 85% occupancy across the portfolio. Like-for-like closing Group occupancy is up 2.8 percentage points to 78.1% compared to 75.3% at 31 March 2016. In the quarter to March, with less churn in the business and a more stable demand environment, we successfully increased occupancy by 115,000 sq ft, and by a further 54,000 sq ft in the current quarter to date (2016: quarter to date gain of 7,000 sq ft). As of 22 May 2017, our occupancy across the portfolio is 79.2%. Average rental growth over the year was 1.7% with closing net rent of £26.03, representing an increase of 0.5% from the same time last year, with our focus remaining on driving occupancy in the stores. We remain focussed on occupancy gain with 85% (for the time being) our primary objective. It remains our firm belief that occupancy gains are hard won and are of significantly more value than short term increases in average rent. As our occupancy rises the rate growth will come through driven by our yield management systems. Financial results Revenue for the year was £109.1 million (2016: £101.4 million), an increase of 8%. The like-for-like revenue growth (excluding Nine Elms and Twickenham 2 acquired in April 2016) was 6%. Free cash flow (after interest costs and pre working capital movements) increased by £5.0 million (10%) to £58.3 million for the year (2016: £53.3 million). The Group’s operating profit before property revaluations increased by £5.5 million (9%) to £65.3 million. The Group’s statutory profit before tax was £99.8 million, compared to £112.2 million in the prior year. The movement is due to a lower gain in the valuation of the Group’s investment properties in the current year compared to the prior year. Given that our central overhead and operating expense is largely embedded in the business, this revenue growth has delivered an increase of 11% in the adjusted profit before tax in the year of £54.6 million (2016: £49.0 million). Adjusted earnings per share increased by 11% to 34.5p (2016: 31.1p) with an equivalent 11% increase in the dividend per share for the year. The Group has net bank debt of £298.0 million at 31 March 2017 (2016: £295.0 million). This represents approximately 25% (2016: 26%) of the Group’s gross property assets totalling £1,190.5 million (2016: £1,126.2 million) and 31% (2016: 33%) of the adjusted net assets of £963.4 million (2016: £899.0 million). The Group’s interest cover for the year, expressed as the ratio of free cash flow pre working capital movements against interest paid was 6.2 times (2016: 6.0 times). This is comfortably ahead of our internal minimum interest cover requirement of 5 times. Investment in new capacity Developing stores in our core area of London and the South East remains challenging. Sites are scarce, and faced with a housing shortage, policy makers are focussed on residential provision at the expense of commercial development. Despite the referendum result, we still expect London’s population to continue to grow, intensifying these pressures. This makes the creation of new supply difficult and we are aware of only a handful of stores likely to open in London in the next few years as legacy sites acquired before the downturn have now largely been opened. We believe that this leaves our existing platform almost irreplaceable. We and others are looking to acquire sites but even if successful, it can take three to four years to open a purpose built store. We have commenced construction at Guildford Central in the year, with a planned store opening of March 2018, and have also started on the extension to our store at Wandsworth, which is planned to complete in April 2018. After lengthy consultations we anticipate submitting planning applications on Battersea, Kings Cross and Manchester in the next few months, but as always the process is subject to the vagaries of the planning system. We are pleased to announce that in May 2017 we acquired an existing building on a 0.8 acre site on the Highway in Wapping, just east of Tower Bridge, with main road frontage, for £10.75 million. This is an area with very little supply of self storage and significant self storage drivers given the changes to the built environment over the past two decades, with high density residential and other mixed use schemes. A combination of self storage and short term tenancies under our ownership will provide an interim income while we investigate refurbishment or redevelopment options. 14 THERE HAS BEEN A FURTHER IMPROVEMENT IN OUR CUSTOMER NET PROMOTER SCORES TO AN AVERAGE OF 77 OVER THE YEAR, A VERY PLEASING RESULT. Outlook Trading over the last few months has been better than we anticipated, and is encouraging as we head into our seasonally stronger summer trading period. Nevertheless, these are uncertain times and we remain fully prepared for any economic reversals which could cause demand to fluctuate. We can expect to break through 80% occupancy this summer putting us within touching distance of our (for the time being) long held goal of 85%. Occupancy gain remains the primary point of focus. As our vacant capacity reduces, it increases the imperative to create more. The tight supply of land in our core areas of activity, and a planning regime broadly focussed on housing, remain very significant barriers for our competitors and ourselves. We have the required property and planning skills, an ability to take the necessary risks, a strong balance sheet and we are prepared to take long term views. These factors work in our favour but unlocking new opportunities for new stores remains challenging. That said, we believe that Big Yellow’s market leading brand and operating platform can deliver attractive and sustainable growth over the medium to long term from its existing portfolio. Nicholas Vetch Executive Chairman 22 May 2017 The future cost of the current pipeline of eight development sites and extensions, with a potential capacity of over 450,000 sq ft, six of which are subject to planning, and including Wapping, acquired post year end, is provisionally estimated to be approximately £70 million. This excludes any net proceeds that may be received on the redevelopment of our Battersea store and adjoining retail units into a mixed use scheme of residential, retail and self storage. The acquisitions of the Lock and Leave portfolio in April 2016 and the Quickstore portfolio since the year end are a continued demonstration of our willingness to buy existing stores for rebranding as either Big Yellows or Armadillos, from which we can drive performance through our market leading operational and digital platform. Dividends The Group’s dividend policy is to distribute 80% of full year adjusted earnings per share. The final dividend declared is 14.1 pence per share. The dividend declared for the year of 27.6 pence per share represents an increase of 11% from 24.9 pence per share last year. Our people A business will only succeed if it has a fully motivated and engaged team. From the start we have always aimed to create a culture which is accessible, apolitical, non-hierarchical, socially responsible, and very importantly, a fun and enjoyable place to work. During the year, we appointed an external consultancy to conduct an engagement survey of our employees, which delivered very pleasing levels of employee engagement of 90% in the stores and head office. In addition, we focus on customer service and engagement, measuring and responding to their feedback. Commensurate with the high levels of employee engagement, there has been a further improvement in our customer net promoter scores (“NPS”) to an average of 77 over the year, a very pleasing result. I would like to thank all those in the business for their efforts in contributing to another year of growth. Board Mark Richardson has announced that he is stepping down as a Non-Executive Director at the Group’s next AGM. He joined the Company in 2008 and over the ensuing nine years has been an excellent Audit Committee Chair and a source of sound advice and judgement. I and the Board would like to thank him for his valued contribution to Big Yellow’s success in his period of tenure. It is our intention to appoint his replacement as Audit Committee Chairman before the July AGM. 15 Strategic Report (continued) Our Strategy and Business Model Our Strategic Report discusses the following areas: > Our strategy and business model > Operational and marketing review > Store performance > Financial review > Principal risks and uncertainties > Going concern basis and viability statement > Corporate social responsibility Approval This report was approved by the Board of Directors on 22 May 2017 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, delivering excellent customer service, with a great culture and highly motivated employees. We continue to be the market leading brand, with unprompted awareness of seven times that of our nearest competitor (source: YouGov survey, April 2017). We concentrate on developing our stores in main road locations with high visibility, where our distinctive branding generates high awareness of Big Yellow. Our accreditation in 2016 for the Best 100 Companies to work for was pleasing as an independent assessment of our employee engagement, and our customer satisfaction survey scores remain very high, with an average customer net promoter score of 77, and average Trustpilot scores of 9.5 out of 10. 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. As can be seen from the ten year summary, the performance of our stores was relatively resilient during the downturn, and within that London and the South East proved to be less volatile. 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 densely populated 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 18 years we have built a portfolio of 73 Big Yellow self storage centres, largely freehold, purpose-built and focussed on London, the South East and large metropolitan cities. We have seen an increase in our weighting to London and the South East as a result of recent openings and acquisitions. 66% of our current annualised store revenue derives from within the M25 (2016: 63%); for London and the South East, the proportion of current annualised store revenue is 83% (2016: 80%). Our Big Yellow stores are on average 63,000 sq ft, compared to an industry average of approximately 43,000 sq ft (source: The Self Storage Association 2017 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 increasing occupancy and rental yield in our existing platform to drive revenue, the majority of which flows through to the bottom line. Our key objectives remain: > leveraging our market leading brand position to generate new prospects, principally from our digital, 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; > selectively adding to the portfolio through new site development and existing store acquisitions; > maintaining a conservative capital structure in the business with Group interest cover of a minimum of five times; and > producing sustainable returns for shareholders through a low leverage, low volatility, high distribution REIT. In the seventeen years since flotation in May 2000, Big Yellow has delivered a Total Shareholder Return (“TSR”), including dividends reinvested, of 14.7% per annum, in aggregate 915% at the closing price of 730.5p on 31 March 2017. This compares to 6.4% per annum for the FTSE Real Estate Index and 5.2% per annum for the FTSE All Share index over the same period. This demonstrates the power of compounding over the longer term. 16 Our Business Model Tried and Tested... Attractive Market Dynamics Evergreen Income Streams Our Proven Model Our Competitive Advantage Conversion Into Quality Returns Strong Growth Opportunities Attractive market dynamics Our competitive advantage Evergreen income streams Strong growth opportunities Conversion into quality returns . 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 . UK 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 . Strong customer satisfaction and NPS scores reflecting excellent customer service . Largest UK self storage footprint by Maximum Lettable Area (“MLA”) capacity (Big Yellow and Armadillo combined) . 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 . 52,500 customers from a diverse base – individuals, SMEs and national accounts . Average length of stay for existing customers of 24 months . 30% of customers in stores greater than two year length of stay . Low bad debt expense (0.1% of revenue in the year) . Opportunities to drive further occupancy growth . Yield management as occupancy increases . Densification of living and scarcity of flexible business space drives demand . Growth in national accounts and business customer base . Increasing the platform financed from internal resources . Growth in our Armadillo joint venture platform . 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 . Dividend payout ratio of 80% of adjusted eps 17 Strategic Report (continued) Our Strategy and Business Model (continued) The self storage market In the recently published 2017 Self Storage Association UK Survey, only 42% 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 2,075 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 of self storage, together with the ongoing marketing efforts of everyone in the industry, we anticipate awareness will grow. Growth in new facilities across the industry has been largely in regional areas of the UK and in particular in smaller towns. In London in the last year, we believe there were eight new store openings. The Self Storage Association (“SSA”) estimates that the UK industry is made up of approximately 1,430 self storage facilities (of which 317 are purely container operations), providing 42.2 million sq ft of self storage space, equating to 0.6 sq ft per person in the UK. This compares to 9.1 sq ft per person in the US, 1.8 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: FEDESSA European Self Storage Annual Survey 2016). 390 self storage facilities in the UK are held by large operators (defined as those managing 10 facilities or more), which represents 35% of the total number of self storage centres (excluding container operations), but the SSA estimate approximately 50% of total capacity. Given the dominance of the larger brands in the South East, we would expect the proportion of revenue earned by the top five operators to be in excess of 60% of the annual industry turnover of £500 million. Big Yellow is well placed to benefit from the growing self storage market, given the strength of our brand, and our online platform which delivers 87% 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 the past five years, both occupancy and revenue have grown significantly. Rental yield grew by 6.1% in the year to 31 March 2014, but decreased by 3.5%, in 2015 principally reflecting the acquisition of the Big Yellow Limited Partnership stores, a regional portfolio, with a lower average net rent per sq ft. In 2016 net rent increased by 2.7%, and has increased by 0.5% in the current 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 also KPIs. The Group focuses on adjusted profits and earnings measures as they give a clearer underlying picture of the Group’s trading performance without distortion from external factors such as property valuations and the fair value of derivatives. We have delivered compound adjusted eps growth of 16% over the past five years, and compound dividend growth of 26% 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 1. Our non-financial KPIs are the net promoter scores we receive from our customers and the carbon intensity of the Group’s business. The Group’s net promoter score received from its customers during the year was 77. This has increased by 27% over the past four years, when the Group started to use this measure of customer satisfaction. We believe this overall score compares very favourably with other consumer facing businesses. The Group has reduced its carbon intensity (our carbon emissions divided by our average occupied space) by 52% over the past five years. This has been achieved through investment in renewable technology, roof mounted solar photo-voltaic systems, and LED lighting across the Group’s portfolio. Operational and Marketing Review Overview We now have a portfolio of 73 open and trading Big Yellow stores, with a further six development sites and two extension opportunities. The current maximum lettable area of the 73 stores is 4.6 million sq ft. When fully built out the portfolio will provide approximately 5.0 million sq ft of flexible storage space. In addition we part-own and manage 19 Armadillo stores which are principally located in northern towns and cities, and operate from a platform of 0.8 million sq ft. Access to capital and bank facilities has improved in the last few years, however this is mainly for larger well-capitalised groups. Growth in new store openings over the last six years has averaged 1% to 2% 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 driven by competing uses such as residential, is making the creation of new supply very difficult for all operators. 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. 18 FOR UNPROMPTED BRAND AWARENESS, OUR RECALL ACROSS THE UK AS A WHOLE IS MORE THAN SEVEN TIMES THAT OF OUR NEAREST COMPETITOR. 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. The average room size occupied in the portfolio is currently 68 sq ft, a slight increase from 67 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 shopping and online customer reviews, which are externally managed. Over the year, we have achieved an average net promoter score of 77, which we believe compares favourably to other consumer facing businesses. We have a team of nine area managers in place who have on average worked for Big Yellow for twelve years. They develop and support the stores to drive the growth of the business. The store bonus structure rewards occupancy performance, 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 £35,000 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. Over the last five years we have invested £11 million in the upkeep and maintenance of our stores, all of which has been expensed in the income statement. Demand Awareness of self storage and the market generally will continue to grow as people use the product for the first time and with continued marketing from all industry players. We are seeing improving levels of referral and repeat use. Of our occupied space today, 15% is occupied by customers who are longer stay lifestyle users decluttering into small rooms as an extension to their accommodation; 50% are using it for less than 12 months as a result of an event in their life, which could be inheritance, moving, carrying out work; and the balance of 35% are businesses, typically SMEs. Of the customers moving into our stores in the last year, surveys undertaken indicate approximately 43% are house move related, split broadly equally across those renting storage space whilst moving within the rental sector and those moving within the owner occupied sector. During the year 11% of our customers who moved in took storage space as a spare room for decluttering and approximately 34% 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 12% of our move-ins during the year came from businesses. 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. There is a growing trend towards self-employment and smaller business start-ups in the UK, dynamics which are positive for self storage. Additionally, businesses in the UK are increasingly seeking more flexible lease arrangements for their office and storage space. The deindustrialisation of big cities also points to a structural growth in demand for storage for businesses. Business customers typically stay longer than domestic customers, and also on average occupy larger rooms. Whilst only representing 12% of new customers during the year, businesses represent 20% of our overall customer numbers, occupying 35% of the space in our stores at 31 March 2017, domestic customers occupy 65%. The average room size occupied by business customers is 121 sq ft, compared to 54 sq ft for domestic customers. This compares with the 2017 SSA UK Annual Survey result for the industry as a whole which had 58% of space occupied by domestic customers and 42% 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. 19 Strategic Report (continued) Our Strategy and Business Model (continued) 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. Marketing and ecommerce Our marketing strategy focuses on driving enquiries and customer satisfaction through our digital platforms. For the last eleven years, we have commissioned a YouGov survey to help us monitor our brand awareness. In our most recent survey, conducted in April 2017, we used a statistically robust sample size of 1,043 respondents in London and 2,028 for the rest of the UK. The survey has shown our prompted awareness to be at 74% in London, two and half times higher than our nearest competitor and 41% for the rest of the UK, nearly three times higher than our nearest competitor. For unprompted brand awareness, our recall in London is 47%, nearly six times higher than our nearest competitor and for the rest of the UK it is 21%, more than eight times higher than our nearest competitor. Across the UK as a whole it is seven times higher than our nearest competitor. These surveys continue to prove we are the UK’s brand leader in self storage (source: YouGov, April 2017). The UK Self Storage Association has also conducted a brand awareness survey with similar results. Online The Big Yellow website, whether accessed by desktop, tablet or smartphone, delivers the largest share of our prospects, accounting for 87% of all sales leads across the year ended 31 March 2017. Telephone is the first point of contact for 9% of our prospects and walk- in enquiries, where we have had no previous contact with a prospect, represent 4%. We have the largest online market share of web visits to self storage company websites in the UK. Across the year ended 31 March 2017, our online market share of web visits ranged from 31% to 38%. Our nearest competitor ranged from 16% to 21% online market share for the same period (source: Connexity Hitwise 36 largest UK self storage operators). We monitor and improve the website user journeys on an ongoing basis. We are committed to making the experience as easy, intuitive and informative as possible for our customers. Both the mobile specific website, which itself accounted for 42% of our web visits in the year and our desktop site are designed with 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. We have also relaunched “Box Shop”, our online store for boxes and packing materials which also now includes a Click and Collect service for customers to conveniently pick up their orders in store. 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 15,000 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. This programme reinforces best practice of customer service at our stores where customer reviews and mystery shop results are transparently accessible at all levels. We also gain real-time insight from customers who submit reviews to Trustpilot, the well-known 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. Driving online traffic Search engines are the most important acquisition tool for us, accounting for the majority of traffic to our 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. 20 WE HAVE THE LARGEST ONLINE MARKET SHARE OF WEB VISITS TO SELF STORAGE COMPANY WEBSITES IN THE UK. 21 Efficiencies in online spend are continuing into the year ending 31 March 2018, 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 been developing regional PR stories throughout the year to help raise the awareness of Big Yellow and the benefits of self storage across the UK. We have been highlighting newsworthy stories of charitable endeavours from Big Yellow staff or the support we provide to the local charities through offering free storage. Budget During the year the Group spent approximately £4.2 million on marketing (4% of total store revenue). We have increased the budget for the year ahead to £4.5 million with a focus on delivering more prospects to our stores from our digital channels. Cyber security The Group receives specialist advice and consultancy in respect of cyber security and we have dedicated in-house monitoring. We regularly review our security systems and we limit the retention of customer data to the minimum requirement. During the year we have continued to invest in digital security. Some of the changes include more frequent penetration testing of internet facing systems, adding components such as anti-ransomware as well as the maintenance replacement of components (such as firewalls) to the latest technology and specification. Policies and procedures are under regular review and benchmarked against industry best practice by our consultants. These policies also include defend, detect and response policies. We have also instigated a new working group to ensure our compliance with the new EU General Data Protection Regulation (“GDPR”) which comes into effect on 25 May 2018. Strategic Report (continued) Portfolio Summary – Big Yellow Stores 2017 2016 Mature(1) Established Developing Established Mature Total Developing Number of stores 64 6 3 73 62 6 3 Total 71 At 31 March: Total capacity (sq ft) Occupied space (sq ft) Percentage occupied Net rent per sq ft For the year: REVPAF(2) Average occupancy Average annual rent psf Self storage income Other storage related income(3) Ancillary store rental income Total store revenue Direct store operating costs (excluding depreciation) Short and long leasehold rent(4) Store EBITDA(5) Store EBITDA margin Deemed cost To 31 March 2017 Capex to complete Total 3,955,000 3,111,000 78.7% £26.32 406,000 315,000 77.6% £24.50 190,000 125,000 65.8% £22.40 4,551,000 3,551,000 78.0% £26.03 3,868,000 2,988,000 77.2% £26.12 406,000 290,000 71.4% £24.35 190,000 85,000 44.7% £22.54 4,464,000 3,363,000 75.3% £25.90 £24.23 78.3% £26.43 £000 81,712 13,543 412 95,667 (27,929) (2,126) 65,612 68.6% £m 477.2 – 477.2 £21.82 74.4% £24.83 £14.67 56.3% £22.33 £23.62 77.1% £26.16 £23.30 76.4% £25.92 £19.76 68.0% £24.58 £11.57 45.4% £22.07 £000 6,786 1,154 84 8,024 (2,508) – 5,516 68.7% £000 1,452 217 9 1,678 (986) – 692 41.2% £000 7,499 1,259 102 8,860 (2,510) – 6,350 71.7% £m 80.9 – 80.9 £000 2,389 387 12 2,788 (1,278) – 1,510 54.2% £m 34.2 0.2 34.4 £000 £000 76,662 13,197 261 90,120 (26,592) (1,893) 61,635 68.4% 91,600 15,189 526 107,315 (31,717) (2,126) 73,472 68.5% £m 592.3 0.2 592.5 £22.59 74.7% £25.73 £000 84,900 14,568 354 99,822 (30,086) (1,893) 67,843 68.0% (1) The mature stores have been open for more than six years at 1 April 2016. The established stores have been open for between three and six years at 1 April 2016 and the developing stores have been open for fewer three years at 1 April 2016. The Group acquired two stores during the year in Nine Elms and Twickenham. These are shown within mature stores as they have been open for more than six years. Like-for-like measures presented within this statement exclude these two stores. (2) Total store revenue divided by the average maximum lettable area in the year. (3) Packing materials, insurance and other storage related fees. (4) Rent for seven mature short leasehold properties accounted for as investment properties and finance leases under IFRS with total self storage capacity of 420,000 sq ft, and a long leasehold lease-up store with a capacity of 64,000 sq ft. The EBITDA margin for the 57 freehold mature stores is 70.5%, and 49.8% for the seven leasehold mature stores. (5) Store earnings before interest, tax, depreciation and amortisation. See the financial review for a reconciliation of Store EBITDA to gross profit. 22 Our Stores Our Portfolio Unrivalled in the UK AN UNRIVALLED PORTFOLIO OF STORES ACROSS LONDON, THE SOUTH EAST AND OTHER LARGE METROPOLITAN CITIES. Twickenham 2, April 2016 MLA – 22,000 sq ft Nine Elms, April 2016 MLA – 65,000 sq ft Cambridge, January 2016 MLA – 60,000 sq ft 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 23 Our Stores (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 24 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 25 Our Stores (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 26 Strategic Report (continued) Portfolio Summary – Armadillo Stores 2017 Number of stores(1) 16 At 31 March: Total capacity (sq ft) 738,000 Occupied space (sq ft) 551,000 Percentage occupied 74.7% Net rent per sq ft £16.51 For the year: REVPAF £14.31 Average occupancy 73.3% Average annual rent psf £16.36 £000 Self storage income 8,781 Other storage related income 1,659 Ancillary store rental income 43 Total store revenue 10,483 Direct store operating costs (excluding depreciation) (4,222) Leasehold rent (411) Store EBITDA(2) 5,850 Store EBITDA margin 55.8% 2016 14 673,000 477,000 70.9% £15.59 £13.33 70.7% £15.64 £000 7,428 1,531 9 8,968 (3,681) (411) 4,876 54.4% Cumulative capital expenditure £m To 31 March 2017 51.0 To complete 0.5 Total capital expenditure 51.5 (1) Armadillo acquired two stores in April 2016 in Canterbury and West Molesey. (2) Store earnings before interest, tax, depreciation, amortisation, and management fees charged by Big Yellow to the Armadillo portfolios (see note 26). P O R T F O L I O S U M M A R Y 27 Strategic Report (continued) Store Performance The table below shows the quarterly move-in and move-out activity over the year: Total move-ins Total move-ins Total move-outs Total move-outs Year ended Year ended Year ended Year ended Store move-ins 31 March 2017 31 March 2016 % 31 March 2017 31 March 2016 % April to June 19,509 20,112 (3) 15,625 15,595 0 July to September 20,702 21,763 (5) 22,239 22,898 (3) October to December 15,409 16,643 (7) 17,679 18,600 (5) January to March 16,095 16,920 (5) 14,468 15,450 (6) Total 71,715 75,438 (5) 70,011 72,543 (3) In the quarter to June, leading up to the referendum, we saw a modest year on year reduction in move-in activity of 3%. However, in the six months following the referendum, year on year move-ins were down on average 6% across the business with a fall in London of 8% and a fall of 5% in the regions. Since November, we also saw a further reduction in year on year move outs, with less churn in the business, resulting in a loss in occupancy for the December quarter in line with the previous year. Like-for-like revenue growth for the third quarter was 5%, a slower rate of growth than in the first half of the year, impacted by the loss of occupancy in the quarter being more front-ended coupled with slower average rate growth. In the fourth quarter, move-in activity began to stabilise and for March and April move-ins were up on the comparative months last year. In all Big Yellow stores, the occupancy growth in the current year was 188,000 sq ft, against an increase of 185,000 sq ft in the prior year. The current year figure includes 76,000 sq ft of occupancy acquired with Nine Elms and Twickenham 2; the net occupancy growth in the year was therefore 112,000 sq ft. Quarterly net occupancy April to June July to September October to December January to March Total We had a solid quarter to June with an increase in occupancy of 110,000 sq ft, slightly down on the prior year, partially because of some activity being front-ended into March 2016 as a result of the stamp duty changes, coupled with uncertainty in the run-up to the referendum. The second quarter peaked in August and then many of our students and short term house movers vacate in September and October, leading to a net loss in occupied rooms and sq ft occupancy. In the final quarter we have seen a return to growth in net occupied rooms and increased occupancy in the stores by 115,000 sq ft. Since the year end occupancy has grown by 54,000 sq ft to date (2016: quarter to date gain of 7,000 sq ft). As of 22 May 2017, our occupancy across the portfolio is 79.2%. Store capacity Sq ft occupied per store at 31 March 2017 % occupancy Revenue per store (£000) EBITDA per store (£000) EBITDA margin Net sq ft Year ended 31 March 2017 Net sq ft Net move-ins Net move-ins Year ended Year ended Year ended 31 March 2016 31 March 2017 31 March 2016 110,000 24,000 (137,000) 115,000 146,000 3,884 4,460 54,000 (1,537) (1,183) (138,000) (2,350) (1,998) 123,000 1,547 1,420 112,000 185,000 1,544 2,699 The 64 mature stores are 78.7% occupied compared to 77.2% at the same time last year. The 6 established stores have grown in occupancy from 71.4% to 77.6%. The three developing stores added 40,000 sq ft of occupancy in the year to reach closing occupancy of 65.8%. Overall store occupancy has increased in the year from 75.3% to 78.0%. On a like-for-like basis, closing occupancy was 78.1%, an increase of 2.8 percentage points. All of the stores open at the year end are trading profitably at the EBITDA level. The table below shows the average key metrics across the store portfolio for the year ended 31 March 2017: Mature stores 61,800 48,600 78.7% 1,495 1,025 68.6% Established Developing All stores stores stores 67,700 63,300 62,300 52,500 41,700 48,650 77.6% 65.8% 78.0% 1,477 929 1,470 1,058 503 1,006 71.7% 54.2% 68.5% 28 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”. We also use our Price Match if the competitors’ product is comparable. Pricing is dynamically generated and takes into account room availability and local competition. Armadillo Self Storage The Group has a 20% investment in Armadillo Self Storage, with the balance of 80% held by an Australian consortium. During the year, Armadillo acquired two stores from Lock and Leave, in Canterbury and West Molesey, with a combined capacity of 65,000 sq ft. In April 2017 we acquired a further three stores into the Armadillo platform in Exeter, Plymouth and Torquay, for £4.75 million. This takes the Armadillo platform to 19 stores and 830,000 sq ft of MLA. As with the other existing store acquisitions, the intention will be to upgrade and reconfigure the stores through additional investment to drive cash flow growth. In the year to 31 March 2017, £1.3 million of capital expenditure has been invested in the Armadillo stores. Armadillo is a lower-frills brand, with largely freehold conversions of existing buildings. They are located in towns where we would not typically locate a Big Yellow, and have an average capacity of 44,000 sq ft (lower than the 62,000 sq ft average for Big Yellow stores). Armadillo provides a number of operational advantages to the Group, such as a wider platform to sell to national accounts, more opportunities for staff promotion, and more efficient use of the Company’s marketing and central overhead costs. The Group continues to look for opportunities to add to the Armadillo platform. Development pipeline We have commenced construction on our Guildford Central store, which we anticipate opening in March 2018 and on the extension to our existing store in Wandsworth, which we anticipate completing in April 2018. We own a further six development sites for which planning is to be negotiated, including an existing store where planning is being sought to extend and redevelop. The status of the Group’s development pipeline is summarised in the table overleaf. In the year ended 31 March 2017, the average growth in the net achieved rent per sq ft was 1.7% compared to 2.5% in the prior year. We remain focussed on achieving our next occupancy target of 85% across the portfolio, and to that end we took the decision to be more aggressive in our promotions over the winter months, resulting in a slight reduction in average rate over the second half of the year. This is now embedded in the business, with rate having stabilised, and as occupancy grows from this level we would expect to see a return to like-for-like rate growth. For stores at a higher level of occupancy, our pricing model reduces promotions and increases asking prices where individual units are in scarce supply. This lowering of promotions, coupled with price increases to existing and new customers, leads to an increase in achieved net rents. Rental growth can also be driven through sub-dividing larger rooms into smaller rooms, which yield a higher net rent per sq ft. The table below shows the growth in net rent per sq ft for the portfolio over the period (the table below excludes Cambridge which opened in January 2016 and Nine Elms and Twickenham 2, which were acquired in April 2016). Net rent per sq ft Average occupancy Number growth over in the year of stores the year 0 to 75% 22 (1.0%) 75 to 80% 20 1.7% 80 to 85% 20 2.0% Above 85% 8 2.1% Lock and Leave acquisition In April 2016, we acquired the Lock and Leave portfolio. Big Yellow acquired two stores in London, at Nine Elms (65,000 sq ft MLA freehold) and Twickenham (22,000 sq ft MLA, 19 years unexpired leasehold), for £13.5 million and £1.1 million respectively, totalling £14.6 million. The Nine Elms store sits neatly between our strong performing Kennington and Battersea stores, and our aim will be to drive revenue and cash flow through yield management. The Twickenham store is adjacent to our existing highly occupied freehold 73,000 sq ft store. The freehold stores in Canterbury (30,000 sq ft MLA) and West Molesey (35,000 sq ft MLA) were acquired by Armadillo for £6.4 million, and again we expect to drive operational performance from these stores under our management. 29 Strategic Report (continued) Store Performance (continued) Site Location Status Guildford Prime location in centre of Guildford on Woodbridge Meadows Wandsworth, London Extension to existing 47,000 sq ft store Construction commenced, store due to open in March 2018, cost to complete of £4.4 million. Construction commenced, extension due to open in April 2018, cost to complete of £4.2 million. Anticipated capacity 56,000 sq ft Additional 25,000 sq ft Manchester Prime location on Water Street in central Manchester Planning application to be submitted in June 2017. 60,000 to 65,000 sq ft Camberwell, London Located in prominent location on Southampton Way Planning application refused. Appeal submitted with a decision due by December 2017. 55,000 to 60,000 sq ft Prominent location on York Way Planning application currently being prepared to be submitted this year. 100,000 to 110,000 sq ft Kings Cross, London Battersea, London Prominent location on junction of Lombard Road and York Road (South Circular) Newcastle Prime location on Scotswood Road Wapping, London Prominent location on The Highway Potential redevelopment to increase size of existing 34,000 sq ft Big Yellow store. Redevelopment of adjoining retail into a mixed use led residential scheme. Ongoing detailed planning discussions with the Borough Council. Negotiations ongoing with existing long leasehold tenant to obtain vacant possession. Site recently acquired. We will convert part into self storage and collect income from the other tenancies with a view to achieving a more comprehensive self storage centre in the longer term. Up to an additional 40,000 sq ft 50,000 to 60,000 sq ft 50,000 sq ft to 90,000 sq ft The capital expenditure committed for the financial year ended 31 March 2018 is approximately £20 million, which includes the acquisition of Wapping, the construction of Guildford Central and the extension to Wandsworth. 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. 30 Financial Review Delivering Results Financial results Revenue Total revenue for the year was £109.1 million, an increase of £7.7 million (8%) from £101.4 million in the prior year. Like-for-like revenue for the year was £107.3 million, an increase of 6% from the prior year (2016: £101.4 million). Like-for-like revenue excludes Nine Elms and Twickenham 2 which were acquired in April 2016. Other sales (included within the above), comprising the selling of packing materials, insurance and storage related charges, represented 16.6% of storage income for the year (2016: 17.2%) and generated revenue of £15.2 million for the year, up 4% from £14.6 million in 2016. LIKE-FOR-LIKE REVENUE FOR THE YEAR WAS £107.3 MILLION, AN INCREASE OF 6% FROM THE PRIOR YEAR. The other revenue earned by the Group is management fee income, largely from the Armadillo Partnerships, and tenant income on sites where we have not started development. Operating costs Cost of sales is principally comprised 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. The breakdown of the portfolio’s operating costs compared to the prior year is shown in the table below Year ended Year ended % of store 31 March 2017 31 March 2016 operating Category £000 £000 % increase costs in 2017 Cost of sales (insurance and packing materials) 2,391 2,149 11% 7% Staff costs 8,572 8,001 7% 27% General & Admin 1,196 1,183 1% 4% Utilities 1,470 1,406 5% 5% Property Rates 10,044 9,544 5% 32% Marketing 4,152 3,865 7% 13% Repairs / Maintenance 2,539 2,240 13% 8% Insurance 893 992 (10%) 3% Computer Costs 443 440 1% 1% Irrecoverable VAT 17 266 (94%) 0% Total per portfolio summary 31,717 30,086 5% Following the recent rating review, we have calculated that the impact on the Group’s rates bill for the year ending 31 March 2018 will increase by 9% (£0.9 million). We expect rates to increase beyond next year in line with inflation. The improvement in our VAT position mentioned above will serve to mitigate part of this increased cost. Operating costs per the portfolio summary have increased by £1.6 million. £0.9 million of this increase is due to new stores acquired in the year at Nine Elms and Twickenham 2, coupled with the full year impact of Cambridge. The remaining increase of £0.7 million (representing a 2.4% increase on the prior year on a like-for-like basis) is due to an increased investment in marketing and increases in property rates and repairs and maintenance, in part offset by the saving in VAT (see below). During the year, the Group agreed a new Partial Exemption Special Method with HMRC. This method increases the Group’s VAT recoverability from 89.0% to 99.4%. This saves approximately £0.3 million per annum on the Group’s operating costs, in addition to reducing the irrecoverable VAT on construction projects. There is a credit in respect of prior years of £0.3 million from the date the application was submitted, which is an item in the adjustments to the Group’s recurring profit for the year. This credit is split between cost of sales (£278,000) and administrative expenses (£50,000). 31 Strategic Report (continued) Financial Review (continued) The table below reconciles store operating costs per the portfolio summary to cost of sales in the income statement: Year ended Year ended 31 March 2017 31 March 2016 £000 £000 Direct store operating costs per portfolio summary (excluding rent) 31,717 30,086 Rent included in cost of sales (total rent payable is included in portfolio summary) 1,196 967 Depreciation charged to cost of sales 489 478 Prior period VAT recovery (278) – Head office operational management costs charged to cost of sales 798 672 Other (e.g. void costs of development sites) 153 429 Cost of sales per income statement 34,075 32,632 Store EBITDA Store EBITDA for the year included in the income statement was £73.5 million, an increase of £5.6 million (8%) from £67.8 million for the year ended 31 March 2016 (see Portfolio Summary). The overall EBITDA margin for all Big Yellow stores during the year was 68.5% an improvement from 68.0% last year. The table below reconciles Store EBITDA per the portfolio summary to gross profit in the income statement. Year ended 31 March 2017 Year ended 31 March 2016 £000 £000 Store EBITDA Gross profit Store EBITDA Gross profit per portfolio Reconciling per income per portfolio Reconciling per income summary items statement summary items statement Revenue(1) 107,315 1,755 109,070 99,822 1,560 101,382 Cost of sales(2) (31,717) (2,358) (34,075) (30,086) (2,546) (32,632) Rent(3) (2,126) 2,126 – (1,893) 1,893 – 73,472 1,523 74,995 67,843 907 68,750 (1) See note 3, reconciling items include management fees and non-storage income. (2) See reconciliation in cost of sales section above. (3) The rent shown above is the cost associated with leasehold stores, only part of which is recognised within gross profit in line with finance lease accounting principles. The amount included in gross profit is shown in the reconciling items in cost of sales. Administrative expenses Administrative expenses in the income statement have increased by £0.8 million compared to the prior year. £0.3 million of the increase is as a result of the write-off of the Group’s acquisition costs for the purchase of Lock and Leave, which has been adjusted from recurring profit. The remaining difference is due principally to an increased investment in IT infrastructure and inflationary increases. In addition, it is important to note that of our total £9.7 million administrative expense for the year, £2.3 million relates to the non-cash share based payments charge. Interest expense on bank borrowings The gross bank interest expense for the year was £11.0 million, a reduction of £0.2 million from the prior year. This reflects slightly higher average debt levels offset by a reduction in the Group’s average cost of debt. The average cost of borrowing during the year was 3.3% compared to 3.6% in the prior year. Capitalised interest decreased by £0.1 million from the prior year. The interest capitalised in the year is principally on our Guildford Central store and the Wandsworth extension, but interest was only capitalised on these developments in the final quarter. During the prior year, interest was capitalised on our Cambridge development for the majority of the year. Total interest payable has decreased in the statement of comprehensive income from £11.9 million to £11.8 million due to the reduction in interest payable, partly offset by the reduction in capitalised interest. 32 Taxation There is a tax charge in the current year of £0.3 million. This compares to a charge in the prior year of £0.2 million. The current year tax charge reflects an increase in profits in our residual business, in part offset by deductions allowed for tax purposes from the exercise of share options. Dividends The Board is recommending the payment of a final dividend of 14.1 pence per share in addition to the interim dividend of 13.5 pence, giving a total dividend for the year of 27.6 pence, an increase of 11% from the prior year. 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 24.0 pence per share is payable (31 March 2016: 18.1 pence). The balance of the total annual dividend represents an ordinary dividend declared at the discretion of the Board, in line with our policy to distribute 80% of our adjusted earnings per share in each reporting period. The PID for the year to 31 March 2017 accounts for 87% of the total dividend, up from 73% in the prior year. The table below summarises the declared dividend for the year: 31 March 31 March Dividend (pence per share) 2017 2016 Interim dividend – PID 13.5p 12.1p – discretionary nil p nil p – total 13.5p 12.1p Interim dividend – PID 10.5p 6.0p – discretionary 3.6p 6.8p – total 14.1p 12.8p Interim dividend – PID 24.0p 18.1p – discretionary 3.6p 6.8p – total 27.6p 24.9p Subject to approval by shareholders at the Annual General Meeting to be held on 20 July 2017, the final dividend will be paid on 27 July 2017. The ex-div date is 22 June 2017 and the record date is 23 June 2017. Profit before tax The Group made a profit before tax in the year of £99.8 million, compared to a profit of £112.2 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 £54.6 million, up 11% from £49.0 million in 2016. 2017 2016 Profit before tax analysis £m £m Profit before tax 99.8 112.2 Gain on revaluation of investment properties (43.7) (58.0) Movement in fair value on interest rate derivatives (0.7) – Acquisition costs written off 0.3 – Prior year VAT recovery (0.3) – Gains on surplus land – (4.8) Share of non-recurring gains and losses in associates (0.8) (0.4) Adjusted profit before tax 54.6 49.0 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 2016 Increase in gross profit Decrease 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 2017 £m 49.0 5.9 0.2 (0.5) 0.1 (0.1) 54.6 Basic earnings per share for the year was 63.6p (2016: 71.9p) and fully diluted earnings per share was 63.1p (2016: 71.6p). Diluted EPRA earnings per share based on adjusted profit after tax was up 11% to 34.5p (2016: 31.1p) (see note 12). 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 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. 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 on compliance with these criteria is issued to the Executive. To date, the Group has complied with all REIT regulations, including forward looking tests. 33 Balance sheet Property The Group’s 73 stores and 5 stores under development at 31 March 2017, which are classified as investment properties, have been valued individually by Cushman & Wakefield (“C&W”) and this has resulted in an investment property asset value of £1,190.5 million, comprising £1,110.9 million (93%) for the 66 freehold (including two long leaseholds) open stores, £43.5 million (4%) for the seven short leasehold open stores and £36.1 million (3%) for the five freehold investment properties under construction. Value at Revaluation Analysis of property portfolio 31 March 2017 movement in year Investment property £1,154.4m £44.4m Investment property under construction £36.1m (£0.7m) Total £1,190.5m £43.7m Investment property The valuations in the current year have grown from the prior year, with a revaluation surplus of £44.4 million arising on the open Big Yellow stores. Of this increase £19.5 million is due to an improvement in the cap rate used in the valuations. £24.9 million of the increase in value is due to the growth in cash flow from the assets and the operating assumptions adopted in the valuations. The growth in cash flow has been partly offset by the increase in property rates mentioned above. The valuation is based on an average occupancy over the 10 year cash flow period of 82.1% across the whole portfolio. Strategic Report (continued) Financial Review (continued) Cash flow growth The Group is strongly cash generative and draws down from its longer term committed facilities as required to meet obligations. The Group’s cash flow from operating activities for the year was £56.0 million, an increase of 1% from £55.5 million in the prior year. There are distortive working capital items in both years, and therefore the summary cash flow below sets out the free cash flow pre working capital movements, which shows an increase of 10% to £58.3 million in the year. Year ended Year ended 31 March 2017 31 March 2016 £000 £000 Cash generated from operations pre working capital movements 69,574 64,023 Net finance costs (11,235) (10,748) Free cash flow pre working capital movements 58,339 53,275 Working capital movements (2,365) 2,192 Cash flow from operating activities 55,974 55,467 Capital expenditure (20,577) (44,575) Finance lease payments (1,196) (967) Asset sales 300 7,835 Receipt from Capital Goods Scheme 2,917 184 Dividends received from associates 396 270 Cash flow after investing activities 37,814 18,214 Ordinary dividends (41,158) (36,443) Issue of share capital 286 378 (Decrease)/increase in borrowings (7,243) 26,864 Net cash (outflow)/inflow (10,301) 9,013 Opening cash and cash equivalents 17,207 8,194 Closing cash and cash equivalents 6,906 17,207 Closing debt (304,955) (312,198) Closing net debt (298,049) (294,991) Net debt is defined as gross bank borrowings less cash and cash equivalents. In the year capital expenditure outflows were £20.6 million, down from £44.6 million in the prior year. The capital expenditure during the year principally relates to the acquisition of Nine Elms and Twickenham 2 from Lock and Leave. We have commenced construction in our Guildford Central store and the extension to our existing Wandsworth store and also continued to invest in fitting out further Phase 2 space at our existing stores. The cash flow after investing activities was a net inflow of £37.8 million in the year, compared to an inflow of £18.2 million in 2016. 34 The valuation is based on an average occupancy over the 10 year cash flow period of 82.1% across the whole portfolio. The table below provides further analysis of the valuations: Mature Mature Established Developing Leasehold Freehold Freehold Freehold Total Number of stores 7 57 6 3 73 MLA capacity (sq ft) 420,000 3,535,000 406,000 190,000 4,551,000 Valuation at 31 March 2017 £43.5m £957.6m £108.1m £45.2m £1,154.4m Value per sq ft £104 £271 £266 £238 £254 Occupancy at 31 March 2017 81.6% 78.3% 77.6% 65.8% 78.0% Stabilised occupancy assumed 84.4% 82.2% 85.6% 85.0% 82.8% Net initial yield pre-admin expenses 12.2% 6.3% 6.1% 4.8% 6.5% Stabilised yield assuming no rental growth 12.9% 7.0% 7.0% 7.4% 7.2% Receivables At 31 March 2017 we have a receivable of £6.8 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. 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 £0.3 million of the discount being unwound through interest receivable in the period. The gross value of the debtor before discounting is £7.2 million. The Group received £2.9 million under the Scheme in the year. Movement in adjusted NAV The year on year movement in adjusted net asset value (see note 12) is illustrated in the table below: Equity EPRA shareholders adjusted funds NAV per share Movement in adjusted NAV £m (pence) 1 April 2016 899.0 569.1 Adjusted profit 54.6 34.6 Equity dividends paid (41.1) (26.1) Revaluation movements (including share of associate) 44.5 28.2 Movement in purchaser’s cost adjustment 4.0 2.5 Other movements (e.g. share schemes) 2.4 (0.7) 31 March 2017 963.4 607.6 The initial yield pre-administration expenses assuming no rental growth 6.5% (2016: 6.5%) rising to a stabilised yield of 7.2% (2016: 7.2%). The stores are assumed to grow to stabilised occupancy in 22 months on average. Note 14 contains more detail on the assumptions underpinning the valuations. There is 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 investment property under construction valuation has increased by £2.1 million in the year. Capital expenditure accounts for £2.8 million of this increase, notably on Guildford Central. This has been partly offset by a revaluation deficit of £0.7 million across a couple of the development sites, where our projected construction costs have increased due to a change in the planned schemes. 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 2017 of £1,258.5 million (£68.0 million higher than the value recorded in the financial statements). With the share of uplift on the revaluation of the Armadillo stores (£0.5 million), this translates to 43.2 pence per share. The revised valuation translates into an adjusted net asset value per share of 607.6 pence (2016: 569.1 pence) after the dilutive effect of outstanding share options. Surplus land During the year, the Group sold its remaining piece of land for £0.3 million, which represented its book value. In the prior year, the Group sold its surplus site in Central Manchester for £8 million. This represented a profit over book value, after selling costs, of £4.8 million, which included the release of a provision previously made against the land of £2.3 million. 35 Strategic Report (continued) Financial Review (continued) Borrowings We focus on improving our cash flows allied to a relatively conservative debt structure secured principally against the freehold estate. For the year we had healthy Group interest cover of 6.2 times (2016: 6.0 times) based on free cash flow pre working capital movements against interest paid. 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 our development pipeline and achieve our strategic growth objectives, which we believe improves returns for shareholders. 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. 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. The table below summarises the Group’s debt facilities at 31 March 2017. Debt Expiry Facility Drawn Average cost Aviva Loan April 2027 £90 million £90 million 4.9% M&G loan June 2022 £70 million £70 million 3.7% Bank loan (Lloyds & HSBC) October 2021 £190 million £145 million 1.8% Total Average term 5.9 years £350 million £305 million 3.2% The Group’s loan with Aviva is at a fixed rate and amortises to £60 million from the original loan of £100 million over the course of its 15 year term. The M&G loan is 50% fixed and 50% floating and is for a bullet seven year term. During the year the Group extended the term of its bank loan from October 2020 to October 2021. The revolving element of the bank loan pays a margin of 125 bps and the term debt 150 bps. The Group has an option to increase the amount of the revolving loan facility by a further £60 million during the course of the loan’s term. During the year, the Group took out an interest rate derivative of £30 million expiring in October 2021 at a pre-margin cost of 0.4%, replacing an expiring swap which was at a pre-margin cost of 2.8%. The bank loan requires 45% of all drawn debt to be hedged or fixed. The Group was in compliance with its banking covenants at 31 March 2017. The Group currently has a net debt to gross property assets ratio of 25%, and a net debt to adjusted net assets ratio of 31%. At 31 March 2017, the fair value on the Group’s interest rate derivatives was a liability of £3.0 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. Cash deposits are only placed with approved financial institutions in accordance with the Group’s Treasury policy. Share capital The share capital of the Company totalled £15.8 million at 31 March 2017 (2016: £15.7 million), consisting of 157,882,867 ordinary shares of 10p each (2016: 157,369,287 shares). Shares issued for the exercise of options during the year amounted to 0.5 million at an average exercise price of 738p (2016: 0.7 million shares at an average price of 704p). The Group holds 1.1 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. 2017 2016 No. No. Opening shares 157,369,287 158,055,735 Cancellation of treasury shares – (1,418,750) Shares issued for the exercise of options 513,580 732,302 Closing shares in issue 157,882,867 157,369,287 Shares held in EBT (1,122,907) (1,122,907) Closing shares for NAV purposes 156,759,960 156,246,380 74.9 million shares were traded in the market during the year ended 31 March 2017 (2016: 56.9 million). The average mid-market price of shares traded during the year was 735.8p with a high of 886.5p and a low of 635.0p. Investment in Armadillo The Group has a 20% investment in Armadillo Storage Holding Company Limited and a 20% investment in Armadillo Storage Holding Company 2 Limited. In the consolidated accounts of Big Yellow Group PLC, our investments in the vehicles are treated as associates using the equity accounting method. The occupancy of the Armadillo stores at 31 March 2017 was 551,000 sq ft, against a total capacity of 738,000 sq ft, with growth of 74,000 sq ft over the year, including 50,000 sq ft acquired with Canterbury and West Molesey in April 2016. The stores’ occupancy at 31 March 2017 was 74.7% (31 March 2016: 70.9%). The net rent achieved at 31 March 2017 by the Armadillo stores is £16.51 per sq ft, an increase of 6% from the same time last year. The 6% increase is in part due to the acquisition of Canterbury and West Molesey which increased the average net rent of the portfolio. Revenue increased by 17% to £10.5 million for the year to 31 March 2017 (2016: £9.0 million); the like-for-like increase in revenue was 4%. The Armadillo Partnerships made a combined operating profit of £5.2 million in the year, of which Big Yellow’s share is £1.0 million. After net interest costs, the revaluation of investment properties (valued by Jones Lang Lasalle), deferred tax on the revaluation surplus and interest rate derivatives, the profit for the year was £7.2 million, of which the Group’s share was £1.4 million. 36 Big Yellow has a five year management contract in place in each Partnership. For the year to 31 March 2017, the Group earned management fees of £0.8 million. The Group’s share of the declared dividend for the year is £0.4 million, representing an 11% yield on our investment for the year. Principal risks and uncertainties The Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. 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 Mitigation 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. The sector have slowed significantly over the past few years. Our performance during the downturn was 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 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 approximately 52,500 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. 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, although the availability of land, and competition for it makes acquiring new sites challenging. Our in-house development team and our professional advisers have significant experience in obtaining planning consents for self storage centres. 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 advisers and sub-contractors who have worked with us for many years to our Big Yellow specification. We carried out an external benchmarking of our construction costs and tendering programme in the prior year, which had satisfactory results. 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 approximately 52,500 customers currently using our stores for a wide variety of reasons. There is significant headroom on our loan to value banking covenants. 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. 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. Change during the year and outlook The UK economy is projected to grow at approximately 1.6% in 2017, and is ahead of the level of output last achieved in 2007 before the global financial crisis. Self storage proved relatively resilient through the crisis, with our revenue and earnings increasing over the last seven years. As the economy has recovered in the past few years, the market risk has fallen in line with increasing occupancy. There is increased macroeconomic uncertainty associated with the UK’s future exit from the EU, and this has resulted in a broad range of opinions on the UK’s future economic performance. The Group’s like-for-like occupancy has increased by 2.8 percentage points in the year from 75.3 % to 78.1%. The planning process remains difficult and to achieve a planning consent can take anything from eighteen months to three years. Local planning policy is increasingly favouring residential development over other uses, and we don’t expect this to change given the shortage of housing in the UK. The revaluation surplus on the Group’s open stores investment properties was £44.4 million in the year (an uplift of 4%). There has been an increase in transactional evidence in the year, with the Group’s acquisition of Lock and Leave, and the acquisition of the Big Box portfolio by Storage Mart. 37 Strategic Report (continued) Financial Review (continued) Risk and impact Mitigation Treasury risk The Group may face increased costs from adverse interest rate movements. 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 10 years remaining. In the prior year, the Group drew down on a seven year £70 million loan from M&G Investments, which is 50% fixed and 50% floating. 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 45% of our total borrowings fixed, with the balance floating. At 31 March 2017 51% of the Group’s total borrowings were fixed or subject to interest rate derivatives. 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 store occupancy on gearing and interest cover. This sensitivity testing underpins the viability statement below. 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. Change during the year and outlook Interest rates are forecast to remain low for the foreseeable future, although following the reduction in the sterling exchange rates following the Brexit referendum, UK inflation is forecast to increase in 2017. Debt providers currently remain supportive to companies with a strong capital structure. That said, a weaker macro-economic performance by the UK economy could adversely affect liquidity and pricing. The Group’s interest cover ratio for the year to 31 March 2017 was 6.2 times, comfortably ahead of our internal target of 5 times. We regularly monitor proposed and actual changes in legislation with the help of our professional advisers, through direct liaison with HMRC, and through trade bodies to understand and, if possible, mitigate or benefit from their impact. HMRC have designated the Group as having a low-risk tax status, and we hold regular meetings with them. We carry out detailed planning ahead of any future regulatory and tax changes using our expert advisors. The Group has internal monitoring procedures in place to ensure that the appropriate REIT rules and legislation are complied with. To date all REIT regulations have been complied with, including projected tests. In addition to the regulatory and tax uncertainty linked to the UK’s future exit from the EU, the Group has experienced an increase in cost of £0.9 million for the year ending March 2018 following the Government’s review of business rates. 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. We were ranked 80th in the Sunday Times Best 100 Companies to Work For survey in February 2016. During the year, an employee consultancy conducted an engagement survey of our employees. The survey results showed very high levels of employee engagement (90%), which was an increase from 86% from our previous survey in 2014. Tax and regulatory 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. The UK’s future exit from the EU creates uncertainty over the future UK tax and regulatory environment. The Group is exposed to potential tax penalties or loss of its REIT status by failing to comply with the REIT legislation. 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. With unemployment falling, and a risk of higher staff turnover, difficulty in finding the right employees increases. 38 Risk and impact Mitigation 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. Cyber risk High profile cyber-attacks and data breaches are a regular staple in today’s news. The results of any breach may result in reputational damage, or customer compensation, causing a loss of market share and income. 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. The Group receives specialist advice and consultancy in respect of cyber security and we have dedicated in-house monitoring and regular review of our security systems, we also limit the retention of customer data to the minimum requirement. Policies and procedures are under regular review and benchmarked against industry best practice by our consultants. These also include defend, detect and response policies. We have also instigated a new working group for compliance with the new EU General Data Protection Regulation (“GDPR”) which comes into effect on 25 May 2018. Change during the year and outlook We have continued to run courses for all our staff to enhance the awareness and effectiveness of our procedures in relation to security. We regularly review and implement improvements to our security processes and procedures. We don’t consider the risk to have increased any faster for the Group than anyone else; however we consider that the threats in the entire digital landscape do continue to increase. During the year we have continued to invest in digital security. Some of the changes include more frequent penetration testing of internet facing systems, adding components such as anti-ransomware as well as the maintenance replacement of components such as firewalls to the latest technology and specification. 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 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 at least once 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, administrative standards, and operational standards within the stores. 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. 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 2018 and projections contained in the longer- term business plan which covers the period to March 2021. The Directors have carefully considered 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. VIABILITY STATEMENT The Directors have assessed the Group’s viability over a four year period to March 2021. This period is selected based on the Group’s long term strategic plan to give greater certainty over the forecasting assumptions used. In making their assessment, the Directors took account of the Group’s current financial position, including committed capital expenditure. The Directors also assessed the potential financial impact of the various risks and uncertainties set out in the report above on the Group’s cash flows, REIT compliance and financial covenants and the likely effectiveness of the mitigating options detailed. The Directors have assumed that funding for the business in the form of equity, bank and insurance debt will be available in all plausible market conditions. Based on this assessment the Directors have a reasonable expectation that the Company and the Group will be able to continue operating and meeting all their liabilities as they fall due to March 2021. 39 Strategic Report (continued) Corporate Social Responsibility Report BIG YELLOW RECOGNISES THAT A HIGH LEVEL OF CORPORATE SOCIAL RESPONSIBILITY (“CSR”), LINKED TO CLEAR COMMERCIAL OBJECTIVES, WILL CREATE A MORE SUSTAINABLE BUSINESS AND INCREASE SHAREHOLDER AND CUSTOMER VALUE. 1.0 INTRODUCTION Big Yellow recognises that a high level 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 property 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 by providing the storage space for their commercial and/or domestic needs, whilst aiding local employment creation and contributing to local community regeneration. 2.0 CSR EXECUTIVE SUMMARY Big Yellow is pleased to deliver another year of steady Corporate Responsibility progress across the Group, full details of which can be found in this CSR Report. Our focus over the last year has delivered the following benefits: Employee Engagement We completed an externally managed survey in May 2016 investigating (amongst other factors) our working life, personal development, teamwork, communication and management style in detail. We received a 90% response rate to the survey – and overall a 90% ‘Engagement Indicator’ from our employees. Support for Local Charities We have continued to recognise and support 14 different charities selected by both our stores and head office teams. Our people undertook a variety of activities for these (and other) charities and raised £74,000 of funds during the year (up 66% on 2016). At the same time Big Yellow and Armadillo donated the equivalent of over £940,000 of free storage in the last year (up 25% on 2016). The Big Yellow Foundation We registered a new charitable Foundation in January 2017. We are currently piloting the use of the Foundation to raise money from both Big Yellow and its customers. Following the conclusion of this pilot, we will launch it to the whole business in autumn 2017. The aim of the Foundation will be to use the funds to support charities working to bring people back into society from disadvantaged backgrounds. We will also aim to provide them with employment opportunities at Big Yellow and Armadillo. Health & Safety Record This has continued at a high standard at both our stores and on our construction projects. Measured by both the number of recorded Minor Injuries and by RIDDOR (Reporting of Injuries, Diseases and Dangerous Occurrences Regulation), our high standards of Health & Safety have protected our customers, staff, contractors and other visitors. LED Lighting Investment We have continued to invest in providing LED lighting both inside our stores, and more recently for all of our external lighting. During the next 12 months we will continue to deliver the benefit of LED lighting to all of our external lighting sources – and to both Big Yellow & Armadillo stores that still require internal lighting improvement after recent acquisition. Greenhouse Gas (‘GHG’) Emission Our store electricity use in absolute terms is now 31.3% lower than our peak use year of 2011. Our ability to continue to reduce our absolute electrical use will diminish, as we complete our LED investment program and as we open and acquire new stores. However, our relative GHG Emission (per sq metre occupied) is down 63.8% from our peak year of 2011 and we aim to continue with this relative reduction. CSR Performance Benchmarking 42% of our stores have EPCs (Energy Performance Certificates) the majority of which are rated A or B. We will also continue to participate in our sustainable benchmarking initiatives with EPRA, FTSE4Good, the Carbon Disclosure Project (“CDP”) and the Global Real Estate Sustainability Benchmark (“GRESB”). 40 WE RECOGNISE THE IMPORTANCE OF SUPPORTING LOCAL COMMUNITY PROJECTS AND CHARITIES THROUGH FUNDRAISING AND DONATING FREE STORAGE SPACE. DURING THE YEAR WE DONATED SPACE IN OUR STORES WORTH APPROXIMATELY £940,000 TO CHARITIES. 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 through 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 customer feedback rewards, bonus schemes and share incentives. We recognise and reward the exceptional performance, achievements and ideas of our people through a Points Recognition Scheme, and allocated £53,000 of points for the year ended 31 March 2017. Wellbeing and Support We aim to promote employee wellbeing through a range of flexible working options, which include flexitime, staggered working hours, home working and sabbaticals. We provide Childcare Vouchers along with a comprehensive range of medical support and advice through our private healthcare scheme and occupational health providers. We have arranged corporate gym membership on a national basis, as well as a “Cycle to Work” scheme and Employee Assistance Programmes. Communication and Engagement We continue to recognise the importance of communication and consultation with an annual Spring 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 always accessible to employees, at all levels. In May 2016, we ran our second externally managed Employee Engagement Survey which was structured to look at key areas including our day to day working life, learning and development, team work, communication, management style and leadership. The survey achieved a response rate of 90% (also 90% in 2014) and an Engagement Indicator of 90% (86% in 2014). Management are now using the feedback from the Engagement Survey as the focus of their attention to further improve the working environment. Training and Development We continue to promote the development of our staff through ongoing training and regular performance appraisals. For the year ended 31 March 2017 a total of 1,267 days training were provided across the Company, comprising of both sales and operational training, and personal and management development. We have continued to develop our internal training resources to include e-learning on security, a Health & Safety library, 17 operational and sales based workshops and 10 centrally run courses covering induction, management training and personal development. During the year, six team members completed our personal development programme designed specifically for Assistant Store Managers, with three of those people having subsequently been promoted to the position of Store Manager. 13 Assistant Store Managers are currently participating in the new programme, to prepare them for their future progression within the Company as opportunities arise. During the year a new development programme for our Sales Advisors was also introduced, the aim of which is to prepare them for promotion to the position of Assistant Manager. The programme will run on an annual basis with 14 Sales Advisors currently participating. As a result of our other internal training and development programmes, 53% of our store based staff have been promoted to their current position from a more junior position. 41 Strategic Report (continued) Corporate Social Responsibility Report (continued) 2.1 OUR PEOPLE (continued) Community We continue to recognise the importance of contributing to 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 environments. For the year ended 31 March 2017, we recognised and supported 14 different charities which were selected 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 £74,000 was raised for our recognised charities and examples of our fundraising activities and charitable giving have included: The Phyllis Tuckwell Hospice, Surrey Team members have participated in various charity runs and other events to raise a total of £4,000 across the year for this Surrey-based hospice. “Phyllis Tuckwell Hospice Care is delighted to have worked with Big Yellow Self Storage over the last year and would like to thank the Directors and staff for their fundraising. Their events have been creative and good fun, from sweepstakes, raffles and walks to a Halloween chilli lunch. They have also supported us through sponsorship, taking the yellow colour stand at our annual Dash of Colour Run. Without the help of corporate partners like Big Yellow we simply couldn’t provide the compassionate end of life care that we do.” Vanessa Beech, Corporate Partnerships Fundraiser, Phyllis Tuckwell Hospice Care British Heart Foundation Nine of our stores have acted as “Donation Stations” for the British Heart Foundation, raising a total of just under £20,000 for the year from collecting bags of unwanted clothes and household goods. The funds raised will support the charity’s pioneering heart research, as well as the care of people living with heart disease. Dorothy Stringer School, Brighton Big Yellow has donated £8,500 as lead sponsor of this Brighton-based school’s planned football tour of South Africa during 2017. 20 students will be given the opportunity to participate in the tour, during which they will take part in scheduled games, as well as visiting various schools and township charities to enable them to fully appreciate the culture of the country. “Two years ago we set out to create a once-in-a-lifetime experience for the current Year 10 football team; a tour to South Africa. It soon became clear that the trip was going to cost around £50,000 and it was great to receive a donation of £8,500 towards the cost from Big Yellow. This will enable us to offer the students an eye opening experience, as well as kitting them out in tour attire. We are very grateful to Big Yellow Self Storage for their support in helping to make this life changing event happen.” Charlotte Young, Teacher of Physical Education, Dorothy Stringer School Go Dad Run Big Yellow has provided sponsorship of £20,000 for the Go Dad Run in June 2016, the aim of which is to raise awareness of, and funds for, Prostate Cancer UK through a series of 5k and 10k runs in different cities around the UK. “For a small but growing project like Go Dad Run, the relationship with our sponsors is absolutely crucial and in 2016 we were, once again, enormously grateful for the wonderful support from Big Yellow Storage. It was the third year of our partnership and we staged 5K and 10K runs in Sunderland, London, Worcester, Cardiff, Bristol and the Isle of Man, where many hundreds of men and boys pulled their giant Go Dad Run Y-fronts on over their shorts, to take part and raise funds for Prostate Cancer UK - and to raise awareness of important men's health issues. Our friends and colleagues at Big Yellow Self Storage were essential to helping us to make that happen”. Colin Jackson, CBE, Founder of Go Dad Run Southwark Tigers Rugby Club, London During the last year, Big Yellow has provided sponsorship of £2,500 to this inner city junior rugby club, whose aim is to benefit young people through the skills learnt in the game of rugby and to make it affordable and attractive to them all. Caius House, Battersea, London Caius House is a charity and a youth club based in Battersea, which aims to provide young people within the local community with a safe place to go to where their skills and talents can be progressed to fulfil their potential. During the last year, Big Yellow has provided the Caius House football team with sponsorship of £10,000. 42 Free Storage Space In addition to our fundraising activities, we have also provided charities with free storage space. For the year ended 31 March 2017, the space occupied by charities in Big Yellow and Armadillo stores was 45,500 sq ft, worth approximately £940,000 per annum at current rents. Some of the many charities that have benefited from this storage include Cancer Research, Macmillan Cancer Support, the National Childbirth Trust, the British Heart Foundation and a number of food bank and children’s charities local to our stores. The Big Yellow Foundation Big Yellow registered “The Big Yellow Foundation” in January 2017. This Foundation will help highly innovative charities transform the lives of vulnerable people across the UK. Big Yellow will donate £1 every time a customer moves into one of our stores. We will also ask customers if they would like to join us in supporting our mission at either the point of move in or move out. The Foundation, which will be launched formally in autumn 2017, will focus its support on charities that have developed effective approaches to help the reintegration, training and employment of ex-offenders and of those fleeing persecution, who have been granted asylum by the UK Government. Together we believe we can help vulnerable people across the UK to build brighter lives. Three initial charities that we are working with currently, as part of a soft launch, are Bounce Back, Breaking Barriers and the St Giles Trust. 2.2 OUR HEALTH & SAFETY Big Yellow recognises the importance of maintaining high standards of Health & Safety for our customers, staff, contractors and any visitors to our stores. The Group’s Health & Safety Committee reviews its Policy, Risk Assessments, performance and records on a quarterly basis. The Policy covers two distinct areas – our construction activities and our routine store operations. The Health & Safety Committee discuss and review any issues reported from our regular meetings held at our head office, Maidenhead (our distribution warehouse), the stores and our construction sites. Our Health & Safety Policy states that all employees have a responsibility for Health & Safety, but that managers have special responsibilities. The responsibilities of Adrian Lee, Operations Director, are to keep the Board advised on Health & Safety issues and to ensure compliance with the Policy in respect of Construction (via the Construction Director) and store operations (via the Facilities Manager and Head of Store Operations). The Health & Safety Committee minutes are copied to the CEO, the CSR Manager, the Head of Human Resources, the Facilities Manager and our external Health & Safety consultant. Externally, other interested stakeholders include the Health & Safety Executive (HSE) and Local Government Authorities. Our external Health & Safety consultant reviews our Policy and performs audits of our stores on a rolling programme, to ensure the implementation of the Group’s Health & Safety policies and to ensure compliance with the latest Health & Safety standards. Actions recommended by our consultant are reviewed by the Health & Safety Committee, and if required are then implemented into the operations or construction systems. External Health & Safety audits are carried out by our consultants on a regular basis on each construction site during the construction process. Our Health & Safety reporting covers all of our stores, our head office, Maidenhead (our distribution warehouse) and our construction sites. Incidents are recorded for staff, customers, contractors and visitors. The Board receives reports that monitor Health & Safety performance in all these areas. Annual Store Health & Safety Meetings take place for all stores and Maidenhead. Meeting agendas are provided for all meetings by the Facilities Team and the minutes are reviewed by Area Managers to raise any issues with our Facilities or Human Resources Teams, where necessary. Health & Safety performance and incidents are reported and are displayed in the tables below: 2.2.1 Big Yellow Store Customer, Contractor and Visitor Health and Safety Store Customer, Contractor and Visitor Health & Safety Year ended 31 March 2013 2014 2015 2016 2017 Number of customer move-ins 65,807 72,772 75,097 75,438 71,715 Number of minor injuries 34 31 50 58 41+ Number of reportable injuries (RIDDOR)* 3 3 4 4 1+ RIDDOR* per 100,000 staff 4.6 4.1 5.3 5.3 0 + * Indicates data reviewed by Deloitte LLP as part of their assurance work. See page 58 for the independent assurance report. RIDDOR – Reporting of Injuries, Diseases and Dangerous Occurrences. 43 Strategic Report (continued) Corporate Social Responsibility Report (continued) 2.2.1 Big Yellow Store Customer, Contractor and Visitor Health and Safety (continued) The number of customer ‘move-ins’ during the last year reduced from 75,438 to 71,715 (a 5.0% reduction) and this has in part contributed to the reporting of fewer minor injuries from 58 to 41 (down 29%) in 2017. One ‘reportable injury’ to a customer at Finchley North was recorded during the year. Customer minor injuries were mainly cuts, grazes and strains relating to the handling of their goods. Most of these injuries and those of ‘visitors’ could have been avoided by personal protective gloves and foot-wear. Visitor injuries were due to cuts from their containers, vehicles or business equipment. 2.2.2 Big Yellow Staff Health & Safety (Stores & Head Office) Year ended 31 March 2013 2014 2015 2016 2017 Average number of staff 286 289 300 318 329+ Number of Minor Injuries 15 13 15 10 9+ Number of Reportable Injuries (“RIDDOR”) 3 1 1 1 0+ AIIR* per 100,000 staff 1,049 346 333 314 0+ + * Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report. Annual Injury Incident Rate is the number of staff reportable injuries / average number of staff (x100,000). Nine staff injuries reported as minor injuries were related to hand or arm injuries. There were no “Fatal Injuries, Notices or Prosecutions” during the year ended 31 March 2017. This year our staff training schedules enabled us to provide customers with Fire Health & Safety Risk Assessments, where necessary, which raised their awareness of the potential for personal injuries while they used self storage. Two new stores, at Nine Elms and Twickenham 2, were acquired in the year and our Cambridge store was open for the full financial year. These changes have increased our average number of staff employed to 329 for the year. Against this increase we have achieved a reduction in Minor Injuries from 2016. Minor Injuries were mainly cuts, grazes and bruises relating to safety when using stairwells, doors and pallets. There were no “reportable injuries” for staff in the year, so the Annual Injury Incidence Rate (AIIR) decreased to zero against an average store staff increase of 3.5%. There were no “Fatal Injuries, Notices or Prosecutions” during the year ended 31 March 2017. Total minor injuries for staff, customers, contractors and visitors was 50 and were recorded as follows: 34 to customers, nine to staff, six to visitors and one to a contractor. 2.2.3 Big Yellow Construction ‘Fit Out’ Health & Safety Construction Fit-out Contractors and Visitor Health & Safety Year ended 31 March 2013 2014 2015 2016 2017 Number of Total Man Days 610 3,315 3,005 6,560 1,111 Number of Minor Injuries 0 2 1 3 0 Number of Reportable Injuries (RIDDOR) 0 0 0 0 0 There were no ‘Man Days’ worked on construction ‘Fit Out’ projects for new stores in 2017. However, our storage partitioning contractors recorded 1,111 man days of work for fitting out storage partitioning in our existing stores. No Minor Injuries or Reportable Injuries were recorded during these works. Our ground works contractor at the new Guildford Central store was in the ‘early piling phase’ and was assessed by the independent Considerate Constructors Scheme (“CCS”) in February 2017. This scheme monitors and reports on the Health & Safety management and environmental aspects of our construction projects. High scores of 7/10 were achieved for ‘Securing everyone’s Safety’ and ‘Care about Appearance’. Good scores of 6/10 were achieved for ‘Respecting the Community’, ‘Valuing the Workforce’ and ‘Protecting the Environment’. There were no ‘Fatal Injuries, Notices, or Prosecutions’ during the year ended 31 March 2017. 44 3.0 ENVIRONMENTAL RESPONSIBILITY Our 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 manner. We participated in the FTSE4Good Annual Index Series survey and achieved a “low environmental impact”. We also use the detail in this CSR Report to participate in other benchmarks, such as the annual Carbon Disclosure Project (“CDP”) and Global Real Estate Sustainability Benchmark (“GRESB”) to engage with our other Ethical Investors. Notwithstanding this and in order to maintain an efficient and sustainable business for our stakeholders, we have continued to commit significant resources to the environmental and social aspects of our storage operations, property portfolio, new store developments and site acquisitions. In this report we state our energy use and carbon emissions in compliance with the Companies Act and the Climate Change Regulation on Reporting Greenhouse Gas (“GHG”) Emissions for listed companies. For more details on our applications for the above benchmarks please go to the ‘Basis of Reporting’ section of the CSR section of our Investor Relations website. In this report we have provided a summary of our Scope 1 ‘onsite’ gas use, solar electricity generation and refrigerant use, and Scope 2 ‘off site’ supplied electricity for our carbon dioxide equivalent (CO2e) emissions. We have used the DEFRA Department Environmental Reporting Guidelines 2013 Version 1.0 (Standard Set 2016; expiring 30 June 2017) conversion factors for our annual GHG Emission calculations and reporting. Also we are reporting using the UK Government GHG conversion factors for company reporting (expiring 30 June 2017). Finally, we also report on our environmental key performance indicators and identify them using the codes from the Global Reporting Initiative (“GRI”), as applied by the European Public Real Estate Association (“EPRA”) at the request of some of our stakeholders. Annual ‘same store’ portfolio electricity use and carbon emission comparisons are shown. Our materiality threshold for energy use is 5% and for carbon emissions is >1%. A limited level of assurance for our Scope 1 and 2 energy use and GHG emissions is independently applied. This assurance is undertaken by Deloitte LLP in accordance with the International Standard on Assurance Engagements (ISAE) 3000 (Revised). Long Term Electricity Use – 2008 to 2017 190 139.0 140 139.3 136.8 138.5 128.7 127.3 116.9 90 40 96.5 93.8 95.7 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Linear (Electric GWh) Electric GWh Between 2008 and 2010 we installed motion sensor lighting in many of our stores and renewable energy initiatives were included in our new store openings, such as solar panels (on 10 stores); wind turbines (on two stores); and ground source heat pumps (in five stores) and these achieved both electricity use reduction and sustainable electricity generation across our store portfolio. From 2010 to 2013 there was an increase in our total electricity use as a result of our new store openings and increases in our customer occupancy. Customers increase electricity use by more regular activation of our motion sensor lighting and the increased use of electrical socket supply in our stores. 2011 was our peak year (benchmarking year) for electricity use. From 2013, our investment in energy efficiency programmes such as internal and external LED re-lamping across the store portfolio and the installation of larger capacity (50kWp) solar panels (at seven of our stores) reduced our electricity use and increased our own electricity generation to 2016. 45 Strategic Report (continued) Corporate Social Responsibility Report (continued) 3.0 ENVIRONMENTAL RESPONSIBILITY (continued) In the last 12 months our customer occupancy has continued to grow and some stores have required further internal partitioning works (the fit out of second phases of storage space) which has increased our electricity use. In addition store acquisitions at Nine Elms and Twickenham 2 have further added to our total electricity use. Electricity use has therefore increased our linear trend and total use in 2017 was 9,568,862 kWh / year. The acquired stores will be re-lamped with energy efficient LED lamps in the future years. Electricity Use from Peak Energy Year 2011 (GRI Elec-Abs / G4-ENS3) Year ended 31 March 2013 2014 2015 2016 2017 Electricity Use (kWh)+ 13,153,960 11,688,629 9,643,341 9,376,085 9,568,862 Reductions from 2011 Peak (%) (5.5%) (16.1%) (30.7%) (32.7%) (31.3%) + Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report. Note: 2011 was our peak electricity use (13,925,217 kWh). From 2017, we no longer including Bagshot and Maidenhead in the Group energy totals, and the consumption at these stores is now reported in a separate table. This approach is explained in the Basis of Reporting. New Store Acquisitions and ‘Same Store Portfolio’ Electricity Use (2016 v 2017) Two newly acquired stores in 2017 increased our total electricity use by 99,673 kWh. On an annual ‘same store’ basis, the 2017 total electricity use would have been 9,469,189+ kWh, without the acquisitions, 32.0% below our peak. Store Portfolio Electricity Use and Climate Change Levy (“CCL”) Scope 2 Electricity Use and Climate Change Levy % change Year ended 31 March 2013 2014 2015 2016 2017 from peak Electricity Use (kWh)+ 13,153,960 11,688,629 9,643,341 9,376,085 9,568,862 (31.3%) CCL (£/kWh) 0.00509 0.00524 0.00541 0.00554 0.00559 30.0 % CCL (£) £66,954 £61,248 £52,171 £51,944 £53,490 (10.7%) + Indicates data reviewed by Deloitte LLP. See page 58 for independent assurance report. Note: 2011 is our peak electricity use (13,925,217 kWh). 2011 Grid electricity cost (excluding VAT) but including CCL (at 0.0043 £ / kWh) was £59,878. From 2017, we no longer including Bagshot and Maidenhead in the Group energy totals, and the consumption at these stores is now reported in a separate table. This approach is explained in the Basis of Reporting. Our UK network electricity supply provides 94% of our total energy use. We continue to seek reductions in our kWh use, costs and taxes through investment in our energy efficient technology and from our solar electricity ‘self supply’. Our electricity use has reduced 31.3% since our peak use year in 2011, notwithstanding which the Climate Change Levy has increased by 30%. The CCL for 2017 (£53,490) has been reduced by 20.1% from its peak in 2013, due to our investment in our energy efficient internal and external LED re-lamping programmes. In 2017 there has been an increase of 3% in the CCL due to an increase in the CCL rate and more electricity use, as a result of growing customer numbers and the acquisition of the two additional stores. 46 Store Portfolio Long Term Solar Electricity Generation (2009 to 2017) (MWh) 400 300 200 100 0 358.3 342.7 314.1 285.8 208.8 93.6 112.9 134.3 40.5 2009 2010 2011 2012 2013 2014 2015 2016 2017 Linear (Solar MWh) Solar MWh Our portfolio of stores with roof-mounted solar PV installations generate low carbon electricity that is monitored for performance and receives financial payments from the energy companies that we export to. There are 17 stores with PV installations and the ‘Feed-in Tariff’ payments for generation and ‘Deemed Export’ of electricity apply to all these installations. Solar generation performance in the first quarter of 2017 reduced due to our PV systems at Fulham and Merton requiring inverter replacement and maintenance, respectively. In June 2016, solar generation also under-performed due to unseasonal cloud cover. In the second and third quarters of 2017 our Sheen and Bromley solar installations lost generation data communication; these were repaired during annual maintenance visits and payments then continued to be received. Renewable Energy Generation, Savings and Materiality Onsite Solar ‘Self Supply’ Generation Year ended 31 March 2013 2014 2015 2016 2017 Solar Generation (kWh) 208,807 285,832 314,068 358,279 342,670+ Total Grid Use (kWh) 13,153,960 11,688,629 9,643,341 9,376,085 9,568,862 Total Grid Savings (£)* 74,724 100,468 106,607 115,216 113,652 Solar % of Grid Use (kWh) 1.6% 2.4% 3.3% 3.8% 3.6% + * Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report. Solar Payments from Energy Companies are Feed in Tariff plus Deemed Export kWh payments amounting to £82,812; Supplied UK Network displaced electricity savings; 342,670 solar kWh x 9p Grid kWh displaced amounting to £30,840. Note: 2011 is our first significant (107,074 kWh/y) solar electricity ‘Self Supply’ generation. In total our solar portfolio generated 342,670 kWh in 2017, a reduction of 4.4% compared to the previous year. This was mainly due to maintenance issues and less sunshine hours in June 2016. Solar electricity generation represents a saving of approximately 9 pence per kWh for displaced UK network supplied electricity, a saving of £30,840 over the year. The total payments from EDF and Good Energy for solar generation ‘Feed in Tariff’ and ‘Deemed Export’ payments was £82,812, providing us with a total saving of £113,652 for 2017. Solar electricity contributed 3.6% of our total supplied store electricity use or 14.2% of the electricity use in the 17 stores with solar PV systems. Our larger capacity 50 kWh installations (such as the system at Gypsy Corner) generate approximately 40,000 kWh/year. This can equate to nearly 30% of the stores annual kWh demand. During the first three years of a stores trading (from new build) we can export more electricity (up to 60% of the electricity generated) back to the Grid. In later years, when customer occupancy rises to store ‘maturity’ (85% occupancy) more solar electricity is used by the store and export to the national network diminishes. Customer Gas Use in Stores for Flexi Office Heating GRI Absolute Gas Use Reductions (‘Fuels-Abs’ F4-EN3) Year ended 31 March 2013 2014 2015 2016 2017 Gas Use (kWh) 716,508 652,181 602,563 592,257 630,463+ Gas Use Reductions from 2012 Peak Use (%) (3.4%) (12.1%) (18.8%) (20.2%) (15.0%) + Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report. Note: 2012 is our peak gas use benchmark (742,086 kWh). 47 Strategic Report (continued) Corporate Social Responsibility Report (continued) 3.0 ENVIRONMENTAL RESPONSIBILITY (continued) Gas use for the heating of our flexi offices at eight stores reached a peak benchmark in December 2012, due to the coldest winter since our records began. The increase in gas use in 2017 was 6.5% and is predominantly due to higher flexi office occupancy compared to the previous two years. Total Energy Use (Electricity and Gas) and Materiality Total Electricity and Gas (kWh) Use and Gas Use Materiality (%) Year ended 31 March 2013 2014 2015 2016 2017 Total Energy Use (kWh) 13,870,468 12,340,810 10,245,904 9,968,342 10,199,325 Total Reductions from 2011 Peak (%) (4.9%) (15.4%) (29.7%) (31.6%) (30.1%) Gas Materiality % 5.2% 5.3% 5.8% 5.9% 6.2% Note: 2011 was our peak energy use year (14,581,234 kWh) In 2017, our combined UK network supplied energy (electricity and gas) reduced by 30.0% from our peak energy use in 2011, mainly due to electricity efficiency reductions after our LED re-lamping programmes and reduced gas use due to new boiler efficiency and less demand in the warmer winters since 2012. In 2017 there was a 2.3% increase in energy use due to higher levels of customer occupancy in our stores and the acquisition of two new stores. Our gas use ‘materiality’ compared to total gas and electricity use increased to 6.2% in 2017, 1.2% above the materiality threshold level of 5% for reporting gas data. UK Network Supplied Energy Intensity (Electricity and Gas) Energy Intensity per Annual Average Occupancy and per Gross Internal Floor Area (Energy-INT/CRE1) % change Year ended 31 March 2013 2014 2015 2016 2017 from 2011 peak Total Energy Use (kWh) 13,870,468 12,340,810 10,245,904 9,968,342 10,199,325 (30.1%) Annual Average Occupancy (m2) 244,521 263,101 283,732 304,964 325,537 64.5% kWh/Annual Average Occupancy 56.7 46.9 36.1 32.7 31.3 (57.5%) Gross Internal Floor Area (m2) 582,872 582,872 605,419 621,050 629,686 15.4% KWh / GIFA (m2) 23.8 21.2 16.9 16.1 16.2 (39.3%) + Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report. Note: 2011 is our Peak Energy Use of 14,581,234 kWh; Annual Average Occupancy was 197,884 m2; Intensity was 73.7 kWh / occupancy m2; Intensity was 26.7 kWh / m2 of GIFA . Since 2011 customer occupancy has increased by 64.5% and energy use intensity (per annual average occupancy) has reduced by 57.5%. Our total store portfolio gross internal floor area (‘GIFA’) increased between 2011 and 2017 by 15.4% through new store openings and store acquisitions. This has helped us to achieve a 39.3% reduction in kWh use per GIFA from 2011. Energy (Electricity and Gas) Use / Revenue Intensity (Energy-INT/CRE1) % change Year ended 31 March 2013 2014 2015 2016 2017 from 2011 peak Total Energy Use (kWh) 13,870,468 12,340,810 10,245,904 9,968,342 10,199,325 (30.1%) Revenue (£000) 69,671 72,196 84,276 101,382 109,070 76.3% kWh / £ Revenue 0.20 0.17 0.12 0.10 0.09 (62.5%) + Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report. Note: 2011 is our Peak Energy Use 14,581,234 kWh; Revenue was £61,885,000; kWh / £ Revenue was 0.24; Group revenue has increased by 76.3% since 2012. Our energy use intensity (kWh per revenue) has reduced by 62.5% in the same time period. Revenue intensity reduction represents all of the self storage activities and services from our 73 store portfolio. A reduction of 10% in our energy use by revenue intensity was achieved in 2017, maintaining our annual reductions in intensity since 2011. 48 ‘Non-Store’ Portfolio (Head Office and Maidenhead) Energy Use (Electricity) kWh Head Office and Maidenhead Electricity Use Year ended 31 March 2012 2013 2014 2015 2016 2017 Head Office (kWh) 115,515 110,829 104,366 98,585 89,078 89,448 Maidenhead (kWh) 15,934 16,133 17,813 16,927 19,182 18,747 Total (kWh) 131,449 126,962 122,179 115,511 108,260 108,195 Reductions* (11.2%) (14.2%) (17.4%) (22.0%) (26.9%) (14.2%) Annual Reductions (11.2%) (3.4%) (3.8%) (5.5%) (6.3%) (0.1%) Reductions from Peak year 2011: Head Office GIFA was 524 m2; Energy use was 126,050 kWh; * Note: Maidenhead GIFA was 889 m2; Energy use was 21,942 kWh; 2011 Total Portfolio GIFA 1,413 m2; Total energy use was 147,992 kWh. Our non-store portfolio consists of two business administration centres; our head office at Bagshot, Surrey and our warehouse depot for the storage and distribution of our packing materials at Maidenhead, Berkshire. They both provide services to the store portfolio. The head office electricity use is more intense due to higher staff occupancy. Electricity is mainly used for lighting, heating or cooling and computer equipment in the office areas. The total electricity reductions for both the head office and Maidenhead from the benchmark year 2011 was 14.2%. The reductions were mainly due to energy efficient LED re-lamping and more efficient air conditioning and IT equipment investment programmes. Mandatory Greenhouse Gas (GHG) Emissions Statement The ISAE 3000 Standard provides an evaluation methodology for both the quantitative and qualitative aspects of our carbon management and our energy use. We report our ‘self storage’ portfolio emissions and the ‘absolute’ emissions that include our ‘non store portfolio’. Our key carbon emission performance indicators use the GRI and the EPRA codes, at the request of our investors and other stakeholders, for real estate investment trust (REIT) benchmarking purposes. We report energy use and carbon emissions in compliance with the Companies Act and Climate Change Regulation on Reporting Greenhouse Gas (“GHG”) Emissions for listed companies. For more details on our applications for the above benchmarks see the ‘Basis of Reporting’ section of the CSR section of our Investor Relations website. In this Report we have provided a summary of our Scope 1 ‘onsite’ heating gas use, solar electricity generation and refrigerant use, and Scope 2 ‘off site’ UK supplied electricity, for GHG equivalent (CO2e) emissions. We have used the DEFRA DECC Version 1.0 (Standard Set 2016; expiry on 30 June 2017) conversion factors for our annual emission calculations and reporting. UK Government GHG Emission Conversion Factors For Company Reporting Standard Set From 30/06/2016 To 30/06/2017 Scope Fuels Unit Conversion Factors 1 Natural Gas (Gross CV) kWh 0.18400 1 R410A Refrigerant* KgCO2e 2,088 2 Electricity Grid Supply kWh 0.41205 3 Electricity Transmission & Distribution kWh losses 0.03727 3 Commercial Refuse / Waste Disposal kgCO2e 199.0 * Kyoto Protocol air conditioning Refrigerant ‘top up’ / ‘global warming fugitive emissions’. Annual ‘same store’ portfolio electricity use and carbon emission comparisons are used. Our materiality threshold for energy use is 5% and for carbon emissions is > 1 %. A limited level of assurance for our Scope 1 and 2 energy use and GHG emissions is independently applied. This assurance is undertaken by Deloitte LLP in accordance with the International Standard on Assurance Engagements (ISAE) 3000 (Revised). 49 Strategic Report (continued) Corporate Social Responsibility Report (continued) 3.0 ENVIRONMENTAL RESPONSIBILITY (continued) Scope 1 Real Estate Portfolio – Direct GHG Emissions Eight of our stores provide flexi office services with gas heating for customers. Scope 1 Flexi Office Stores Gas Heating Emissions (GHG-Dir-Abs) % change Year ended 31 March 2013 2014 2015 2016 2017 from 2012 peak Gas Use (kWh) 716,508 652,181 602,563 592,257 630,463 (15.0%) GHG Emission (tCO2e) 133.0 120.0 111.5 109.2 116.0+ (15.8%) + Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report. Note: 2012 is our peak benchmark year for gas use (742,086 kWh) and emissions (137.8 tCO2e). The financial year 2017 heating gas conversion factor was kWh x 0.18400 (kgCO2e). From 2012 milder winters have reduced gas use and GHG emissions by 15.8%. In 2017 our GHG emissions have increased by 6.2% due to increased customer occupancy of our flexi-offices with gas heating. Scope 1 Refrigerant (R410A) Replacement and GHG Emissions % change Year ended 31 March 2013 2014 2015 2016 2017 from 2014 peak Refrigerant Use (Kg) 66.5 112.4 11.9 11.3 32.5* (71.1%) Emissions (tCO2e) 286.3 354.8 20.6 21.9 67.9+ (80.9%) + * Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report. The Scope 1 Refrigerant R410A, 2017 Kg:tCO2e conversion factor was 2,088; Note: 2014 was our peak year for refrigerant replacement and related GHG emissions. This year seven stores had refrigerant ‘top up’ totalling 32.5 kg. Refrigerant use has reduced from our peak use in 2014 by 71.1% and tCO2e emissions have reduced by 80.9%. Scope 1 Refrigerant emissions from our store portfolio air conditioners occur when small quantities of Refrigerant require ‘topping up’. The Refrigerant we use (R410A) is a ‘Kyoto Protocol Blend’ that maintains an efficient working environment. Refrigerant use has a direct global warming impact and is required to be recorded for local and national reporting purposes over a 100 year period, by the Intergovernmental Panel on Climate Change. Scope 1 Total Direct Gas and Refrigerant GHG Emissions % change Year ended 31 March 2013 2014 2015 2016 2017 from 2014 peak Scope 1 Gas (tCO2e) 133.0 120.0 111.5 109.2 116.0+ (3.3%) Scope 1 Refrigerant (tCO2e) 286.3 354.8 20.6 13.5 67.9+ (81.0%) Total Scope 1 (tCO2e) 419.3 474.8 132.1 122.7 183.9+ (61.3%) + Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report. Note: 2014 was the peak year for Total Scope 1 ‘Direct’ GHG emissions. The 2017 total Scope 1 ‘Direct’ GHG emissions from gas and coolant emissions is 183.9 tCO2e. This represents a significant 61.3% reduction in GHG emissions from our peak emissions year in 2014 and was partly due to our choice of Refrigerant, which is now an efficient Kyoto Protocol Blend. Scope 2 National Network Supplied Electricity and GHG Emission Scope 2 Electricity GHG Emission % change Year ended 31 March 2013 2014 2015 2016 2017 from 2011 peak Electricity (kWh) 13,153,960 11,688,629 9,643,341 9,376,085 9,568,862+ (31.3%) Scope 2 (tCO2e) 6,470 5,682 5,908 4,456 3,943 (41.7%) + Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report. Note: 2011 was the peak electricity use (13,925,217 kWh and 6,758 tCO2e). Our Scope 2 UK Network Supplied Electricity use has reduced by 31.3% from our peak in 2011 due to our energy efficiency programmes; these have reduced GHG emissions by 41.7% over the same time period. Our Scope 2 supplied electricity has had a variable fuel mix over the last decade. In recent years we have estimated that low carbon renewables and nuclear generated supplied electricity have contributed to reducing our GHG emissions by around 1% per year over the last 5 years, based on DEFRA DECC UK Scope 2 electricity conversion factors. 50 GHG Emission Reductions Since 2011 our carbon reduction programme has focused on the most significant Scope 2 Grid supplied electricity use and we have achieved reductions based on investment in efficient lighting and maintaining our renewable electricity generation. We continue to monitor future improvements in replacement LED lamp efficiency to meet the long-term ‘climate change science-based targets’. Our electricity supply from power stations provided 95% of our total annual energy in the year ended 31 March 2017. Our annual average carbon emission reductions from 2011 is approximately 7% per annum; more than double the target set for the commercial property sector to meet the UK Government’s GHG emission target of a 34% reduction by 2020 (or a 3.5% reduction per annum to 2050). Apart from these savings, our electricity efficiency investment programmes have achieved proportional cost savings on our CCL bills and our annual CRC Taxes. Store Portfolio ‘Like-for-Like’ Electricity and tCO2e Reductions GRI and EPRA ‘Like-for-Like’ Standards (G4-EN3 / Elec-LFL) Year ended 31 March Portfolio 2016 Portfolio 2017 % change Total Electricity Use (kWh) 9,376,085+ 9,568,862 2.1% 2016 Acquired Store Use (kWh) (108,260 ) (99,673)** – LFL Electric Use (kWh) 9,267,825 9,469,189 2.2% LFL tCO2e 4,581 3,903+ (14.8%) * ** Excluding non-store portfolio electricity use (Head Office and Maidenhead) 2016. Excluding our acquisitions at Nine Elms and Twickenham 2 kWh use in financial year 2017. kWh conversion factor in 2016 is 0.49426; and conversion factor in 2017 is 0.41205 The ‘Like-for-Like’ store portfolio over the last two financial years, excluding our two administrative buildings and the two store acquisitions, indicate that electricity use in 2017 increased by 2.2% compared to the previous year. However, the ‘Like-for-Like’ stores have delivered GHG emission reductions of 14.8% in 2017. Climate Change Act 2008 - ‘Carbon Reduction Commitment’ (“CRC”) Tax The Department of Energy and Climate Change (“DECC”) and the Environment Agency (“EA”) are stakeholders in the policy for reducing carbon dioxide emissions from large private sector organisations. CRC Carbon and Tax Reductions (2013 to 2017) Year ended 31 March 2013 2014 2015 2016 2017* Total tCO2 Emissions* 7,598 6,415 5,408 4,926 – Reduction in tCO2 (%) from 2011 Peak (0.1%) (15.7%) (28.9%) (35.3%) – Tax Rates (£/tCO2) £12.00 £12.00 £16.40 £16.90 £17.20 Tax Payments (£) £91,176 £76,980 £88,691 £83,249 – Tax Reductions from 2011 Peak (%)* (0.1%) (15.7%) (2.9%) (8.8%) – * Annual CRC Tax reporting occurs after the CSR Report publication and we provide the numbers later in 2017. Note: 2011 was the peak CRC Tax Payment of £91,296 (7,608 tCO2) at £12.00/tCO2. tCO2 emissions from Grid supplied electricity, gas and self-supplied solar panel electricity. The CRC Tax Rate on carbon emissions from our use of network electricity and gas and from self supplied solar electricity rose from £16.90 per tonne in 2016, to £17.20 per tonne in 2017. Under the CRC Tax scheme our total tCO2 emissions reduced by 35.3% in 2016 (from our peak emissions in 2011). Our CRC Tax reduction from 2011 to 2016 was 8.8%. 51 Strategic Report (continued) Corporate Social Responsibility Report (continued) 3.0 ENVIRONMENTAL RESPONSIBILITY (continued) Total Scope 1 and 2 GHG Emissions In 2017 total Scope 1 and Scope 2 GHG Emissions achieved a reduction of 40.0% from our peak in 2011. This reduction is partly due to decreases in Scope 1 refrigerant efficiency. Reductions in Scope 2 were achieved due to contributions from our solar PV investments. Total GHG Emission Reductions (tCO2e) (GHG-Dir-Abs and GHG-Indirect-Abs) % change Year ended 31 March 2013 2014 * 2015 2016 2017 from peak Scope 1 Emissions 419.0 474.8 132.1 122.7 183.9+ (61.3%) Scope 2 Emissions 6,051.0 5,207.0 4,776.0 4,333.5 3,943+ (42.7%) Total (tCO2e) 6,470.0 5,681.8 4,908.0 4,456.2+ 4,126.9+ n/a + * Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report 2014 was the peak Scope 1 emissions (474.8 tCO2e) benchmark. Note: 2011 was the peak Scope 2 emissions (6,879.5 tCO2e) benchmark . Scope 1 emissions from our stores represent only 4.5% of our combined Scope 1 and 2 emissions in 2017. Last year less refrigerant replacement was required for the third year from our peak use in 2014. Scope 1 and 2 GHG Emission Intensity Our GHG Emissions ‘intensity’ indicators are based on average customer occupancy (m2), total Group revenue (£) and gross internal floor area (“GIFA” per m2). Scope 1 and 2 GHG Emission Intensity / Occupancy, Revenue & GIFA (GHG-Int.) % change Year ended 31 March 2013 2014 2015 2016 2017 from 2011 peak Total (tCO2e) 6,470.0 5,681.8 4,908.0 4,456.2 4,126.9+ (40.0%) Average Occupancy (m2) 244,521 263,101 283,732 304,964 325,537 64.5% kgCO2e /Occupancy 26.5 21.6 17.3 14.6 12.7+ (63.5%) Revenue (£000) 69,671 72,196 84,276 101,382 109,070 76.3% kgCO2e / Revenue (£) 0.09 0.08 0.06 0.04 0.04+ (63.6%) GIFA (m2) 582,872 582,872 605,419 621,050 629,686 15.4% kgCO2e / GIFA (m2) 11.1 9.7 8.1 7.2 6.6+ (47.6%) + Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report. Note: Peak GHG emissions benchmark was 6,879.5 tCO2e in 2011; Occupancy was 197,884 m2; kgCO2e / Occupancy was 34.8. Revenue was £61,885,000; kgCO2e / £ Revenue was 0.11. GIFA was 545,490; kgCO2e / GIFA m2 was 12.6. GHG Emission per average occupied space have reduced by 63.5% and GHG emissions per revenue have reduced by 63.6%. GHG emission intensity per GIFA has reduced by 47.6% from our peak. Our future GHG Emission reduction programme is to continue to invest in energy efficiencies and renewable energy, where viable, on new build and acquired stores. Long Term Energy Scope 1 and Scope 2 GHG Emission Target Review (2008 – 2020) The Kyoto Protocol Reduction Target (2008 to 2012) From 2008 to 2010 we achieved store electricity use reductions by investment in our motion sensor lighting and low carbon renewable energy ‘self- supply’. From 2010 to 2013 we had an increase in electricity use as a result of our new store openings and increased customer occupancy. This increase in our emissions delayed the achievement of our 2008 to 2012 Kyoto Protocol Reduction Target of 12.5% until 2014. The UK Climate Change Act (2008) The Climate Change Act was made legally binding in the 2009 Budget. It has an interim target of GHG Emission reduction of 34% by 2020. The longer-term target is to reduce GHG Emission by 80% by 2050 (or by approximately 3.5% per year). 52 Our Target is to Reduce Scope 1 & Scope 2 GHG Emissions by 34% by 2020 Our annual GHG Emission since peak energy use in 2011 has reduced by 35.2% or approximately 5% per year on average. In order to commit to long-term climate change ‘science-based’ targets we will commit to investing in improved LED technology as they become more efficient, and renewable solar energy on new build stores. This year we acquired two stores at Nine Elms and Twickenham 2, and these stores will be part of our internal and external LED re-lamping programmes in the future. These technologies will achieve levels of decarbonisation required to keep global temperatures on a pathway to 2oC above global pre-industrial levels, by 2100. Scope 1 and 2 GHG Emission Intensity / Occupancy, Revenue & GIFA (GHG-Int.) Year ended 31 March 2011 2012 2013 2014 2015 2016 2017 2020 Target tCO2e 6,880 6,284 6,470 5,682 4,908 4,456 4,127 4,281* % Reduction 6.1% 3.1% 0.3% 12.4% 24.3% 31.3% 36.4% 34.0% + * Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report. 2008 (Scope 1 and 2) GHG emission (6,487 tCO2e) to reduce by 34% (4,281 tCO2e target). In 2017, we have achieved a 36.4% reduction in Scope 1 and Scope 2 GHG Emission from 2008, which is an annual average reduction of approximately 4% per year. In 2017 we also reviewed the longer term UK ‘Real Estate Environmental’ target of a 3.5% reduction in GHG Emission, which is now aligned to the Government’s 2050 goal. Managing the Non-Physical, Physical and Financial Risks of GHG Emission and Climate Change for our Customers, Investors and Other Stakeholders. Managing the Non-Physical Risks and Opportunities Over the long term, Big Yellow’s ‘non-physical risks and opportunities’ have been governed by EU and UK regulation and ‘best practice’ within the real estate investment sector. The significance of GHG emission and ‘climate change’ have been reviewed since 2008 within Board Reports and CSR Meetings. Building certifications such as Energy Performance Certificates (“EPCs”), the Building Research Establishment Assessment Methodology (“BREEAM”) and the Considerate Constructors Scheme (“CCS”) are all used in annual investor benchmarks, such as the FTSE4Good; the Carbon Disclosure Project (“CDP”); the Global Real Estate Sustainability Benchmark (“GRESB”). Financial Risks and Opportunities of Climate Change The financial risks and opportunities of Climate Change are within the cost of sustainable planning, designing and constructing of our new store developments, which can be more sustainable and resilient in the longer term. The financial risks involve reviewing the existing and acquired stores against extreme weather events such as seasonal storms and flooding. Our investors also appreciate disclosures and performance benchmarks of our portfolio set against sustainable development and energy efficiency benchmarks to assess our annual reduction in carbon emissions and taxes. Internal regulatory briefs on compliance and high standards within real estate benchmarks, makes Big Yellow an efficient and low risk investment. Physical Risks and Opportunities The physical risks from increased GHG emission is climate change, global warming, and the consequences of higher risk weather systems that can increase temperatures, storm frequency, flooding and/or droughts. Big Yellow has physically invested in energy efficiency in order to reduce electricity use and GHG emission. Our solar stores have customer facing electronic screens displaying real time ‘solar generation’ (kWh) and ‘carbon emissions (tCO2) saved’ in customer reception areas. Big Yellow has also trialled and invested in ‘green roofs’ and ‘green walls’ on several of our stores (Barking, Chiswick, Fulham, High Wycombe and Sutton) in the urban areas of our towns and cities. These investments provide shade to our stores in the summer that are susceptible to the ‘urban heat island effect’. Green roofs can store moisture after rainfall that evaporates in the spring and summer seasons and cools the upper floor levels. ‘Rainwater Harvesting Systems’ are also installed (Barking, Chiswick, Liverpool, Merton, Sheffield and Sutton) in order to provide landscape irrigation in the summer months. Several stores have ‘sustainable urban drainage systems’ that provide permeable car park surfaces or peripheral soft landscaping that can regulate surface water to ground waters and local rivers. 53 Strategic Report (continued) Corporate Social Responsibility Report (continued) 3.0 ENVIRONMENTAL RESPONSIBILITY (continued) Big Yellow Store Portfolio Asset Certifications This year we are reporting some of our CSR KPIs and identifying them using the codes from the GRI and EPRA. This is at the request of some of our stakeholders, to assess sustainable development performance. Certified Assets (EPRA ‘Cert-Tot’ and GRI ‘CRE8’) Other Solar Gross Internal “BREEAM” Environmental (kWh) Floor Area No. Store EPCs Certification Investments Capacity m2 1 Balham B GSHP 4kWp 10 kWp 8,361 2 Barking A Green Roof RWH 50 kWp 8,360 3 Birmingham C - - 8,361 4 Bromley B GSHP 15kWp 7 kWp 9,867 5 Camberley A - SUDS 10 kWp 8,849 6 Cambridge B - - 7,264 7 Chiswick B Green Roof 50 kWp 10,678 8 Chester E - - 8,179 9 Ealing B - - 7,887 10 Edinburgh D+ - 26 kWp 8,779 11 Eltham C - - 9,793 12 Enfield B ‘Excellent’ 50 kWp 8,367 13 Fulham B Green Roof; GSHP 28 kWp 19,370 14 Gypsy Corner B - 50 kWp 9,707 15 High Wycombe B Green Roof - 8,431 16 Kennington B GSHP 4 kWp 9,339 17 Liverpool C - RWH - 8,361 18 Merton B GSHP RWH 9 kWp 9,755 19 New Cross B - 50 kWp 8,623 20 Nottingham C - 50 kWp 9,058 21 Oxford 2 D - - 4,266 22 Poole C - - 7,386 23 Reading A ‘Excellent’ SUDS 9 kWp 8,640 24 Richmond B - 18 kWp 4,855 25 Sheen B ‘Excellent’; GSHP 7 kWp 8,919 26 Sheffield Bramall Lane B - RWH - 8,361 27 Sheffield Hillsborough B - - 8,361 28 Stockport B - - 8,288 29 Sutton B Green Roof RWH - 9,755 30 Twickenham A+ - SUDS 16 kWp 10,591 “Green” stores 30 25,926 m2 258,924 m2 73 Total Stores 41% 4.1% 629,686 m2 All stores have energy efficient LED lighting; motion sensor lighting; and automatic electricity meter readers. GSHP: Ground Source Heat Pump, SUDS: Sustainable Urban Drainage System, RWH: Rainwater Harvesting Energy Performance Certification (“EPC”) Legislation As owners of property who lease space to members of the public, we are required to display EPCs to our customers from 1 October 2008. Certification is required at new store openings, store acquisitions and when solar panels are retrofitted onto older stores. We have provided 30 EPCs to date in our stores, representing 41% of the portfolio. Of the stores certified 73% have high ‘A’ or ‘B’ ratings, mainly due to energy efficient internal LED re-lamping and investment in low carbon electricity ‘self-supply’, such as solar and ground source heat pump installations. Considering that the whole portfolio has internal energy efficient LED lighting, apart from the two most recent acquisitions, we are comfortable that the pre-October 2008 stores will at least achieve the EPC ‘B’ rating in the future, when the opportunity to rate them arises. Building Research Establishment Environmental Assessment Methodology (“BREEAM”) BREEAM certification is a local planning requirement for our stores, especially for new developments in high-density urban environments. The methodology assesses impacts and opportunities for enhancing the design and construction environmental aspects. The certification includes a review of new store energy, sustainable building materials, water efficiency, waste recycling and ecology. The review also includes social aspects of the building life including its resource management, health, well-being, modes of transport and pollution reduction. Our BREEAM ratings are mainly ‘Excellent’ scoring in the 75 – 76% range and highest in the areas of land use and ecology; transport; waste; pollution; and energy efficiency. 54 4.0 SCOPE 3 – VOLUNTARY SUPPLY CHAIN GHG EMISSION Scope 3 supply chain emissions are ‘Greenhouse gases’ from electricity supplier losses during transmission and distribution of electricity to our stores. Scope 3 – Electricity Supply and Distribution GHG Emission Losses % change Year ended 31 March 2013 2014 2015 2016 2017 from 2011 peak Total Electricity Use (kWh) 13,153,960 11,688,629 9,643,341 9,376,085 9,568,862+ (31.3%) Scope 2 (tCO2e) 6,051 5,207 4,776 4,333 3,943+ (41.7%) Scope 3 (tCO2e) 501 445 417 355 357 (34.4%) Total (tCO2e) 6,552 5,652 5,193 4,688 4,300 (41.1%) + Indicates data reviewed by Deloitte LLP. See page 58 for their independent assurance report. Note: Peak energy use was 2011 (13,925,217 kWh); total CO2e Scope 2 tonnage was 6,758 tCO2e; Scope 3 was 544 tCO2e; and total tonnage was 7,302 tCO2e). The Transmission and Distribution Conversion Factor for 2017 was 0.03727. The energy efficiency investment programmes within our stores have reduced electricity demand from our supplier’s power stations. Total transmission and distribution losses (Scope 3 losses) have therefore reduced by 34.4% since 2011. Scope 3 Store Waste Supply Chain (Recycling & Emissions) Waste Sources and Segregation Our main source of waste is from the operational activities of our stores, mainly retail and office activities that have a relatively low environmental impact. Our store staff apply best practice waste segregation for general and mixed dry recyclable materials. Waste Recycling Contractor Our recycling contractor provides further segregation and recycling of our waste. Since our ‘total waste’ benchmark of 2011 (244 t) our store portfolio has increased from 62 to 73 stores, and total waste has increased to 325.1 t in 2017, an increase of 33% from 2011. The percentage of waste recycled has reduced from 73% in 2013 to 59% in 2017. This reduction in our contractors recycling is an increasing trend due to a reduction in the supply price of some mixed dry recycled materials, such as paper and cardboard. Waste to Landfill and Landfill Tax An increasing amount of ‘General waste’, 130 tonnes (41% of general waste) went to landfill in 2017, as compared to 69 tonnes (28% of general waste) in 2011, an increase of 53% over six years. Landfill Tax is an environmental tax paid in addition to normal landfill costs. Reducing, re-using and recycling waste can reduce the Landfill Tax rate to £2.65 per ton (for more inert waste). If no segregation or recycling occurs, an increase in the tax to £84.40 per ton can apply to more active waste. These changes have increased our landfill tax by 32%, mainly due to the reduction in the market value of our recyclate that is now sent to landfill due to its low price. Scope 3 – Store Waste Supply Chain Recycling and Landfill Emissions (Waste-Abs) Year ended 31 March 2013 2014 2015 2016 2017 Total Waste (tonnage) 258.5 264.5 272.7 296.2 325.1 Mixed Dry Recycled (t) 189 (73%) 187 (72%) 170 (63%) 176 (60%) 193 (59%) General Waste (t) 69 (27%) 74 (28%) 101 (37%) 118 (40%) 130 (41%) Recycled Mixed Glass (t) – 1.1 1.4 1.4 1.4 Recycled Board/Paper (t) – 2.0 – 1.4 0.7 Waste to Landfill (t) 34.6 37.0 38.2 58.9 130.0 Landfill Tax (£) 6,684 7,054 7,054 9,822 12,913 Landfill GHG (tCO2e)* 10.0 10.7 11.0 17.0 37.5 * The landfill gas conversion factor is 0.289. Note: 2011 Waste was 244 t; mixed dry recycling was 172 t (70.5%); Landfill was 69 t; GHG emission was 10.8 tCO2e 55 Strategic Report (continued) Corporate Social Responsibility Report (continued) 4.0 SCOPE 3 – VOLUNTARY SUPPLY CHAIN GHG EMISSION (continued) Landfill Gas Emissions Our scope 3, ‘supply chain’ landfill-gas emissions have increased by 35% since 2011 (10.8 tCO2e benchmark), to our highest landfill emissions of 37.5 tCO2e in 2017. This year our landfill Greenhouse gas emissions have increased from 17.0 tCO2e (2016) to 37.5 tCO2e (2017). Although these emission levels represent a negligible percentage of our total internal combined Scope 1 and 2 emissions (4,126.9 tCO2e), they will be monitored for future efficiencies. Scope 3 – Store Waste Supply Chain Costs Year ended 31 March 2013 2014 2015 2016 2017 Mixed Recycling (£) 27,817 28,195 29,897 29,305 43,925 General Waste (£) 20,051 21,163 29,829 30,537 38,740 Total Waste Cost (£) 47,868 49,358 60,040 60,351 83,227 Store generated waste is sorted into four categories of: ‘mixed dry recyclable materials’; ‘general waste’; ‘mixed glass’; ‘paper and cardboard’. The cardboard sector includes our contractor DS Smith with mills in Kent, Birmingham and Manchester. New Store Construction ‘Fit-Out’ Waste Management Performance (Waste-Abs) Year ended 31 March 2011 2012 2013 2014 2015 2016 2017 Tonnage 147.5 152.3 12.9 78.9 14.5 13.6 0 Waste Recycled (%) 93.2 96.0 100 95 100 92.8 – Plasterboard Recycled (%) 100 34.0 – 100 100 100 – In 2017, there were no new store construction ‘Fit Out’ phases that generated site waste. All of our new stores sign up to the CCS and achieve an EPC ‘B’ rating with LED lighting as standard and roof top solar installations installed where viable. 5.0 STAKEHOLDERS Big Yellow engages with all of its main stakeholders to provide information and to 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”) We appointed an accredited ESOS Assessor, who measured all of our energy consumption and determined significant areas of use. ESOS was enforced by the Environment Agency and involved the audit of four representative stores from our portfolio. We assessed future potential energy savings from the report, other than the technologies that we had already programmed and invested in. We completed the audits in November 2015, before the December 2015 deadline, and have considered changes to our future budget for investing in viable energy saving technologies as a result. Investor Communications The Carbon Disclosure Project (“CDP”) 2016 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, as a measure of their energy use efficiency. The annual disclosures are in June each year and so we report our 2016 performance in this 2017 CSR Report. The CDP changed its scoring system in 2016 to combine its ‘Disclosure’ score within the ‘Performance’ score as recorded in the table below. The CDP Performance and Number of Investors Year 2013 2014 2015 2016 2017 Disclosure Score 65/100 67/100 85/100 93/100 – Performance Score B C B C B Number of Investors 534 655 799 884 884 Annual increase in investors – – 10.7% 10.6% – We commit annually to respond to the CDP ‘Investor’ Programme as a benchmark for the ‘Financials’ and ‘Real Estate’ sectors. We have a combined ‘B’ rated score for Disclosure and Performance in 2016, for ‘taking coordinated action on climate change issues’ and ‘implementing current best practice’. Our best performance areas, in descending order, are ‘Management’, ‘Leadership’, ‘Awareness’ and ‘Disclosure’. The ‘C’ Band performance is an average for ‘Financials’ energy efficiency, reductions and targets. Big Yellow’s ‘number of investors’ increased year on year by approximately 10% in 2014 and 2015, but have remained constant in 2016. 56 The Global Real Estate Sustainability Benchmark (“GRESB”) ‘Green Star Status’ GRESB collects information regarding the sustainability performance of property owning companies and funds. This includes information on performance indicators, such as energy efficiency, GHG emission, water and waste reductions. The Survey also covers broader issues such as sustainability risk assessments, performance improvement, and engagement with employees, customers, suppliers and local communities. GRESB rated Big Yellow with a two ‘Green Star Status’ in 2016. In Europe (and globally) we were scored 79% for ‘management and policy’ and 48% for ‘implementation and measurement’. Our Environmental and Social Governance (“ESG”) was ranked 84% against a peer group average of 54%. The benchmark results ranked Big Yellow as in 1st position out of 8 storage companies and 20th out of 25 UK Listed Real Estate Companies, which allows us to identify the areas where 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. 6.0 CSR PROGRAMME FOR THE YEAR ENDING 31 MARCH 2018 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. For the year ahead our programmes, objectives and targets are highlighted in the table below. CSR Strategy Programme Objectives From 2011 Benchmark GHG Emission Reduction CRC Increase Solar Energy Generation FTSE4 Good Investor Governance CDP Communications GRESB Health and Safety Staff CSR Awareness Assess new and acquired stores within the portfolio for efficient LED re-lamping internally and externally. External store lighting programmed for LED re-lamping in the year ending 31 March 2018. Review potential tax reduction as tCO2 tax rate increases. Implement more specific ESOS advice from our surveys. Solar installations to increase with new build portfolio growth, acquisitions and existing retro-fit stores. Solar installation on new build Guildford store and two retro-fit installations on Colchester and Eltham stores. Provided data on the Big Yellow web site to update research requests on our supply chain, labour standards and the ‘Modern Slavery Act’. Use our annual carbon performance data in the CDP survey 2017 to improve our ratings. Maintain our ranking scores in ‘management and policy’ and ‘implementation and measurement’. Continually maintain and improve high standards of recording and reporting customer, staff, visitor, and contractor incidents. Maintain membership within the FTSE4 Good Index series ratings and engaging with researchers. To increase and maintain our high performance and interest from a wider range of investors. Strengthen and maintain the leading ‘Green Star’ position in the GRESB upper quadrant. Invest in continued training and awareness of staff in routine health and safety policy, procedures, management and reporting. Continue raising CSR awareness through area staff presentations and internal communications. Regular staff meetings and information bulletins on CSR progress and ‘Climate Change’. More details of CSR policies, previous reports and awards can be found on our investor relations web site. 57 Strategic Report (continued) Corporate Social Responsibility Report (continued) Independent assurance statement by Deloitte LLP (“Deloitte” or “we”) to Big Yellow Group PLC (“Big Yellow”) on selected indicators disclosed within their Corporate Social Responsibility Report 2017 (“Report”) What we looked at: scope of our work We have been engaged by Big Yellow to perform limited assurance procedures on selected Group level Corporate Social Responsibility (CSR) performance indicators (“the Subject Matter”) for the year ended 31 March 2017. 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) > Like-for-like electricity use (tCO2e) > 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) > 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, have not been prepared, in all material respects, in accordance with Big Yellow’s reporting criteria. What standards we used: basis of our work and level of assurance We carried out limited assurance in accordance with the International Standard on Assurance Engagements 3000 Revised (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. This standard requires that we comply with the independence and ethical requirements and to plan and perform our assurance engagement to obtain sufficient appropriate evidence on which to base our limited assurance conclusion. 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 Group definitions and basis of reporting as described at: http://corporate.bigyellow.co.uk/csr.aspx 58 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: > Making inquiries of management to obtain an understanding of the overall governance and internal control environment relevant to management and reporting of the subject matter; > Understanding, analysing, and testing on a sample basis the key structures, systems, processes, procedures, and controls relating to the aggregation, validation and reporting of the subject matter set out above; and > Reviewing the content of the 2017 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 2017. 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. The firm applies the International Standard on Quality Control 1 and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. 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 22 May 2017 59 Governance Directors, Officers and Advisers Executive Directors Nicholas Vetch, 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 sold to Grantchester Properties plc in 1998. He is also a Non-Executive Director of Local Shopping REIT plc, a Trustee of Bedales School and a Trustee of Global Human Rights and Global Human Rights UK. James Gibson, Chief Executive Officer and co-founder of Big Yellow Group PLC in September 1998. He is a Chartered Accountant by background 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 sold to Grantchester Properties plc in 1998. He is also a Non-Executive Director and shareholder of AnyJunk Limited, a Non-Executive Director and shareholder of CityStasher Limited, a Non-Executive Director and investor in Moby Self Storage, a Brazilian Self Storage start-up, and a Trustee of the London Children’s Ballet. Adrian Lee, 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, 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 Chairman of the UK Self Storage Association. Non-Executive Directors Tim Clark, 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 adviser 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 Adviser 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, and the Board of the HighTide 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, is the Senior Independent Director and is Chairman of the Remuneration and Nomination Committees. Richard Cotton, 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 Helical Bar plc as well as a Member of the Commercial Development Advisory Group of Transport for London. Richard joined the Board in July 2012. Georgina Harvey, 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 the Senior Independent Non-Executive Director and Chair of the Remuneration Committee of McColl's Retail Group plc. She joined the Board in July 2013. Steve Johnson, 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 is currently Executive Chairman of Poundworld. He joined the Board in September 2010. Mark Richardson, 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 Chairman and trustee of the Natural History Museum Development Trust and a trustee and Chairman of the Audit Committee of WWF-UK. He was appointed to the Board in July 2008 and is chairman of the Audit Committee. Company 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 60 Solicitors CMS Cameron McKenna Nabarro Olswang LLP Lester Aldridge LLP Slaughter and May Financial advisers 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 2017. The Report on Corporate Governance on pages 64 to 67 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 14.1 pence per share for the year (2016: 12.8 pence per ordinary share). An interim dividend of 13.5 pence per share was paid in the year (2016: 12.1 pence per share). A property income dividend of 24.0 pence is payable for the year, of which 13.5 pence per share was paid with the interim dividend, and 10.5 pence per share was proposed for the final dividend. Subject to approval by shareholders at the Annual General Meeting to be held on 20 July 2017, the final dividend will be paid on 27 July 2017. The Ex-div date is 22 June 2017 and the Record date is 23 June 2017. From April 2016 dividend tax credits will be replaced by an annual £5,000 tax-free allowance on dividend income across an individual’s entire share portfolio. Above this amount, individuals will pay tax on their dividend income at a rate dependent on their income tax bracket and personal circumstances. The Company will continue to provide registered shareholders with a confirmation of the dividends paid by Big Yellow Group PLC and this should be included with any other dividend income received when calculating and reporting total dividend income received. It is the shareholder’s responsibility to include all dividend income when calculating any tax liability. This change was announced by the Chancellor, as part of the UK government Budget, in July 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 offsite 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 assessed as ‘not 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 Year 2012 2013 2014 2015 2016 2017 Total Scope 1 and 2 GHG Emissions (tCO2e) Scope 3 Electricity Transmission Losses Kg CO2e / Annual Revenue (£) Kg CO2e / Customer Occupancy (m2) Kg CO2e / GIFA m2 Note: Our materiality threshold for carbon emissions is > 1% 6,283.6 525 0.10 26.0 11.0 6,470.0 501 0.09 26.5 11.1 5,681.8 445 0.08 22.6 9.8 4,908.0 417 0.06 17.3 7.7 4,456.2 355 0.04 14.6 7.2 4,126.9 147 0.04 12.7 6.6 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 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 from page 64. 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 employee 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 513,580 shares to satisfy the exercise of share options (2016: 732,302). 61 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 Senior Independent Director Richard Cotton Non-Executive Director James Gibson Chief Executive Officer Georgina Harvey Non-Executive Director Steve Johnson Non-Executive Director Adrian Lee Operations Director Mark Richardson Non-Executive Director John Trotman Chief Financial Officer Nicholas Vetch Executive Chairman Biographical details of the Executive and Non-Executive Directors standing for re-election are set out on page 60. 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 2017 and 22 May 2017. Cohen & Steers Inc Blackrock Inc Old Mutual Plc Ameriprise Financial Inc PGGM Investments LaSalle Investment Management State Street Global Advisors Limited No. of ordinary shares 31 March 2017 13,659,535 11,271,724 8,983,009 6,169,744 5,380,776 5,055,933 4,811,518 Percentage of voting rights and issued share capital 31 March 2017 No. of ordinary shares 22 May 2017 Percentage of voting rights and issued share capital 22 May 2017 8.7% 12,651,583 7.1% 12,785,828 8,921,666 5.7% 6,667,121 3.9% 5,435,069 3.4% 4,890,538 3.2% n/a 3.0% 8.0% 8.1% 5.7% 4.2% 3.4% 3.1% n/a State Street Global Advisors Limited holding at 22 May 2017 was below 3%, The interest of the Directors in the share capital of the Company is shown on page 82 of the Remuneration Report. Purchase of own shares The Company was granted authority at the AGM in 2016 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. 46% 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. 62 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. Modern Slavery Act The Group is committed to ensuring that there is no modern slavery or human trafficking in our supply chains or in any part of our business. Our Anti-slavery Policy reflects our commitment to acting ethically and with integrity in all our business relationships and to implementing and enforcing effective systems and controls to ensure slavery and human trafficking is not taking place anywhere in our supply chains. Our policy is published in full on our website. 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/she might have reasonably been expected to take as a Director in order to make himself/herself 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. Approved by the Board of Directors and signed on behalf of the Board Shauna Beavis Company Secretary 22 May 2017 63 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 2014 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 2017, the Company has been in compliance with the Code provisions set out in section 1 of the 2014 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; > takes overall responsibility for the property development team; 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. 64 EFFECTIVENESS (continued) Composition of the Board (continued) The tenure of the independent Non-Executive Directors at 31 March 2017 is set out below: Georgina Harvey Richard Cotton Steve Johnson Tim Clark Mark Richardson 3.8 4.8 6.6 8.7 8.8 0 1 2 3 5 4 years 6 7 8 9 Changes to the Board and its Committees Mark Richardson has informed the Board of his intention to retire from the Board at the forthcoming Annual General Meeting. The Board is currently recruiting for his replacement as a Non-Executive Director and Audit Committee Chair. It is anticipated that the replacement will be announced before the Company’s Annual General Meeting. Tim Clark is to stand down as the Senior Independent Director with effect from the Annual General Meeting. He will remain as a Non-Executive Director for a further year, to provide continuity in light of Mark Richardson’s retirement, after which he has indicated he will retire from the Board. The Board will commence recruitment for Tim’s replacement during the forthcoming financial year, with a view to a new independent Non-Executive Director being in place by March 2018. Notwithstanding this, the Board believes that Tim Clark should be considered an independent Non-Executive, even though he has served on the Board for nine years exceeding the Combined Code recommended limit. This was concluded after considering his integrity and the effectiveness with which he carries out his responsibilities to the Company. Richard Cotton will replace Tim Clark as the Senior Independent Director and also as Chair of the Nominations Committee with effect from the forthcoming Annual General Meeting. Georgina Harvey will replace Tim Clark as Chair of the Remuneration Committee with effect from the forthcoming Annual General Meeting. 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 advisers 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: Director Position Number of meetings attended Tim Clark Non-Executive Director Richard Cotton Non-Executive Director James Gibson Chief Executive Officer Georgina Harvey Non-Executive Director Steve Johnson Non-Executive Director Adrian Lee Operations Director Mark Richardson Non-Executive Director John Trotman Chief Financial Officer Nicholas Vetch Executive Chairman attended absent Adrian Lee, Mark Richardson and Steve Johnson each missed one meeting due to unavoidable business commitments. 65 Corporate Governance Report (continued) THE BOARD AND ITS COMMITTEES (continued) Standing committees of the Board (continued) 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. 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 advisers and auditor 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 stores. 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 to business 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”). 66 ACCOUNTABILITY (continued) Risk management and internal control (continued) 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. GOING CONCERN The Group’s activities, and a fair review of the business, are included in the Strategic Report on pages 16 to 30. The financial position of the Group, including its cash flow, liquidity, and committed debt facilities are discussed in the Financial Review on pages 31 to 39. 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. 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, South Africa and the Netherlands. During the year ended 31 March 2017, the Chief Executive and other Executive Directors carried out 237 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. 67 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 considers succession planning for Directors. The Committee is also responsible for evaluating Board and Committee performance. Committee members and attendance Member Position Number of meetings attended Tim Clark Chairman and Senior Independent Director Richard Cotton Member Georgina Harvey Member Steve Johnson Member Mark Richardson Member attended absent Steve Johnson missed one meeting due to an unavoidable business commitment. Richard Cotton will replace Tim Clark as the Senior Independent Director and the Chairman of the Nominations Committee with effect from the Company’s 2017 AGM. The Nominations Committee is responsible for 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 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 During the 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. Each Director was then interviewed in person by Lomond Consulting. The responses were anonymous to enable an open and honest sharing of views. Lomond Consulting then produced a report showing the results of the review. The key topic discussed as part of the review was succession planning, which is further discussed in the section below, albeit the Committee considered no further action was necessary. During the current year, the Executive Chairman evaluated the performance of the other 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 focussed 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. 68 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 considers it is important to increase the representation of women on the Board, and intends to increase the proportion of women on the Board in the medium term, but does not consider that quotas are appropriate and has therefore chosen not to set targets. That said, the Board will look to recruit a female Non-Executive Director to replace Tim Clark when he retires from the Board next year. Gender diversity of the Board and Company is set out below (senior management are defined to be Heads of Department): Male 8 6 211 Female 1 5 150 Total 9 11 361 Board Senior Management All employees 100% 11% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 45% 42% 89% 55% 58% 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, with the exception of Mark Richardson, 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 60. Tim Clark Nominations Committee Chairman 69 Remuneration Report Year ended 31 March 2017 INTRODUCTION This report describes the activities of the Remuneration Committee for the period from 1 April 2016 to 31 March 2017. It sets out a summary of the Directors’ Remuneration Policy (“the Remuneration Policy”), which was approved by shareholders in July 2015, 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 Report) Regulations 2013 (the “Regulations”). The report is divided into three main areas: > the annual statement by the Remuneration Committee Chairman; > the summary of the approved 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 which are subject to audit are indicated in the report. The annual statement by the Remuneration Committee Chairman and the summary of the approved Remuneration Policy 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 2017. 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 2017 The business conditions and performance of the Group in the year ended 31 March 2017 are described more fully in the Chairman's Statement and the Operating and Financial Review 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 eighth year in a row; > revenue, cash flow and adjusted profit before tax increased by 8%, 10% and 11% respectively; > like-for-like occupancy was increased by 2.8 ppts; > the capital structure remains robust with interest cover of 6.2 times; and > dividends are being increased by 11%. Policy on executive remuneration The Committee is keenly aware of the sensitivity of the public, shareholders and the government regarding executive remuneration currently. The Committee is also mindful of the concerns beings raised by these parties around the effectiveness of remuneration structures and the alignment of remuneration with shareholder interests and business outcomes. The Committee continues to closely monitor the latest developments in the executive remuneration space to ensure that our remuneration policy and its operation continues to remain fit-for-purpose for the Company. 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. The Policy 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; and > a balance of short and long term incentives which provide a strong link between reward of individual and Group performance to align the interests of the Executive Directors with the interests of shareholders. The Committee believes that the success of the remuneration policy is reflected in the length of service, stability and strong performance of the Executive Director team. Two of the Executive Directors were founders of the Company while the other two have been Executive Directors for 18 years and ten years respectively. The Executive Directors have significant interests in the shares of the Company, each in excess of two times base salary, which is the Company’s shareholding guideline for Executive Directors. The Executive Directors are interested in shares comprising approximately 9% of the share capital of the Company (including unvested share incentives held). The Committee does not intend to make any revisions at the 2017 AGM to the Policy approved in 2015. The Committee will be putting a new policy to a shareholder vote at the AGM in 2018 (as the current policy expires at that time). A summary of the approved Policy is provided in the Directors’ Remuneration Policy section of the Directors’ Remuneration Report and the full Policy is available online (http://corporate.bigyellow.co.uk/investors). 70 Remuneration changes during the year All of the changes in remuneration in the year ended 31 March 2017 were within the Policy. In summary, the changes related to an increase in base salary of 2%, in line with the Group’s staff. Within the aggregate figure for Executive Director remuneration, the changes during the year were: > Base salary: increased by £20,000 (2%) – in line with increases provided to staff > Taxable benefits: increased by £4,000 (25%) > Annual bonus: was 10% of salary for the year – in line with the average for all staff of the Company (compared to 12% in the prior year) a reduction of £18,000 (15%). > Pension contributions: remained at 15% of base salary, and therefore increased in line with the increase in base salaries by 2% (£3,000). > Sharesave Scheme: there were no gains from Sharesave schemes in the year (2016: one Director’s Sharesave Scheme vested producing a gain of £14,000 in total) > Long term incentives: > the 2013 award of shares granted under the LTIP vested at 100% (representing a total gain for all of the Executive Directors of £1,566,000). As in the previous year, each of the Executive Directors was granted an award equal to 100% of base salary subject to performance conditions. The value of these awards was £1,004,000 – an increase of £20,000 (2% in line with the increase in base salary); and > no awards were made under the Long Term Bonus Performance Plan (“LTBPP”) in the year (2016: total awards of £4.43 million were made to the four Executive Directors). The Remuneration Committee reviewed the performance targets for the year and concluded that, based on the relative achievement of those targets, the awards under the Plan have provisionally vested at 90% in respect of the year ended 31 March 2017. The provisional vesting for the year ended 31 March 2016 was 90%. There is a further year’s performance on which the LTBPP is assessed and a final assessment of the whole three year period to March 2017 is then made. This final assessment will determine the extent to which the awards vest. > Salaries for the Executive Directors for the year ending 31 March 2018 have been increased by 2%, in line with the increase applied to all Group staff. There are no other changes to the remuneration structure for the year ending 31 March 2018. In considering the relative importance of the spend on pay (see page 84): > Total employee pay: increased by 3%, (and amounted to £15.6 million) > Profit distributed by way of dividend: increased by 13% (and amounted to £41.2 million) > Retained profit for the year: reduced by 23% (and amounted to £58.4 million) As part of the remuneration package for our employees, we operate an Employee Share Save Scheme (“SAYE”) which allows any employee who has more than six months’ service to save annually up to £6,000, over a three year savings contract with the ability under the scheme to purchase shares at a 20% discount to the average quoted market price of the Group shares at the date of grant of the SAYE option. In addition, our annual bonus scheme provides an opportunity for all our employees to earn a bonus based on the performance of the store they are based in against their store KPIs and targets for the year. More details of the remuneration of the Directors in the year ended 31 March 2017 are set out in the Annual Report on Remuneration section of the Remuneration Report. AGM I hope that, at the Annual General Meeting in July, you will support 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. Tim Clark Chairman of the Remuneration Committee 71 Remuneration Report (continued) Year ended 31 March 2017 REPORT ON DIRECTORS’ REMUNERATION POLICY This section of the Remuneration Report contains a summary of the Company’s Directors’ Remuneration Policy (“the Policy”) which governs the Company’s approach to remuneration. The Policy was approved by shareholders at the Company’s AGM in July 2015 and is applicable for a period of three years, 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. 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 for and scope of pension arrangements; > determining targets for performance-related schemes; > scope and content of service contracts; and > deciding the 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. Georgina Harvey will replace Tim Clark as Chairman of the Committee at the 2017 AGM. The Remuneration Committee’s Terms of Reference are available on the Company website. The Committee met three times during the year. Summary of the Directors’ Remuneration Policy (“the Policy”) The main components of the Policy and how they are linked to, and support, the Company’s business strategy are summarised below. The full policy which was approved by shareholders in July 2015 is available on the Company’s website at www.corporate.bigyellow.co.uk/investors.aspx. This includes details of the policy regarding target-setting; remuneration arrangements for new appointments; payments for loss of office and other matters. Element Operation of element Salary, Benefits and Pension Salaries are reviewed annually and typically set on 1 April after considering the salary levels in companies of a similar size and complexity in the FTSE 250. To provide a level of fixed compensation that can attract and retain talent required to successfully deliver on our business strategy. 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; > pay and employment conditions of employees throughout the Group, including increases provided to staff; and > inflation. 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 be applicable if there is a change in role, level of responsibility or experience or if the individual is new to the role. The level of benefits provided is reviewed annually to ensure they remain market competitive. Benefits currently include: private fuel, private medical insurance, permanent health insurance and life assurance. The maximum contribution to an Executive Director’s pension or salary supplement is 20% of gross basic salary. Executive Directors currently receive a contribution of 15% of salary. Annual bonus Maximum opportunity of 25% of salary with 10% of salary payable at target and 0% payable at threshold. Awards are directly aligned to the level of staff bonus and therefore linked to store performance, which is measured based on occupancy growth and net contribution, customer satisfaction and store standards. To provide cash awards which aligns reward to key Group strategic objectives and drives short- term performance. Long Term Incentive Plan (“LTIP”) LTIP maximum grant is 100% of salary per annum with grants normally made at the maximum. Awards (granted from 2015 onwards) will vest at the end of a three year performance period subject to: > EPS (70% of award) which provides a link to earnings growth and value creation in the Company; and > Relative TSR (30% of award) which provides a link to delivering returns in excess of companies in the FTSE Real Estate Index. The LTIP contains clawback and malus provisions. To align Executive Directors’ interests with those of shareholders and rewards value creation. 72 Summary of the Directors’ Remuneration Policy (“the Policy”) (continued) Element Operation of element The total maximum incentive value awarded across all four Executive Directors will not exceed 4 x 450% of base salary (over a three 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). Vesting depends on an 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. The LTBPP also contains malus provisions. 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 the full release of vested entitlements takes place over five years. Within the constraints of business confidentiality, performance measures for each year are disclosed in the corresponding Annual Report on Remuneration – the information for this year can be found on pages 78 and 79. This HMRC approved scheme allows employees to align their interests with those of investors and also to share in the long-term success of the Company. The annual allowance for investing in the Sharesave scheme is £6,000. Each Executive Director is required to build and maintain a holding of at least two times base salary in shares of the Company, through retaining at least 50% of shares vesting in share plans if this guideline has not been met. Long Term Bonus Performance Plan To ensure that the total remuneration package is more competitive, supports the Company’s strategy and its ability to react to changing economic and business circumstances. Sharesave Scheme To encourage share ownership by all employees. Shareholding Ensures that Executive Directors’ interests are aligned with shareholders’ over a longer time period. Non-Executive Director Fees Fee levels are normally reviewed annually in March and are set at broadly median levels for comparable roles at companies of a similar size and complexity within the FTSE250. Fees are intended to rise in line with inflation. The fees may be paid in the form of shares. Provides a level of fees to support recruitment and retention of Non- Executive Directors with the necessary experience to advise and assist with establishing and monitoring the Group’s strategic objectives. 73 Remuneration Report (continued) Year ended 31 March 2017 Illustrations of application of the Policy The graph below seeks to demonstrate how pay varies with performance for the Executive Directors based on the Policy approved by shareholders. This is based on pay for the year ending 31 March 2018. Element Fixed Annual variable Multiple period 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). 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. For the purposes of these charts, the LTBPP is represented by one-third of the potential vesting as it is granted once every three years. This provides a better comparison from year to year and against other companies. Assumptions used in determining the level of pay out under given scenarios are as follows: Element 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 annualised value of the three year LTBPP. 100% of annual bonus award being paid (i.e. 25% of basic salary) and 100% vesting of the LTIP, one-third of 100% vesting of the three year LTBPP. Executive Chairman CEO £1,200,000 £1,000,000 £800,000 £600,000 £1,001,000 £656,000 61% £400,000 £325,000 £200,000 100% 46% 4% 50% 7% 32% £0 Minimum Median Maximum Operations Director £1,000,000 £800,000 £600,000 £400,000 £264,000 £200,000 100% £876,000 £564,000 49% 4% 47% 64% 6% 30% £0 Minimum Median Maximum Multi-period variable Annual variable Fixed elements 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 £1,214,000 £778,000 £356,000 100% 50% 4% 46% 65% 6% 29% Minimum Median Maximum CFO £1,000,000 £800,000 £600,000 £876,000 £564,000 64% £400,000 £264,000 £200,000 100% 49% 4% 47% 6% 30% £0 Minimum Median Maximum Multi-period variable Annual variable Fixed elements Multi-period variable Annual variable Fixed elements 74 ANNUAL REPORT ON REMUNERATION This section of the Remuneration Report contains details of how the Directors’ Remuneration Policy (“the Remuneration Policy”) was implemented during the year ended 31 March 2017. The individual sections of this report which are required by the Regulators to be subject to audit 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 The table below sets out the single total figure of remuneration and breakdown for each Executive Director paid in the year ended 31 March 2017. The figures have been calculated in accordance with the remuneration disclosure regulations. Salary Taxable benefits1 Annual bonus Long term incentives Pensions2 Sharesave Scheme Total £ £ £ £ £ £ £ Year ended 31 March 2017 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016 Nicholas Vetch 269,800 264,500 5,313 4,081 26,980 31,740 433,011 548,680 40,470 39,675 – – 775,574 888,676 James Gibson 296,000 290,100 5,713 4,681 29,600 34,812 474,914 601,738 44,400 43,515 – 13,965 850,627 988,811 Adrian Lee 219,300 215,000 4,806 4,041 21,930 25,800 329,102 404,353 32,895 32,250 – – 608,033 681,444 John Trotman 219,300 215,000 2,061 2,227 21,930 25,800 329,102 404,353 32,895 32,250 – – 605,288 679,630 Total 1,004,400 984,600 17,893 15,030 100,440 118,152 1,566,129 1,959,124 150,660 147,690 – 13,965 2,839,522 3,238,561 Taxable benefits comprise medical cover, permanent health insurance, life insurance and private fuel usage. (1) (2) Nicholas Vetch and James Gibson receive a cash supplement in lieu of their full pension contributions. Adrian Lee and John Trotman receive cash supplements in lieu of pension contributions above £10,000. The value shown in long term incentives in the current year is the LTIP award granted in 2013 which vested on 22 July 2016 to 100% of its maximum value and is valued using the share price on that date of 718.5p. The award granted for 2017 is 100% of salary for each Executive Director. The average salary increase across the Group in the year was 2%; this increase was also applied to the Executive Directors for the year. The value shown for the Sharesave Scheme in the prior year is the value of the shares under option at vesting less each Director’s contributions to the scheme. Annual Bonus Plan awards The policy of the Company is that the bonus paid to the Executive Directors is the same as the average of the bonus awards (as a % of salary) paid to all the Group’s stores on achieving their targets during the course of the year. It is an important part of the Group’s culture that the Executive team are rewarded with the same level of annual bonus as the average for all staff. 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, and it was determined that the performance in the year by the Executive Directors results in a bonus of 10% of salary in line with the average bonus as a percentage of salary paid across the stores. Overview of the staff bonus scheme The staff bonus scheme is designed, on a quarterly basis, to reward each store with a bonus of up to 25% of their quarterly salary, made up of the following four key elements set out below: Occupancy performance against target Each store is set a quarterly target for occupancy growth. The weighting of the contribution of these metrics to the bonus varies based on store occupancy, with higher occupied stores having a lower weighting towards their performance against their occupancy target. The bonus awarded to each store increases as the store moves further ahead of target. No bonus is awarded if the store fails to meet its target. The individual store targets have not been disclosed as it would be impractical and commercially sensitive to disclose the targets for every one of our 73 stores in this report. However following feedback received from our shareholders on last year’s report to increase the disclosure around the annual bonus, we have shown the average annual distribution of performance against target for each of the bonus measures across our stores and the corresponding average pay-out as a percentage of salary which directly corresponds to the bonus percentage pay-out for the Executive Directors. 75 Remuneration Report (continued) Year ended 31 March 2017 Annual Bonus Plan awards (continued) The average performance against the four key targets and the associated reward for the stores were as follows: 1. Occupancy Performance against target Below target 0 to 10% ahead of target 10 to 20% ahead of target 20 to 30% ahead of target 30 to 40% ahead of target > 40% ahead of target No of stores Average bonus paid 39 0% 2 0.7% 3 2.0% 3 4.5% 3 5.9% 23 8.7% Total 73 3.1% Additionally, eight stores were awarded bonuses for averaging 85% occupancy and above earning a total weighted average bonus of 0.2%. The weighted average bonus paid to stores for performance against occupancy targets is therefore 3.3% of salary for the year. 2. Profitability Each store is set a quarterly target for profitability. The weighting of the contribution of these metrics to the bonus varies based on store occupancy, with higher occupied stores having a higher weighting towards their performance against their profitability target. The bonus awarded to each store increases as the store moves further ahead of target. No bonus is awarded if the store fails to meet its target. The performance distribution of the store’s performance against their individual targets are provided below. Performance against target No of stores Average bonus paid Below target 0 to 1% ahead of target 1 to 2% ahead of target 2 to 3% ahead of target >3% ahead of target 37 0% 14 3.3% 11 4.2% 7 9.2% 4 9.7% Total 73 2.7% The weighted average bonus paid to stores for performance against profitability targets is therefore 2.7% of salary for the year. 3. Store audits Stores receive a bonus if they receive an audit score of in excess of 85% based on visits carried out by the Group’s store compliance team. There were 31 instances of stores receiving an audit score of 85% and above across the year, leading to a weighted average bonus paid to the stores of 0.7% of salary. 4. Customer satisfaction Stores are rewarded based on two elements of customer satisfaction, net promoter scores and individual customer service awards. The awards based on net promoter scores are summarised in the table below. NPS score No of stores Average bonus paid <65 9 0% 65 to 75 75 to 80 20 1.3% 15 2.3% >80 29 2.9% Total 73 1.9% The weighted average bonus paid to stores for performance against net promoter scores is therefore 1.9% of salary for the year. The bonus paid to stores for individual customer service awards amounted to a further 1.4% of salary, which, combined with the net promoter score, amounted to a weighted average bonus paid to the stores for Customer satisfaction of 3.3% of salary. Summary The bonus received by the stores against their targets in the year is summarised as follows. Category Actual % weighting for category Average % of salary bonus paid across stores 1. Occupancy 33% 3.3% 2. Profitability 27% 2.7% 3. Store audits 7% 0.7% 4. Customer satisfaction 33% 3.3% Total 100% 10% 76 Annual Bonus Plan awards (continued) In line with the Remuneration Policy an award at this level has therefore also been paid to the Executive Directors for the year. The performance in the year resulted in a bonus of 10% of salary, which equated to the following payments for the Executive Directors: > Nicholas Vetch – £26,980 > James Gibson – £29,600 > Adrian Lee – £21,930 > John Trotman – £21,930 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, which relate to EPS and TSR, are set out below. Vesting is conditional on the achievement of EPS growth of an average of 3% above RPI per annum. This hurdle was met for the 2013 awards, with average annual growth in EPS of 20%, compared to RPI plus 3% of 6% per annum. The Committee assessed the extent to which the TSR performance condition has been satisfied for the 2013 award which vested in 2016, 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% 4 out of 34 in comparator group of companies in the FTSE Real Estate Index Vesting % 100% 100% The full vesting of the 2013 LTIP award in 2016, equated to the following value for the Executive Directors based on the share price at the date of vesting: > Nicholas Vetch – £433,011 (60,266 shares) > James Gibson – £474,914 (66,098 shares) > Adrian Lee – £329,102 (45,804 shares) > John Trotman – £329,102 (45,804 shares) LTIP awards granted in year ended 31 March 2017 The table below sets out the details of the long term incentive awards granted in the year ended 31 March 2017 where vesting will be determined according to the achievement of performance conditions that will be tested in future reporting periods. Director Award type Awards as a % of salary Nicholas Vetch James Gibson Adrian Lee John Trotman Annual cycle of awards over nil cost options 100% of salary Face value of award(1) £269,800 £296,000 £219,300 £219,300 Percentage of award vesting at threshold performance Maximum percentage of face value that could vest Performance period end date Performance conditions 25% 100% 22 July 2019 Adjusted 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 of 22 July 2016 (average share price of 721 pence). 77 Remuneration Report (continued) Year ended 31 March 2017 LTIP awards granted in year ended 31 March 2017 (continued) The performance conditions applicable to the awards granted in the year ended 31 March 2017 are set out below: Condition Weighting Relative TSR 30% 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% Adjusted EPS 70% Adjusted EPS growth of RPI+3% per annum Adjusted EPS growth of RPI+8% per annum 25% to 100% Basis for measurement The 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, including dividends re-invested. 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. Total 100% Between threshold and maximum performance, vesting will take place on a straight-line basis. Long Term Bonus Performance Plan No awards were granted under the LTBPP during the year. The following awards were made during the prior year (year ended 31 March 2016) under the LTBPP: Director Award type Awards as a % of salary at the time of grant Nicholas Vetch James Gibson Adrian Lee John Trotman Granted every three years, award converts to nil cost options on vesting. 377% 496% 464% 464% Face value of award £996,900 £1,440,000 £996,900 £996,900 Percentage of award vesting at threshold performance Maximum percentage of face value that could vest Performance period end date Performance conditions 0% 100% 31 March 2018 Assessed annually on a basket of measures 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 year ended 31 March 2017 (other than those which remain commercially sensitive) is summarised in the table below: Objective Committee Comment Grow the Group’s annual free cash flow by £5 million (pre working capital movements) for the year to 31 March 2017 compared to the year to 31 March 2016. The Group’s free cash flow for the year to 31 March 2017 was £58.3 million, an increase of £5.0 million from the prior year. Comply with all banking covenants and maintain a net worth in excess of £750 million. All banking covenants were complied with during the year. Net worth has grown by £61 million to £890.4 million. Grow the occupancy of the like-for-like stores open at 31 March 2016 from 75.3% to 77.8% by 30 September 2016, and following the seasonal occupancy loss in the third quarter, recover to this level by 31 March 2017. The occupancy of these stores at 30 September 2016 was 78.5%. At the end of March 2017, the like-for-like occupancy was 78.1%. Grow the average net rent per square foot across the stores from £25.90 per square foot by 2.5% to £26.55 by 31 March 2017. The closing net rent per sq ft at 31 March 2017 was £26.03, an increase of 0.5%. Management’s focus remains on driving occupancy performance across the stores. Meet budgeted revenue (£109.3 million) and profit before tax (£54.5 million) targets. Revenue for the full year was £109.1 million, and adjusted PBT was £54.6 million, slightly behind and slightly ahead of budget respectively. 78 Long Term Bonus Performance Plan (continued) Objective Committee Comment Maintain the Group’s online market share measured against the top 35 self storage operators by Connexity Hitwise, at 35% to 38%. The Group’s average market share ranged between 31% and 38% over the course of the financial year. The nearest competitor had a market share of 16% to 21% for the year. 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 has continued to investigate opportunities for land acquisitions in London and a number of key towns outside. In May 2017 the Group exchanged contracts to acquire a site in Wapping, East London – a key target location. The Group continues to monitor other opportunities. Complete the acquisition of the Lock and Leave portfolio into Big Yellow and Armadillo. The Lock and Leave portfolio acquisition completed in April 2016, in line with the original timetable. Submit a planning application for the development at Camberwell by the end of the financial year. Obtain planning consent for the extension of the Wandsworth store. The planning application for Camberwell was submitted in November 2016. The application was rejected in February 2017, and the Group has subsequently submitted an appeal. Planning consent was obtained for the Wandsworth extension in December 2016. Construction has commenced on the extension with the work due to complete in April 2018. Obtain revised planning consent for Guildford Central, and commence construction of the store in the year. The revised planning consent for Guildford Central was obtained in July 2016. Construction has commenced on the store with a view to a March 2018 opening. Maintain the net promoter score for customer satisfaction from the Customer Experience programme in excess of 65 for move in and move out surveys. The move in NPS score for the year was 83, a significant increase from 75 in the prior year. The move out NPS score for the year was 67, an increase from 66 in the prior year. Maintain the Group’s brand leadership of unprompted and prompted awareness throughout the UK, to be measured by third party survey in the year. Reduce the carbon intensity for the year to 31 March 2017 (KgCO2/m2 of occupied space) by 5% from the year to 31 March 2016. The You Gov survey commissioned in April 2017 has shown our prompted awareness to be at 74% in London, two and half times higher than our nearest competitor and 41% for the rest of the UK, nearly three times higher than our nearest competitor. This compares to 74% and 38% respectively last year. For unprompted brand awareness, our recall in London is 47%, nearly six times higher than our nearest competitor and for the rest of the UK it is 21%, more than eight times higher than our nearest competitor. Carbon intensity was reduced by 13% for the year to 31 March 2017. The other targets, covering areas such as real estate, staffing and certain financial targets, were met in the majority of cases. 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 2017 has provisionally vested at 90% of its potential amount for the year. For the year ended 31 March 2016, the Committee concluded that the award had provisionally vested as to 90% of its potential amount for the year. There is a further year’s performance on which the LTBPP is assessed before any awards vest. Part of the award will then be subject to a holding period in line with the Remuneration Policy. 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 giving 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. The details of the Sharesave scheme options are shown on page 82. 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 2017, the Company contribution was 15% of salary for the Executive Directors. 79 Remuneration Report (continued) Year ended 31 March 2017 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 2017 (2016: no payments). 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 2017 (2016: 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 2017. Fees £ Tim Clark Richard Cotton Georgina Harvey Steve Johnson Mark Richardson Total 2017 2016 43,700 41,000 38,400 38,400 41,000 42,800 40,100 37,600 37,600 40,100 202,500 198,200 Non-Executive Director fees were increased by 2% for the year ended 31 March 2017. Non-Executive Directors received no taxable benefits for the year ended 31 March 2017. Implementation of the Policy in coming year The main elements of Executive Director remuneration for the year ended 31 March 2017 and the forthcoming financial year are summarised below: Element Base salary Implementation in 2016/17 Implementation in 2017/18 Salary levels for Executive Directors: > Executive Chairman: £269,800 > Chief Executive: £296,000 > Operations Director: £219,300 > Chief Financial Officer: £219,300 Salary levels for Executive Directors: > Executive Chairman: £275,200 > Chief Executive: £302,000 > Operations Director: £223,700 > Chief Financial Officer: £223,700 Salaries were increased by 2% from the 2015/16 salaries. Increases for the wider employee population were 2%. Salaries were increased by 2% from the 2016/17 salaries. Increases were made in accordance with the Policy. Increases for the wider employee population were 2%. Benefits and 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. No change Annual bonus Maximum opportunity of 25% of salary. No change Assessed on stores’ performance against our Key Performance Indicators: > Occupancy and net contribution together represented 60% of the bonus > Customer satisfaction (33% of the bonus) > Store standards (7% of the bonus) 80 Implementation of the Policy (continued) Element Implementation in 2016/17 Implementation in 2017/18 Long Term Incentive Plan Maximum opportunity of 100% of salary, with grants of 100% of salary for each of the Executive Directors. No change These awards were granted with the following performance conditions: > 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 and full vesting at upper quartile. Long Term Bonus Performance Plan > No awards were made under the scheme this year as awards are granted every three years. No awards will be made this year as awards are granted every three years. The assessment of targets for the year ended 31 March 2017 can be found on page 78 and 79. Non-Executive Directors During the year, fees for Non-Executive Directors have been reassessed for the year ending 31 March 2018. The Company reviewed the Non-Executive Director base fee and decided to adjust it from £38,400 to £39,200 (2.1% increase) and to harmonise the additional fee provided for Committee Chairs and the Senior Independent Director to £5,000. Non-Executive 2016/17 fee 2017/18 fee Richard Cotton £41,000 £44,200 Tim Clark £43,700 £44,200 Georgina Harvey £38,400 £44,200 Mark Richardson £41,000 £44,200 Steve Johnson £38,400 £39,200 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 and of Moby Self Storage in Brazil; he does not receive any fees for his services. Statement of Directors’ shareholding The Executive Directors are required to build and maintain a holding of two times base salary. These requirements have been met by all Executive Directors throughout 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 2017 and the date of this report. 81 Remuneration Report (continued) Year ended 31 March 2017 Statement of Directors’ shareholding (continued) The table below shows, in relation to each Director, the total number of shares and share options in which they have an interest. LTBPP awards are not shown in the table below as the number of shares awarded is calculated by reference to the total vested award value divided by the Company’s share price at the vesting date. Director Nicholas Vetch James Gibson Adrian Lee John Trotman Richard Cotton Mark Richardson Tim Clark Steve Johnson Georgina Harvey Share ownership requirement (multiple of salary) Share ownership requirements met 2x 2x 2x 2x N/a N/a N/a N/a N/a Yes Yes Yes Yes N/a N/a N/a N/a N/a Holding as multiple of salary 240.6x 60.0x 27.9x 5.1x N/a N/a N/a N/a N/a Beneficially owned shares 9,062,663 2,479,700 854,643 154,658 73,485 27,225 20,615 10,000 13,013 LTIP awards subject to performance conditions 125,999 138,207 102,385 100,322 – – – – – Unexercised Sharesave options Options exercised in the financial year – 1,480 2,960 3,639 – – – – – 60,266 66,098 45,804 45,804 – – – – – Directors’ share options To provide further context on the shareholding of the Executive Directors, options in respect of ordinary shares for Directors who served in the year are as below: No. of No. of shares shares under under Market option at Granted Exercised Lapsed option at price at Date from Date option 31 March during the during the during the 31 March Exercise date of which first Name granted Scheme 2016 year year year 2017 price exercise exercisable Expiry Date Nicholas Vetch 22 July 2013 LTIP 60,266 – (60,266) – – nil p 696.0 p 22 July 2016 21 July 2023 29 July 2014 LTIP 50,467 – – – 50,467 nil p – 29 July 2017 28 July 2024 21 July 2015 LTIP 38,112 – – – 38,112 nil p – 21 July 2018 20 July 2025 22 July 2016 LTIP – 37,420 – – 37,420 nil p – 22 July 2019 21 July 2026 James Gibson 22 July 2013 LTIP 66,098 – (66,098) – – nil p 766.7 p 22 July 2016 21 July 2023 29 July 2014 LTIP 55,352 – – – 55,352 nil p – 29 July 2017 28 July 2024 21 July 2015 LTIP 41,801 – – – 41,801 nil p – 21 July 2018 20 July 2025 14 March 2016 SAYE 1,480 – – – 1,480 608.0p – 31 March 2019 1 October 2019 22 July 2016 LTIP – 41,054 – – 41,054 nil p – 22 July 2019 21 July 2026 Adrian Lee 22 July 2013 LTIP 45,804 – (45,804) – – nil p 766.7 p 22 July 2016 21 July 2023 29 July 2014 LTIP 40,989 – – – 40,989 nil p – 29 July 2017 28 July 2024 21 July 2015 LTIP 30,980 – 30.980 nil p – 21 July 2018 20 July 2025 14 March 2016 SAYE 2,960 – – – 2,960 608.0p – 31 March 2019 1 October 2019 22 July 2016 LTIP – 30,416 – – 30,416 nil p – 22 July 2019 21 July 2026 John Trotman 22 July 2013 LTIP 45,804 – (45,804) – – nil p 766.7 p 22 July 2016 21 July 2023 29 July 2014 LTIP 38,926 – – – 38,926 nil p – 29 July 2017 28 July 2024 16 March 2015 SAYE 3,639 – – – 3,639 494.6p – 31 March 2018 1 October 2018 21 July 2015 LTIP 30,980 – – – 30,980 nil p – 21 July 2018 20 July 2025 22 July 2016 LTIP – 30,416 – – 30,416 nil p – 22 July 2019 21 July 2026 82 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 since 2000. The FTSE All Share Real Estate Index is used for the assessment of the Company’s LTIP. TSR Performance from flotation 1,200 1,100 1,000 900 800 700 600 500 400 300 200 100 0 08 May 2000 Big Yellow Group FTSE 350 Real Estate Index FTSE All Share Index 15 Jan 2002 24 Sep 2003 02 Jun 2005 09Feb 2007 18 Oct 2008 27 Jun 2010 05 Mar 2012 12 Nov 2013 22 Jul 2015 31 Mar 2017 Source: Datastream as at 31 March 2017 CEO Remuneration The table below sets out the details of remuneration of the CEO over the past eight financial years. Year 2017 2016 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 weighted average vesting rates against maximum opportunity % 850,619 988,811 1,756,290 536,262 335,891 1,400,570 325,968 875,593 40% (10% of salary) 48% (12% of salary) 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) 100% 100% 98% 53% 0% 89% 0% 100% The single figure of remuneration for 2015 and 2012 are higher than in other years due to the vesting of the three year Long Term Bonus Performance Plan in those years delivering a reward of £945,750 (97% vesting) and £900,000 (90% vesting) respectively 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 % increase in remuneration in 2017 compared with 2016 CEO Employees 2% 22% (15%) 2% 2% (15%) 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 awarded to Executive Directors is directly linked to the bonuses awarded 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 remuneration of Directors. 83 Remuneration Report (continued) Year ended 31 March 2017 Relative importance of spend on pay The graph sets out the relative importance of spend on pay in the year ended 31 March 2017 and 31 March 2016 compared with other disbursements from profit, being the distributions to shareholders and retained earnings (comprehensive gain for the year less dividends). (23%) 13% 3% 2016 2017 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Total employee pay (including Directors) Profit distributed by way of dividend Retained earnings Advisers 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. The Committee is satisfied that advice received from PwC during the year was objective and independent. Adviser PwC Appointed by Services provided to the Committee in 2016/17 Remuneration Committee in 2008 Remuneration market practice, governance updates and support in the drafting of the Directors’ Remuneration Report. Fees in relation to remuneration advice £6,000 Attendance at Remuneration Committee meetings Attendance at meetings of the individual Directors at the Remuneration Committee Meetings that they were eligible to attend is shown in the table below: Director Number of meetings attended Tim Clark Richard Cotton Georgina Harvey Steve Johnson Mark Richardson attended absent Steve Johnson missed one meeting due to an unavoidable business commitment. Consideration of shareholders’ views The Group is committed to ongoing shareholder dialogue and monitors and reviews 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. Following feedback from shareholders, we have enhanced the disclosures surrounding the annual bonus paid to the Executive Directors in this report. The table below shows the advisory vote on the 2016 Remuneration Report at the AGM held on 22 July 2016. Votes for % Votes Against % Votes withheld 2016 Remuneration Report 125,349,939 99.25 944,742 0.75 239,135 The views of our shareholders are very important to us and 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 Policy, the Remuneration Committee Chairman will inform major shareholders in advance, and will offer a meeting to discuss these. Tim Clark Chairman of the Remuneration Committee 22 May 2017 84 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 tendered the Group’s external audit and 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, balanced and understandable view of the Group’s performance, strategy and business model. Mark Richardson Audit Committee Chairman Committee Members and Attendance Member Position Number of meetings attended Tim Clark Member Richard Cotton Member Georgina Harvey Member Steve Johnson Member Mark Richardson Chairman attended absent Richard Cotton and Steve Johnson both missed one Audit Committee meeting during the year due to unavoidable business commitments. All Audit Committee members are expected to be financially literate. Furthermore, 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. Mark Richardson has announced his intention to retire from the Board at the 2017 Annual General Meeting. The Board has commenced recruitment for his successor as Audit Committee Chairman and anticipates announcing his successor before the AGM. It is the Board’s intention that his successor will be a financially qualified member. 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 advisers. 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. 85 Audit Committee Report (continued) 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; > assessed and concluded on the Group’s viability statement; > 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; > agreed the fees to be paid to the external auditor for their audit of the March 2017 financial statements and September half-yearly report; > considered and agreed the approach of performing Directors’ valuations of investment properties for the half-year 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; > having considered audit firm rotation, the Committee conducted a tender for the appointment of a new external auditor during the year; > 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 2017 provides a fair, balanced 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 2017 provides a fair, balanced and understandable view and includes 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 88. 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 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. 86 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. 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. 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 2017, the auditor’s remuneration comprised £186,000 for audit work and £85,000 for other work, principally relating to the interim review, VAT work, and the assurance of the CSR report. In addition, over a three year rolling period, the level of non-audit fees is below the audit fee. Audit rotation The Group’s current 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. During the year the Committee tendered the external audit with a view to changing auditors given this year marked the end of the five year term of the current audit partner. Following a robust tender process, the Committee appointed KPMG LLP as auditors. As part of the tender process, the Committee reviewed KPMG’s proposals for the audit and determined that they had an appropriate plan in place to carry out an effective audit. KPMG confirmed to the Committee that it maintained appropriate internal safeguards to ensure its independence and objectivity. The Company is in compliance with the requirements of the Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014 and the Code. 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 37 to 39. 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 22 May 2017 87 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 the Group 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. This responsibility statement was approved by the Board of Directors on 22 May 2017 and is signed on its behalf by: James Gibson John Trotman Chief Executive Officer Chief Financial Officer 88 Independent auditor’s report to the members of Big Yellow Group PLC Opinion on financial statements of Big Yellow Group PLC In our opinion: > 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 2017 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 that we have audited comprise: > the Consolidated Statement of Comprehensive Income; > the Consolidated and Parent Company Balance Sheets; > the Consolidated and Parent Company Cash Flow Statements; > the Consolidated and Parent Company Statements of Changes in Equity; 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. Summary of our audit approach Key risks The key risk identified in the current year relates to the key assumptions implicit in the valuations of the investment property portfolio. Materiality The materiality that we used in the current year was £8.9m (2016: £7.9m) which was determined on the basis of 1% of net assets. Scoping We performed full scope audits on all components of the Group which account for 100% of the Group’s revenue and net assets. We also performed specified procedures on the Group’s associates. Significant changes in our approach There have been no material changes to the scope of our audit in the current year. Going concern and the Directors’ assessment of the principal risks that would threaten the solvency or liquidity of the Group As required by the Listing Rules we have reviewed the Directors’ statement regarding the appropriateness of the going concern basis of accounting and the Directors’ statement on the longer-term viability of the Group on page 39. We are required to state whether we have anything material to add or draw attention to in relation to: > the Directors’ confirmation on page 37 that they have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity; > the disclosures on pages 37 to 39 that describe those risks and explain how they are being managed or mitigated; > the Directors’ statement in note 2 to the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them and their identification of any material uncertainties to the Group’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and > the Directors’ explanation on page 39 as to how they have assessed the prospects of the Group, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. We confirm that we have nothing material to add or draw attention to in respect of these matters. We agreed with the Directors’ adoption of the going concern basis of accounting and we did not identify any such material uncertainties. 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. 89 Independent auditor’s report to the members of Big Yellow Group PLC (continued) Independence We are required to comply with the Financial Reporting Council’s Ethical Standards for Auditors and confirm that we are independent of the Group and we have fulfilled our other ethical responsibilities in accordance with those standards. We confirm that we are independent of the Group and we have fulfilled our other ethical responsibilities in accordance with those standards. We also confirm we have not provided any of the prohibited non-audit services referred to in those standards. Our assessment of risks of material misstatement The assessed risk of material misstatement described below is the risk that had the greatest effect on our audit strategy, the allocation of resources in the audit and directing the efforts of the engagement team. Investment property valuation Risk description As at 31 March 2017, the Group held wholly-owned investment properties and investment properties under construction valued at £1,190.5 million (2015: £1,126.2 million) all located within the United Kingdom. The Group also has minority investments in two associate entities (Armadillo Storage Holding Company Limited and Armadillo Storage Company 2 Limited”), together ‘the Associates’ for which equity accounting is applied. The Associates control a combined gross value of £69.3 million (2016: £57.7 million) in self storage assets, of which 20% is recognised by the Group. Investment properties are held at fair value on the Consolidated Balance Sheet. The net valuation gain in the year relating to Group held wholly-owned investment properties was £43.7 million (2016: £58.0 million), which was recognised through the Consolidated Income Statement. The net valuation gain, included within the share of profit of associates, relating to the properties held by the Associates was £4.0 million (2016: £3.5 million) on a gross basis and therefore £0.8 million (2016: £0.7 million) on a Group share basis. Fair values are calculated using actual and forecast inputs such as: occupancy, capitalisation rates, maximum lettable area, operating expenses and net rent per square foot by property as at 31 March 2017. In addition, external valuers apply professional judgement concerning market conditions and factors impacting individual properties. We consider investment property valuation to be a significant and key risk of material misstatement as the valuation process is subjective and inherently judgemental in nature. The investment market for prime self storage, in particular, is subject to market uncertainty due to the low volume of transactions. Refer to the accounting policies of the Group set out on page 101 and 103 for the Group’s investment property valuation policy and the associated critical accounting judgement for determining fair value. See also note 14 to the financial statements, and the Audit Committee’s Report on pages 85 to 87. How the scope of our audit responded to the risk > We assessed the design and implementation of the key internal controls around the property valuation process; > We tested the integrity of the information provided to the external valuers by management by agreeing key inputs such as actual occupancy and net rent per square foot to underlying records and source evidence; > We modelled ten years of valuations and key valuation inputs of the investment properties subject to audit, 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 external valuers covering both the Group and Associate portfolios and assessed their independence, the scope of the work they were requested to perform by management, quality control procedures in place internally and the valuation methodology applied; > We challenged the external valuers on the key assumptions applied and focussed on properties we identified as having significant or unusual valuation movements (compared to market data or previous periods). 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. We also researched comparable transactions and understood trends in analogous industries and utilised this information in our audit challenge. 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 and validate a sample of occupancy data inputs. 90 Investment property valuation Key observations > We concluded that the underlying assumptions included in the valuation are reasonable; > At a property level, no exceptions were identified that required reporting to the Audit Committee; and > The valuation, as a whole, is a reasonable reflection of the fair value of the portfolio These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these 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. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: Group materiality £8.9 million (2016: £7.9 million) Basis for determining materiality 1% of Net Assets Rationale for the benchmark applied Net assets is the measure of principal interest of investors when measuring return on investment. Furthermore, the property valuation is the source of most subjectivity and judgment in the financial statements. Net Assets £890.4m Net Assets Group materiality Group materiality £8.9m Component materiality range £0.1m to £8.4m Audit Committee reporting threshold £0.4m We applied a lower threshold of £2.7 million (2016: £2.3 million) for scoping the testing of all balances and classes of transactions impacting adjusted profit before tax. 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 £54.6 million (2016: £49.0 million), which is reconciled to profit before tax of £99.8 million (2016: £112.3 million) in accordance with IFRS in note 10 of the financial statements. This lower threshold was based on 5% (2016: 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 £0.4 million (2016: £0.4 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. 91 Independent auditor’s report to the members of Big Yellow Group PLC (continued) The Group is entirely UK based and wholly owned by Big Yellow Group PLC, with the exception of the 20% interests in the Associates. Our audit was scoped by obtaining an understanding of the Group and its control environment, including Group-wide controls, and assessing the risks of material misstatement. As in previous years, the audit team performed full scope audits at a materiality lower than Group materiality for all entities within the Group. The scope of our audit covered 100% of both consolidated profit before tax and consolidated net assets. Component materiality adopted for subsidiaries companies ranged from between £0.1 million and £8.4 million. The Group continues to hold 20% of the equity of the Associates and continues to manage these portfolios. The Group applies equity accounting for these interests and the equity interest in Armadillo Holdings 1 Limited and Armadillo Holdings 2 Limited amounts to £5.0 million and £2.4 million respectively. We have performed specified audit procedures on all balances and transactions material to these entities for the purposes of supporting the Group audit opinion. The Group audit team continued to follow a programme of planned site visits during March 2017. At each site visited we undertook an inventory count, performed design and implementation testing of key controls, verified a sample of fixed assets and occupancy data, agreed cash balances to bank reconciliations and held discussions with key store staff. In our opinion: > the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006; > 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; and > the Strategic Report and the Directors’ Report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the Company and its environment obtained in the course of the audit, we have not identified any material misstatements in the Strategic Report and the Directors’ Report. An overview of the scope of our audit 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 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. 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. Corporate Governance Statement Under the Listing Rules we are also required to review part of the Corporate Governance Statement relating to the Company’s compliance with certain provisions of the UK Corporate Governance Code. Our duty to read other information in the Annual Report 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. 92 We have nothing to report in respect of these matters. We have nothing to report arising from these matters. We have nothing to report arising from our review. We confirm that we have not identified any such inconsistencies or misleading statements. 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). 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 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 London, UK 22 May 2017 93 Consolidated Statement of Comprehensive Income Year ended 31 March 2017 Revenue Cost of sales Gross profit Administrative expenses Operating profit before gains 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 – fair value movement on derivatives Finance costs – 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 2017 £000 2016 £000 109,070 (34,075) 101,382 (32,632) 74,995 (9,679) 65,316 43,706 – 109,022 1,442 356 719 (11,756) – 99,783 (272) 68,750 (8,896) 59,854 58,001 4,754 122,609 1,104 403 – (11,866) (4) 112,246 (247) 99,511 111,999 99,511 111,999 63.6p 71.9p 63.1p 71.6p 13a,14 15 13d 7 7, 18 8 8, 18 9 5 12 12 94 Consolidated Balance Sheet Year ended 31 March 2017 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 Share capital Share premium account Reserves Equity shareholders’ funds Note 13a 13a 13a 13b 13c 13d 16 15 16 17 19 21 2017 £000 2016 £000 1,154,390 36,115 23,601 3,216 1,433 7,452 4,091 1,092,210 33,945 20,165 3,405 1,433 6,406 6,561 1,230,298 1,164,125 – 283 18,042 6,906 25,231 300 266 16,222 17,207 33,995 1,255,529 1,198,120 (36,935) (2,356) (2,005) (36,122) (2,243) (1,722) (41,296) (40,087) 18c 19 21 (2,964) (299,323) (21,596) (3,683) (306,520) (18,443) (323,883) (328,646) (365,179) (368,733) 890,350 829,387 22 15,788 45,462 829,100 15,737 45,227 768,423 890,350 829,387 The financial statements were approved by the Board of Directors and authorised for issue on 22 May 2017. They were signed on its behalf by: James Gibson John Trotman Director Director Company Registration No. 03625199 95 Consolidated Statement of Changes in Equity Year ended 31 March 2017 At 1 April 2016 Total comprehensive gain for the year Issue of share capital Dividend Credit to equity for equity-settled share based payments Share capital £000 15,737 – 51 – Share premium account £000 45,227 – 235 – Other non- distributable reserve £000 Capital redemption reserve £000 74,950 – – – 1,795 – – – Retained earnings £000 692,697 99,511 – (41,158) Own shares £000 (1,019) – – – Total £000 829,387 99,511 286 (41,158) – – – – 2,324 – 2,324 At 31 March 2017 15,788 45,462 74,950 1,795 753,374 (1,019) 890,350 The other non-distributable reserve arose in the year ended 31 March 2015 following the placing of 14.35 million ordinary shares. Year ended 31 March 2016 At 1 April 2015 Total comprehensive gain for the year Issue of share capital Cancellation of treasury shares Use of own shares to satisfy share options Dividend Credit to equity for equity-settled share based payments Share capital £000 15,806 – 73 (142) – – Share premium account £000 44,922 – 305 – – – Other non- distributable reserve £000 Capital redemption reserve £000 74,950 – – – – – 1,653 – – 142 – – Retained earnings £000 619,206 111,999 – (3,727) (877) (36,443) Own shares £000 (5,623) – 3,727 877 – Total £000 750,914 111,999 378 – (36,443) – – – – 2,539 – 2,539 At 31 March 2016 15,737 45,227 74,950 1,795 692,697 (1,019) 829,387 96 Consolidated Cash Flow Statement Year ended 31 March 2017 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 Cash generated from operations pre working capital movements (Increase)/decrease in inventories (Increase)/decrease in receivables (Decrease)/increase in payables Cash generated from operations Interest paid Interest received Tax paid Cash flows from operating activities Investing activities Sale of surplus land Acquisition of Lock and Leave (net of cash acquired) Purchase of non-current assets Additions to surplus land Receipts from Capital Goods Scheme Dividend received from associates Cash flows from investing activities Financing activities Issue of share capital Payment of finance lease liabilities Equity dividends paid Drawing of M&G loan Repayment of Lloyds short term loan (Decrease)/increase in borrowings Cash flows from financing activities Net (decrease)/increase 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 2017 Net (decrease)/increase in cash and cash equivalents in the year Cash flow from decrease/(increase) 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 13a 13d 11 Note 2017 £000 109,022 (43,706) – 738 1,196 2,324 69,574 (17) (1,456) (892) 67,209 (10,980) 16 (271) 2016 £000 122,609 (58,001) (4,754) 663 967 2,539 64,023 38 369 1,785 66,215 (10,763) 15 – 55,974 55,467 300 (14,239) (6,338) – 2,917 396 7,835 – (44,509) (66) 184 270 (16,964) (36,286) 286 (1,196) (41,158) – – (7,243) 378 (967) (36,443) 70,000 (70,000) 26,864 (49,311) (10,168) (10,301) 17,207 9,013 8,194 6,906 17,207 2017 £000 (10,301) 7,243 2016 £000 9,013 (26,864) (3,058) (17,851) (3,058) (294,991) (17,851) (277,140) 18 (298,049) (294,991) 97 Notes to the Financial Statements Year ended 31 March 2017 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 16 to 30. 2. SIGNIFICANT ACCOUNTING POLICIES Basis of preparation of financial statements The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted for use in the European Union in accordance with EU law (IAS regulation EC1606/2002) and those parts of the Companies Act 2006 applicable to companies reporting under IFRS, and therefore the Group financial statements comply with Article 4 of the EU IAS Regulation. The financial statements are presented in Sterling, being the currency of the primary economic environment in which the Group operates. Unless otherwise stated, figures are rounded to the nearest thousand. The accounting policies adopted are consistent with those of the previous financial year, except as described in the following sections. Amendments to IFRSs that are mandatorily effective for the current year In the current year, the Group has applied a number of amendments to IFRSs issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2016. Their adoption has not had any material impact on the disclosures or on the amounts reported in these financial statements. Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations Amendments to IAS 1 Disclosure Initiative Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants Amendments to IAS 27 Equity Method in Separate Financial Statements Annual Improvements to IFRSs: 2012-2014 Annual Improvements to IFRSs New and revised IFRSs in issue but not yet effective At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRSs that have been issued but are not yet effective: IFRS 9 Financial Instruments IFRS 15 Revenue from Contracts with Customers IFRS 16 Leases IFRS 2 (amendments) Classification and Measurement of Share-based Payment Transactions IAS 7 (amendments) Disclosure Initiative IAS 12 (amendments) Recognition of Deferred Tax Assets for Unrealised Losses IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the Group in future periods. Basis of accounting The financial statements have been prepared on the historical cost basis, except for the revaluation of certain investment 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 2018 and projections contained in the longer term business plan which covers the period to March 2021. The Directors have carefully considered 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. 98 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. Fees earned from associates are recognised in full in the income statement through revenue with the proportionate debit shown in the share of profit of associate. 99 Notes to the Financial Statements (continued) Year ended 31 March 2017 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. 100 2. SIGNIFICANT ACCOUNTING POLICIES (continued) Plant, equipment and owner occupied property All property, plant and equipment, not classified as investment property, is 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 50 years Leasehold improvements Over period of the lease Plant and machinery 10 years Motor vehicles 4 years Fixtures and fittings 5 years Computer equipment 3 to 5 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. 101 Notes to the Financial Statements (continued) Year ended 31 March 2017 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. 102 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. 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 an annual basis. The stores within the Armadillo Partnerships are valued by Jones Lang LaSalle. The principal assumptions underlying the estimation of the fair value are those related to: stabilised occupancy levels; expected future growth in storage rents, 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. 3. REVENUE Analysis of the Group’s operating revenue can be found below and in the Portfolio Summary on page 22. Open stores Self storage income Other storage related income Ancillary store rental income Other revenue Non-storage income Management fees earned Revenue per statement of comprehensive income Interest receivable on bank deposits (see note 7) Total revenue per IAS 18 2017 £000 2016 £000 91,600 15,189 526 107,315 885 870 84,900 14,568 354 99,822 808 752 109,070 101,382 16 15 109,086 101,397 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. 103 Notes to the Financial Statements (continued) Year ended 31 March 2017 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 Fess payable to the Company’s auditor for the subsidiaries’ annual accounts Total audit fees Audit related assurance services – interim review Tax advisory services Other assurance services – assurance of CSR report Other services – planning consultancy Other services Total non-audit fees 2017 £000 738 1,196 (43,706) – 1,035 15,622 133 186 2016 £000 663 967 (58,001) (4,754) 1,095 15,094 78 186 2017 £000 156 30 186 31 19 22 11 2 85 2016 £000 156 30 186 31 60 22 – – 113 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 the Group’s associates, Armadillo Storage Holding Company Limited and Armadillo Storage Holding Company 2 Limited in the year amounted to £49,000 (2016: £43,000), which all related to audit services. 6. EMPLOYEE COSTS The average monthly number of full-time equivalent employees (including Executive Directors) was: Sales Administration At 31 March 2017 the total number of Group employees was 361 (2016: 358). Their aggregate remuneration comprised: Wages and salaries Social security costs Other pension costs Share-based payments Details of Directors’ Remuneration is given on pages 70 to 84. 104 2017 Number 2016 Number 279 50 329 271 47 318 2017 £000 2016 £000 10,990 1,783 525 2,324 15,622 10,443 1,634 478 2,539 15,094 7. INVESTMENT INCOME Bank interest receivable Unwinding of discount on Capital Goods Scheme receivable Total interest receivable Change in fair value of 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 2017 £000 16 340 356 719 1,075 2016 £000 15 388 403 – 403 2017 £000 10,953 (128) 931 2016 £000 11,187 (247) 926 11,756 11,866 – 4 11,756 11,870 9. TAXATION 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. Finance (No.2) Bill 2015 provides that the rate of corporation tax for the 2017 Financial Year (commencing 1 April 2017) will be 19% and that the rate from 1 April 2020 would be 18%. At Budget 2016, the government announced a further reduction to the Corporation Tax main rate (for all profits except ring fence profits) for the year starting 1 April 2020, setting the rate at 17%. This rate was incorporated in Finance Act 2016 which was fully enacted on 15 September 2016. UK current tax Current tax: – Current year – Prior year 2017 £000 417 (145) 272 2016 £000 247 – 247 105 Notes to the Financial Statements (continued) Year ended 31 March 2017 9. TAXATION (continued) A reconciliation of the tax charge is shown below: Profit before tax Tax charge at 20% (2016 – 20%) thereon Effects of: Revaluation of investment properties Share of profit of associates Other permanent differences Profits from the tax exempt business Profit 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 charge 2017 £000 2016 £000 99,783 112,246 19,957 22,449 (8,741) (288) (1,242) (8,791) – – (478) 417 (145) 272 (11,600) (220) (930) (7,725) (951) (51) (725) 247 – 247 At 31 March 2017 the Group has unutilised tax losses of £32.6 million (2016: £32.3 million) available for offset against certain types of future taxable profits. All losses can be carried forward indefinitely. 10. ADJUSTED PROFIT Profit before tax Gain 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 Prior period VAT recovery Acquisition costs written off Share of associate acquisition costs written off Adjusted profit before tax Tax Adjusted profit after tax 2017 £000 99,783 (43,706) (756) (719) 8 – (328) 296 63 2016 £000 112,246 (58,001) (566) 4 23 (4,754) – – – 54,641 48,952 (272) (247) 54,369 48,705 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. 106 11. DIVIDENDS Amounts recognised as distributions to equity holders in the year: Final dividend for the year ended 31 March 2016 of 12.8p (2015: 11.3p) per share. Interim dividend for the year ended 31 March 2017 of 13.5p (2016: 12.1p) per share. Proposed final dividend for the year ended 31 March 2017 of 14.1p (2016: 12.8p) per share. 2017 £000 2016 £000 20,003 21,155 41,158 22,107 17,541 18,902 36,443 20,003 Subject to approval by shareholders at the Annual General Meeting to be held on 20 July 2017, the final dividend will be paid on 27 July 2017. The ex-div date is 22 June 2017 and the record date is 23 June 2017. The Property Income Dividend (“PID”) payable for the year is 24.0 pence per share (2016: 18.1 pence per share). 12. EARNINGS AND NET ASSETS PER SHARE Earnings per ordinary share Year ended 31 March 2017 Year ended 31 March 2016 Earnings £m Shares million Pence per share Earnings £m Shares million Pence per share Basic 99.5 156.5 63.6 112.0 155.8 Dilutive share options – 1.2 (0.5) – 0.7 Diluted 99.5 157.7 63.1 112.0 156.5 Adjustments: Gain on revaluation of investment properties (43.7) – (27.7) (58.0) – Change in fair value of interest rate derivatives (0.7) – (0.4) – – Profit on disposal of surplus land – – – (4.8) – Acquisition costs written off 0.3 – 0.2 – – Prior period VAT recovery (0.3) – (0.2) – – Share of associate non-recurring gains (0.7) – (0.5) (0.5) – EPRA – diluted 54.4 157.7 34.5 48.7 156.5 EPRA – basic 54.4 156.5 34.8 48.7 155.8 71.9 (0.3) 71.6 (37.1) – (3.1) – – (0.3) 31.1 31.3 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. 107 Notes to the Financial Statements (continued) Year ended 31 March 2017 12. EARNINGS AND NET ASSETS PER SHARE (continued) Net assets per share 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 EBT Basic shares in issue used for calculation Exercise of share options Diluted shares used for calculation 31 March 2017 £000 890,350 820 31 March 2016 £000 829,387 700 891,170 830,087 2,964 77 626 3,683 69 573 894,837 834,412 568.0 562.1 564.4 894,837 68,530 963,367 607.6 530.8 525.5 528.3 834,412 64,560 898,972 569.1 No. of shares No. of shares 157,882,867 157,369,287 (1,122,907) (1,122,907) 156,759,960 156,246,380 1,707,743 1,781,652 158,541,612 157,954,123 Net assets per share are equity shareholders’ funds divided by the number of shares at the year end. The shares currently held in the Group’s Employee Benefit Trust 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). 108 13. NON-CURRENT ASSETS a) Investment property, investment property under construction and interests in leasehold property Investment property under construction £000 Interests in leasehold property £000 Investment property £000 At 31 March 2015 1,007,110 15,681 20,829 Additions 3,668 41,695 – Reclassification 19,437 (19,437) – Adjustment to present value – – 303 Revaluation (see note 14) 61,995 (3,994) – Depreciation – – (967) At 31 March 2016 1,092,210 33,945 20,165 Additions 17,817 2,827 1,871 Adjustment to present value – – 2,761 Revaluation (see note 14) 44,363 (657) – Depreciation – – (1,196) Total £000 1,043,620 45,363 – 303 58,001 (967) 1,146,320 22,515 2,761 43,706 (1,196) At 31 March 2017 1,154,390 36,115 23,601 1,214,106 Additions to the interests in leasehold properties relate to the lease at Twickenham 2, acquired from Lock and Leave during the year. 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 22. Included within additions is £0.1 million of capitalised interest (2016: £0.2 million), calculated at the Group’s average borrowing cost for the year of 3.3%. 55 of the Group’s investment properties are pledged as security for loans, with a total external value of £951.8 million. Acquisition of Lock and Leave On 28 April 2016 the Group acquired the entire share capital and control of three companies from the Lock and Leave Group – Lock and Leave Limited, Kator Storage Limited and Lock and Leave (Twickenham) Limited (“the Companies”), for a consideration of £14.6 million. The net consideration is shown below. The Companies owned two self storage centres in London. To determine the assets and liabilities acquired at the date of completion of the Companies, the Group has used the balance sheet at the date of acquisition. The following provides a breakdown of the fair value of the assets and liabilities acquired. The investment property was carried at cost in the companies’ balance sheets, and hence the fair value adjustment shown below is to increase the carrying amount to open market valuation. Non-current assets 5,792 8,808 Current assets 950 – Current liabilities (697) – Non-current liabilities (176) – Book value £000 Adjustments £000 Fair value £000 14,600 950 (697) (176) Net assets (100%) 5,869 8,808 14,677 Purchase consideration Purchase consideration paid Cash held in Companies acquired Cash outflow on acquisition £000 14,677 14,677 (438) 14,239 From the date of acquisition of the Companies on 28 April 2016 to 31 March 2017, the revenue of the Companies was £1.8 million, and the statutory profit before tax was £4.4 million. The costs of acquisition amounted to £0.3 million. These are included in administrative expenses in the income statement. 109 Notes to the Financial Statements (continued) Year ended 31 March 2017 13. NON-CURRENT ASSETS (continued) 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 2015 1,885 53 544 25 1,416 Retirement of fully depreciated assets – – (103) – (439) Additions 298 48 151 – 521 At 31 March 2016 2,183 101 592 25 1,498 Retirement of fully depreciated assets – (4) (34) – (489) Additions 6 – 91 30 422 Disposals – – – (23) – At 31 March 2017 2,189 97 649 32 1,431 Depreciation At 31 March 2015 (328) (50) (219) (25) (251) Retirement of fully depreciated assets – – 103 – 439 Charge for the year (39) (2) (81) – (541) At 31 March 2016 (367) (52) (197) (25) (353) Retirement of fully depreciated assets – 4 34 – 489 Charge for the year (42) (2) (102) (5) (587) Disposals – – – 23 – Total £000 3,923 (542) 1,018 4,399 (527) 549 (23) 4,398 (873) 542 (663) (994) 527 (738) 23 At 31 March 2017 (409) (50) (265) (7) (451) (1,182) Net book value At 31 March 2017 1,780 47 384 25 980 At 31 March 2016 1,816 49 395 – 1,145 3,216 3,405 c) Goodwill 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. d) Investment in associates 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. Armadillo 1 Armadillo 2 31 March 2017 £000 31 March 2016 £000 31 March 2017 £000 At the beginning of the year 4,173 3,638 2,233 Share of results (see below) 1,093 718 349 Dividends (218) (183) (178) Share of net assets 5,048 4,173 2,404 The Group’s total subscription for partnership capital and advances in Armadillo 1 is £1,920,000 and £1,789,000 in Armadillo 2. The investment properties owned by Armadillo 1 and Armadillo 2 have been valued at 31 March 2017 by Jones Lang LaSalle. 31 March 2016 £000 1,934 386 (87) 2,233 110 13. NON-CURRENT ASSETS (continued) d) Investment in associates (continued) The figures below show the trading results of the Armadillo Partnerships, and the Group’s share of the results and the net assets of the Armadillo Partnerships. Armadillo 1 Armadillo 2 Year ended 31 March 2017 £000 Year ended 31 March 2016 £000 Year ended 31 March 2017 £000 Year ended 31 March 2016 £000 Income statement (100%) Revenue 6,324 4,829 4,159 Cost of sales (3,270) (2,560) (1,763) Administrative expenses (207) (77) (88) Operating profit 2,847 2,192 2,308 Gain on the revaluation of investment properties 3,725 2,340 322 Net interest payable (718) (514) (729) Acquisition costs written off (316) – – Fair value movement of interest rate derivatives 8 (9) (49) Deferred and current tax (78) (421) (109) Profit attributable to shareholders 5,468 3,588 1,743 Dividends paid (1,091) (916) (890) Retained profit 4,377 2,672 853 Balance sheet (100%) Investment property 43,375 32,825 25,900 Interest in leasehold properties – – 3,526 Other non-current assets 1,125 1,015 1,487 Current assets 1,177 888 867 Current liabilities (1,895) (1,193) (1,821) Derivative financial instruments (199) (207) (188) Non-current liabilities (18,341) (12,463) (17,753) 4,139 (1,954) (97) 2,088 1,111 (688) – (104) (478) 1,929 (434) 1,495 24,825 3,809 1,490 845 (1,840) (139) (17,825) Net assets (100%) 25,242 20,865 12,018 11,165 Group share (20%) Operating profit 569 439 462 Gain on the revaluation of investment properties 745 468 64 Net interest payable (144) (103) (146) Acquisition costs written off (63) – – Fair value movement of interest rate derivatives 2 (2) (10) Deferred and current tax (16) (84) (21) Profit attributable to shareholders 1,093 718 349 Dividends paid (218) (183) (178) Retained profit 875 535 171 418 222 (138) – (21) (95) 386 (87) 299 Associates’ net assets 5,048 4,173 2,404 2,233 111 Notes to the Financial Statements (continued) Year ended 31 March 2017 14. VALUATION OF INVESTMENT PROPERTY Deemed cost £000 Revaluation on deemed cost £000 Valuation £000 Freehold stores At 31 March 2016 566,913 483,367 Movement in year 16,384 44,246 1,050,280 60,630 At 31 March 2017 583,297 527,613 1,110,910 Leasehold stores At 31 March 2016 14,777 27,153 Movement in year 1,433 117 At 31 March 2017 16,210 27,270 41,930 1,550 43,480 Total of open stores At 31 March 2016 581,690 510,520 Movement in year 17,817 44,363 1,092,210 62,180 At 31 March 2017 599,507 554,883 1,154,390 Investment property under construction At 31 March 2016 42,650 (8,705) Movement in year 2,827 (657) 33,945 2,170 At 31 March 2017 45,477 (9,362) 36,115 Valuation of all investment property At 31 March 2016 624,340 501,815 Movement in year 20,644 43,706 1,126,155 64,350 At 31 March 2017 644,984 545,521 1,190,505 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 2017 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: > one of the members of the RICS who has been a signatory to the valuations provided to the Group for the same purposes as this valuation, has done so since September 2004. This is the second occasion on which the other member has been a signatory; > C&W have been carrying out this 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. 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 nine transactions involving multiple assets and 13 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. 112 14. VALUATION OF INVESTMENT PROPERTY (continued) 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 73 trading stores (both freeholds and leaseholds) open at 31 March 2017 averages 82.8% (31 March 2016: 81.9%). The projected revenues and costs have been adjusted for estimated cost inflation and revenue growth. The average time assumed for the 73 stores to trade at their maturity levels is 22 months (31 March 2016: 20 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 73 stores is 6.5% (31 March 2016: 6.5%) rising to a stabilised net yield pre-administration expenses of 7.2% (31 March 2016: 7.2%). 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 9.7% (31 March 2016: 9.9%). E. Purchaser’s costs in the range of 6.1% to circa 6.8% (see below) have been assumed initially, reflecting the progressive SLDT rates brought into force in March 2016 and sale plus purchaser’s costs totalling circa 7.1% to 7.8% 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 seven short leasehold properties is 15.0 years (31 March 2016: 15.5 years unexpired). Sensitivities As noted in ‘Significant judgements and key estimates’ on page 103, self storage valuations are complex, derived from data which is not widely publicly available and involve a degree of judgement. For these reasons we have classified the valuations of our property portfolio as Level 3 as defined by IFRS 13. Inputs to the valuations, some of which are ‘unobservable’ as defined by IFRS 13, include capitalisation yields, stable occupancy rates, and rental growth rates. The existence of an increase of more than one unobservable input would augment the impact on valuation. The impact on the valuation would be mitigated by the interrelationship between unobservable inputs moving in opposite directions. For example, an increase in stable occupancy may be offset by an increase in yield, resulting in no net impact on the valuation. A sensitivity analysis showing the impact on valuations of changes in yields and stable occupancy is shown below. Impact of a change Impact of a change in in stabilised capitalisation rates occupancy assumption 25 bps decrease 25 bps increase (£m) (£m) 1% increase (£m) 1% decrease (£m) Reported group £1,154.4m £43.3m (£40.1m) £16.7m (£17.2m) 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. Four schemes do not yet have planning consent and C&W have reflected the planning risk in their valuation. 113 Notes to the Financial Statements (continued) Year ended 31 March 2017 14. VALUATION OF INVESTMENT PROPERTY (continued) Immature stores: value uncertainty C&W have assessed the value of each property individually. However, one of the Group’s stores is relatively immature and has low initial cash flows. C&W have endeavoured to reflect the nature of the cash flow profile for this property 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 immature store 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 asset 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 to 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 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 circa 6.1% to 6.8% 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. The assets 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 2017 of £1,258.5 million (£68.0 million higher than the value recorded in the financial statements). The total valuations in the two Armadillo Partnerships performed by Jones Lang LaSalle are £2.5 million higher than the value recorded in the financial statements, of which the Group’s share is £0.5 million. The sum of these is £68.5 million and translates to 43.2 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 2016 Disposal At 31 March 2017 £000 300 (300) – During the year the remaining surplus land was sold at book value. During the prior year a gain of £4,754,000 arose on the disposal of surplus land at one site during the year (including the release of a prior year impairment). 114 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 2017 £000 3,174 2,725 266 11,877 18,042 31 March 2016 £000 3,050 2,866 241 10,065 16,222 4,091 6,561 Trade receivables are net of a bad debt provision of £7,000 (2016: £11,000). 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. 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 £250,000 (2016: £353,000) 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 19 days past due (2016: 19 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 2017 £000 214 23 13 250 2017 £000 11 63 (67) 7 2016 £000 285 45 23 353 2016 £000 19 76 (84) 11 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. 115 Notes to the Financial Statements (continued) Year ended 31 March 2017 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 2017 £000 – 2 5 7 31 March 2017 £000 13,279 8,352 15,304 36,935 2016 £000 – 4 7 11 31 March 2016 £000 10,453 10,592 15,077 36,122 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 45% 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 2017 £000 (304,955) 6,906 (298,049) 890,350 33.5% 2016 £000 (312,198) 17,207 (294,991) 829,387 35.6% 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. 116 18. FINANCIAL INSTRUMENTS (continued) B. Debt management The Group currently borrows through a senior term loan, secured on 25 self storage assets and sites, a 15 year loan with Aviva Commercial Finance Limited secured on a portfolio of 15 self storage assets, and a £70 million seven year loan from M&G Investments Limited 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 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 2017 the Group had two interest rate derivatives in place; £30 million fixed at 0.4% (excluding the margin on the underlying debt instrument) until October 2021, and £35 million fixed at 2.635% (excluding the margin on the underlying debt instrument) until June 2022. 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 interest rate swap settles on a three-monthly basis. The floating rate on the interest rate swap is three month LIBOR. The Group settles 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 gain in the statement of comprehensive income for the year on the fair value of interest rate derivatives was £719,000 (2016: loss of £4,000). The fair value of the above derivatives at 31 March 2017 was a liability of £2,964,000 (2016: liability of £3,683,000). 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 2017, it is estimated that an increase of 0.25 percentage points in interest rates would have reduced the Group’s adjusted profit before tax and net equity by £375,000 (2016: reduced adjusted profit before tax by £388,000) and a decrease of 0.25 percentage points in interest rates would have increased the Group’s adjusted profit before tax and net equity by £375,000 (2016: increased adjusted profit before tax by £388,000). 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 decreased during the year, with a slight reduction in the amount of 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. 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 52,500 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. 117 Notes to the Financial Statements (continued) Year ended 31 March 2017 18. FINANCIAL INSTRUMENTS (continued) H. Financial maturity analysis In respect of interest-bearing financial liabilities, the following table provides a maturity analysis for individual elements. 2017 maturity Total £000 Less than one year £000 One to two years £000 Two to five years £000 Aviva loan 89,955 2,356 2,474 8,190 M&G loan payable at variable rate 35,000 – – – M&G loan fixed by interest rate derivatives 35,000 – – – Bank loan payable at variable rate 115,000 – – 115,000 Debt fixed by interest rate derivatives 30,000 – – 30,000 More than five years £000 76,935 35,000 35,000 – – Total 304,955 2,356 2,474 153,190 146,935 2016 maturity Total £000 Less than one year £000 One to two years £000 Two to five years £000 Aviva loan 92,198 2,243 2,356 7,799 M&G loan payable at variable rate 35,000 – – – M&G loan fixed by interest rate derivatives 35,000 – – – Bank loan payable at variable rate 120,000 – – 120,000 Debt fixed by interest rate derivatives 30,000 – – 30,000 More than five years £000 79,800 35,000 35,000 – – Total 312,198 2,243 2,356 157,799 149,800 I. Fair values of financial instruments 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. 118 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: 2017 Trade and other payables £000 Interest rate swaps £000 Borrowings and interest £000 Finance leases £000 From five to twenty years – 127 166,652 25,556 From two to five years – 1,493 180,928 6,116 From one to two years – 692 11,930 2,039 Due after more than one year – 2,312 359,510 33,711 Due within one year 21,631 816 11,930 2,039 Total £000 192,335 188,537 14,661 395,533 36,416 Total 21,631 3,128 371,440 35,750 431,949 2016 Trade and other payables £000 Interest rate swaps £000 Borrowings and interest £000 Finance leases £000 From five to twenty years – 506 176,296 22,894 From two to five years – 1,684 188,517 5,255 From one to two years – 675 12,982 1,752 Due after more than one year – 2,865 377,795 29,901 Due within one year 21,045 1,055 12,982 1,752 Total £000 199,696 195,456 15,409 410,561 36,834 Total 21,045 3,920 390,777 31,653 447,395 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. 2017 Borrowings £000 Interest £000 Unamortised borrowing costs £000 From five to twenty years 146,935 17,806 1,911 From two to five years 153,190 26,373 1,365 From one to two years 2,474 9,456 – Due after more than one year 302,599 53,635 3,276 Due within one year 2,356 9,574 – Borrowings and interest £000 166,652 180,928 11,930 359,510 11,930 Total 304,955 63,209 3,276 371,440 2016 Borrowings £000 Interest £000 Unamortised borrowing costs £000 From five to twenty years 149,800 24,306 2,190 From two to five years 157,799 29,473 1,245 From one to two years 2,356 10,626 – Due after more than one year 309,955 64,405 3,435 Due within one year 2,243 10,739 – Borrowings and interest £000 176,296 188,517 12,982 377,795 12,982 Total 312,198 75,144 3,435 390,777 119 Notes to the Financial Statements (continued) Year ended 31 March 2017 19. BORROWINGS Secured borrowings at amortised cost Current liabilities Aviva loan Non-current liabilities Bank borrowings Aviva loan M&G loan Unamortised loan arrangement costs Total non-current borrowings Total borrowings 31 March 2017 £000 2,356 2,356 145,000 87,599 70,000 (3,276) 31 March 2016 £000 2,243 2,243 150,000 89,955 70,000 (3,435) 299,323 306,520 301,679 308,763 The weighted average interest rate paid on the borrowings during the year was 3.3% (2016: 3.6%). The Group has £45,000,000 in undrawn committed bank borrowing facilities at 31 March 2017, which expire between four and five years (2016: £20,000,000 expiring between four and five years). The Group has 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 £190 million five year bank facility with Lloyds and HSBC expiring in October 2021. £85 million of the facility is term loan with £105 million revolving. The blended margin on the facility when fully drawn is 1.36%. During the year, the Group exercised an option to extend this loan’s term by a further year. The Group also has an option to increase the amount of the revolving loan facility by a further £60 million during the course of the loan’s term. The Group has a £70 million seven year loan with M&G Investments Limited, with a bullet repayment in June 2022. The loan is secured over a portfolio of 15 freehold self storage centres. Half of the loan is variable and half is subject to an interest rate derivative for the seven years. The Group was in compliance with its banking covenants at 31 March 2017 and throughout the year. The main covenants are summarised in the table below: Covenant Consolidated EBITDA Consolidated net tangible assets (less goodwill) Bank loan income cover Aviva loan interest service cover ratio Aviva loan debt service cover ratio M&G income cover Covenant level Minimum 1.5x Minimum £250m Minimum 1.75x Minimum 1.5x Minimum 1.2x Minimum 1.5x At 31 March 2017 6.5x £888.9m 10.8x 3.8x 2.5x 5.9x 120 19. BORROWINGS (continued) Interest rate profile of financial liabilities Total £000 Floating rate £000 Fixed rate £000 Weighted average interest rate Period for which the rate is fixed At 31 March 2017 Gross financial liabilities 304,955 150,000 154,955 3.2% 7.0 years At 31 March 2016 Gross financial liabilities 312,198 155,000 157,198 3.5% 7.3 years Weighted average period until maturity 5.9 years 6.3 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 approximates 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 (£0.1 million), interest rate swaps (£0.5 million), corporation tax losses (£4.5 million), capital allowances in excess of depreciation (£0.3 million) and capital losses (£1.0 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. 21. OBLIGATIONS UNDER FINANCE LEASES Present value of Minimum lease payments minimum lease payments 2017 £000 2016 £000 2017 £000 2016 £000 Amounts payable under finance leases: Within one year 2,039 1,752 2,005 Within two to five years inclusive 8,155 7,007 7,193 Greater than five years 25,556 22,894 14,403 35,750 31,653 23,601 1,722 6,136 12,307 20,165 Less: future finance charges (12,149) (11,488) Present value of lease obligations 23,601 20,165 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. 121 Notes to the Financial Statements (continued) Year ended 31 March 2017 22. SHARE CAPITAL Called up, Authorised allotted and fully paid 2017 £000 2016 £000 2017 £000 2016 £000 Ordinary shares of 10 pence each 20,000 20,000 15,788 15,737 Movement in issued share capital Number of shares at 31 March 2015 158,055,735 (1,418,750) Cancellation of treasury shares 732,302 Exercise of share options – Share option schemes Number of shares at 31 March 2016 157,369,287 513,580 Exercise of share options – Share option schemes Number of shares at 31 March 2017 157,882,867 The Company has one class of ordinary shares which carry no right to fixed income. At 31 March 2017 options in issue to Directors and employees were as follows: Option Number of Number of price per ordinary ordinary Date option ordinary Date first Date on which the shares shares Granted share exercisable exercise period expires 2017 2016 3 August 2009 nil p** 3 August 2012 2 August 2019 – 2,075 12 July 2010 nil p ** 12 July 2013 11 July 2020 – 4,781 19 July 2011 nil p ** 19 July 2013 19 July 2021 2,400 7,112 11 July 2012 nil p ** 11 July 2015 10 July 2022 8,559 15,724 12 March 2013 305.5p * 1 April 2016 1 October 2016 – 31,365 19 July 2013 nil p ** 19 July 2016 19 July 2023 78,469 511,821 25 February 2014 442.6p* 1 April 2017 1 October 2017 21,624 23,655 29 July 2014 nil p** 29 July 2017 29 July 2024 485,032 503,591 16 March 2015 494.6p* 1 April 2018 1 October 2018 95,016 101,014 21 July 2015 nil p** 21 July 2018 21 July 2025 379,293 399,117 14 March 2016 608.0p* 1 April 2019 1 October 2019 41,809 49,296 22 July 2016 nil p** 22 July 2019 21 July 2026 402,225 – 15 March 2017 580.0p 1 April 2020 1 October 2020 65,374 – 1,579,801 1,649,551 * SAYE (see note 23) ** LTIP (see note 23) 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. 1,122,907 shares are held in the Employee Benefit Trust (2016: 1,122,907), and no shares are held in treasury. 122 23. SHARE-BASED PAYMENTS The Company has three equity share-based payment arrangements, namely an LTIP scheme (with approved and unapproved components), 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 £2,324,000 (2016: £2,539,000). Equity-settled share option plans 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 78 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, 2012 and 2013 fully vested. The weighted average share price at the date of exercise for options exercised in the year was £7.38 (2016: £7.04). 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 2017 No. of options 2016 No. of options 1,444,221 455,331 (59,094) (484,480) 1,662,358 468,546 (46,728) (639,955) 1,355,978 1,444,221 89,428 29,692 The weighted average fair value of options granted during the year was £1,017,000 (2016: £976,000). Employee Share Save Scheme (“SAYE”) 2017 Weighted average exercise price (£) 2017 No. of options 2016 Weighted average exercise price (£) 2016 No. of options Outstanding at beginning of year 205,330 4.87 255,853 Granted during the year 65,374 6.08 49,296 Forfeited during the year (17,781) 4.65 (7,472) Exercised during the year (29,100) 2.40 (92,347) Outstanding at the end of the year 223,823 4.87 205,330 Exercisable at the end of the year – – – 3.74 6.08 4.65 2.40 4.87 – Options outstanding at 31 March 2017 had a weighted average contractual life of 2.1 years (2016: 2.2 years). The inputs into the Black-Scholes model for the options granted during the year are as follows: Expected volatility 30% Expected life 3 years Risk-free rate 0.1% Expected dividends 3.9% 26% 3 years 0.1% 3.9% LTIP SAYE 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 Executive Directors receive awards under the Long Term Bonus Performance Plan. This is accounted for as an equity instrument. The plan was set up in July 2015. The vesting criteria and scheme mechanics are set out in the Directors’ Remuneration Report. At 31 March 2017 the weighted average contractual life was 1.3 years. 123 Notes to the Financial Statements (continued) Year ended 31 March 2017 24. CAPITAL COMMITMENTS At 31 March 2017 the Group had £8.6 million of amounts contracted but not provided in respect of the Group’s properties (2016: £0.4 million of capital commitments). 25. EVENTS AFTER THE BALANCE SHEET DATE On 19 May 2017, the Group acquired a property in Wapping, London for £10.75 million. 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 Armadillo Storage Holding Company Limited As described in note 13, the Group has a 20% interest in Armadillo Storage Holding Company Limited (“Armadillo 1”), and entered into transactions with Armadillo 1 during the period on normal commercial terms as shown in the table below. 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 (“Armadillo 2”), and entered into transactions with Armadillo 2 during the period on normal commercial terms as shown in the table below. 31 March 2017 £000 31 March 2016 £000 Fees earned from Armadillo 1 574 Fees earned from Armadillo 2 253 Balance due from Armadillo 1 86 Balance due from Armadillo 2 48 414 291 103 89 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 75 to 83. Short term employee benefits 1,325 Post-employment benefits 151 1,566 Share based payments 3,042 31 March 2017 £000 31 March 2016 £000 1,316 148 1,973 3,437 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 £36,000 (2016: £24,000). No other related party transactions took place during the years ended 31 March 2017 and 31 March 2016. 124 Company Balance Sheet Year ended 31 March 2017 Non-current assets Plant, equipment and owner-occupied property Investment in subsidiary companies Current assets Trade and other receivables Derivative financial instruments 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 Share capital Share premium account Reserves Equity shareholders’ funds Note 29a 29b 30 32 31 2017 £000 2016 £000 1,840 18,020 19,860 1,890 15,696 17,586 481,294 297 1 528,125 – 1 481,592 528,126 501,452 545,712 (3,137) (3,137) (3,075) (3,075) 32 32 – (143,635) (315) (148,755) (143,635) (149,070) (146,772) (152,145) 354,680 393,567 22 27 15,788 45,462 293,430 15,737 45,227 332,603 354,680 393,567 The Company reported a loss for the financial year ended 31 March 2017 of £0.3 million (2016: loss of £0.3 million). The financial statements were approved by the Board of Directors and authorised for issue on 22 May 2017. They were signed on its behalf by: James Gibson John Trotman Director Director Company Registration No. 03625199 125 Company Cash Flow Statement Year ended 31 March 2017 Operating loss Depreciation Decrease in receivables (Increase)/decrease in payables Cash generated by operations Interest paid Interest 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 Repayment of Lloyds short term loan (Decrease)/increase in borrowings Cash flows from financing activities Net movement in cash and cash equivalents Opening cash and cash equivalents Closing cash and cash equivalents 2017 £000 (949) 53 46,831 (73) 2016 £000 (939) 41 77,979 370 45,862 77,451 (3,572) 3,585 (4,293) 4,249 45,875 77,407 (3) (3) (374) (374) 286 (41,158) – (5,000) 378 (36,443) (70,000) 29,000 (45,872) (77,065) – 1 1 (32) 33 1 126 Company Statement of Changes in Equity Year ended 31 March 2017 At 1 April 2016 Total comprehensive loss for the year Dividend Issue of share capital Credit to equity for equity-settled share based payments Share capital £000 15,737 – – 51 Share premium account £000 45,227 – – 235 Other non- distributable reserve £000 Capital redemption reserve £000 74,950 – – – 1,795 – – – Retained earnings £000 256,877 (339) (41,158) – Own shares £000 (1,019) – – – Total £000 393,567 (339) (41,158) 286 – – – – 2,324 – 2,324 At 31 March 2017 15,788 45,462 74,950 1,795 217,704 (1,019) 354,680 The Company’s share capital is disclosed in note 22. The own shares balance represents amounts held by the Employee Benefit Trust (see note 22). Year ended 31 March 2016 At 1 April 2015 Total comprehensive loss for the year Dividend Issue of share capital Cancellation of treasury shares Use of own shares to satisfy share options Credit to equity for equity-settled share based payments Share capital £000 15,806 – – 73 (142) – Share premium account £000 44,922 – – 305 – – Other non- distributable reserve £000 Capital redemption reserve £000 74,950 – – – – – 1,653 – – – 142 – Retained earnings £000 295,684 (299) (36,443) – (3,727) (877) Own shares £000 (5,623) – – – 3,727 877 Total £000 427,392 (299) (36,443) 378 – – – – – – 2,539 – 2,539 At 31 March 2016 15,737 45,227 74,950 1,795 256,877 (1,019) 393,567 127 Notes to the Financial Statements Year ended 31 March 2017 27. LOSS 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 £0.3 million (2016: loss of £0.3 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 Freehold property £000 Leasehold improvements £000 Fixtures, fittings & office equipment £000 Cost At 31 March 2016 2,183 64 30 Additions 3 – – At 31 March 2017 2,186 64 30 Accumulated depreciation At 31 March 2016 (367) (18) (2) Charge for the year (41) (2) (10) At 31 March 2017 (408) (20) (12) Net book value At 31 March 2017 1,778 44 18 At 31 March 2016 1,816 46 28 b) Investments in subsidiary companies Cost At 31 March 2016 Additions At 31 March 2017 128 Total £000 2,277 3 2,280 (387) (53) (440) 1,840 1,890 Investment in subsidiary undertakings £000 15,696 2,324 18,020 29. NON-CURRENT ASSETS (continued) b) Investments in subsidiary companies (continued) The Group subsidiaries are all wholly-owned, the Group holds 100% of the voting power and the companies are incorporated, registered and operate in England and Wales. The registered office of all subsidiaries is 2 The Deans, Bridge Road, Bagshot, Surrey, GU19 5AT. The subsidiaries at 31 March 2017 are listed below: Name of subsidiary .Big Yellow Self Storage (GP) Limited .Big Yellow Self Storage Company Limited Big Yellow (Battersea) Limited Big Yellow Construction Company Limited Big Yellow Holding Company Limited Big Yellow Limited Partnership Big Yellow Nominee No 1 Limited Big Yellow Nominee No 2 Limited Big Yellow Self Storage (Chester) Limited Big Yellow Self Storage Company 1 Limited Big Yellow Self Storage Company 2 Limited Big Yellow Self Storage Company 3 Limited Big Yellow Self Storage Company 4 Limited Big Yellow Self Storage Company 6 Limited Big Yellow Self Storage Company 8 Limited Big Yellow Self Storage Company A Limited Big Yellow Self Storage Company M Limited BYRCo Limited BYSSCo A Limited BYSSCo Limited Kator Storage Limited Last Mile Company Limited Lock and Leave Limited Lock and Leave (Twickenham) Limited Principal activity General Partner Self storage Self storage Construction management Holding Company Self storage Dormant Dormant Self storage Dormant Dormant Dormant Dormant Dormant Self storage Self storage Self storage Property management Dormant Self storage Self storage Holding Company Self storage Self storage In addition the Group has a 100% interest in Pramerica Bell Investment Trust Jersey, a trust registered in Jersey. The Group has a 20% interest in two associates, and the companies are incorporated, registered and operate in England and Wales. The Company’s associates at 31 March 2017 are listed below: Name of associate Armadillo Storage Holding Company Limited Armadillo Storage Holding Company 2 Limited Principal activity Self Storage Self Storage Audit exemption statement For its most recent year end the companies listed below were entitled to exemption from audit under section 479A of the Companies Act 2006 relating to subsidiary companies. The members of these companies have not required them to obtain an audit of their financial statements for the year ended 31 March 2017. .Big Yellow Self Storage (GP) Limited Big Yellow Construction Company Limited Big Yellow Holding Company Limited Big Yellow Self Storage (Chester) Limited Big Yellow Self Storage Company 8 Limited BYRCo Limited BYSSCo Limited Kator Storage Limited Last Mile Company Limited Lock and Leave Limited Lock and Leave (Twickenham) Limited 129 Notes to the Financial Statements (continued) Year ended 31 March 2017 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 31 March 2017 £000 481,188 106 31 March 2016 £000 528,015 110 481,294 528,125 31 March 2017 £000 31 March 2016 £000 2,992 145 3,137 2,675 400 3,075 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 0.4% (excluding the margin on the underlying debt instrument) until October 2021. The floating rate at 31 March 2017 was paying a weighted average margin of 1.37% above one month LIBOR, the fixed rate debt was paying a margin of 1.5%. The Group’s policy on risk management is set out in the Report on Corporate Governance on page 66 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 2017 £000 145,000 (1,365) 31 March 2016 £000 150,000 (1,245) 143,635 148,755 2017 Financial liabilities £000 – 145,000 2016 Financial liabilities £000 – 150,000 145,000 150,000 The fair value of interest rate derivatives at 31 March 2017 was an asset of £297,000 (2016: liability of £315,000). 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 detailed 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 £3,137,000 in the current year (2016: £3,075,000), 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 £481,188,000 (2016: £528,015,000), including intercompany interest receivable of £3,585,000 (2016: £4,249,000). 130 Ten Year Summary Year ended 31 March 2017 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 Results £000 £000 £000 £000 £000 £000 £000 £000 £000 £000 Revenue 109,070 101,382 84,276 72,196 69,671 65,663 61,885 57,995 58,487 56,870 Operating profit before gains and losses on property assets 65,316 59,854 48,420 39,537 37,454 35,079 32,058 29,068 30,946 29,342 Cash flow from operating activities 55,974 55,467 42,397 32,752 30,186 27,388 23,534 19,063 10,203 14,388 Profit/(loss) before taxation 99,783 112,246 105,236 59,848 31,876 (35,551) 6,901 10,209 (71,489) 102,618 Adjusted profit before taxation 54,641 48,952 39,405 29,221 25,471 23,643 20,207 16,514 13,791 15,006 Net assets 890,350 829,387 750,914 594,064 552,628 494,500 544,949 547,285 502,317 580,886 EPRA earnings per share 34.5p 31.1p 27.1p 20.5p 19.3p 18.2p 15.5p 13.0p 11.9p 11.7p Declared total dividend per share 27.6p 24.9p 21.7p 16.4p 11.0p 10.0p 9.0p 4.0p 0p 9.5p Key statistics Number of stores open 73 71 69 66 66 65 62 60 54 48 Sq ft occupied (000) 3,551 3,363 3,178 2,832 2,632 2,458 2,130 1,915 1,775 1,850 Occupancy increase in year 000 sq ft) 188 185 346 200 174 328 215 140 (75) 15 Number of customers 52,500 50,000 47,250 41,800 38,500 36,300 32,800 30,500 28,500 30,500 Average number of employees during the year 329 318 300 289 286 279 273 252 239 218 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 7 Big Yellow Group PLC Annual Report & Accounts 2017 The UK’s brand leader in Self Storage Get some space in your life.™ 

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