Lok'nStore Group Plc
Annual Report 2005

Plain-text annual report

Lok’nStore Group Plc Annual Report & Accounts 2005 The self-storage market continues to offer an unrivalled combination of predictable profits and potential for growth. Financial Review 01 2005 Highlights 02 Chairman’s Statement 06 Operating Review 10 12 Board of Directors and Management 13 Advisors 14 Directors’ Report 16 Corporate Governance 18 19 Directors’ Responsibilities in the Preparation of Financial Statements Independent Auditors’ Report to the Members of Lok’nStore Group Plc 20 Consolidated Profit and Loss Account 21 Balance Sheets 22 Consolidated Cash Flow Statement 22 Reconciliation of Net Cash Flow to Movement in Net Funds/(Debt) 23 Accounting Policies 24 Notes to the Financial Statements 2005 Annual Report & Accounts Lok’nStore Group Plc 01 10 years of uninterrupted growth 21 storage centres across the southeast £ 33.6M property valuation at 31 January 2005 Financial Highlights Turnover £7.77m – up 17.6% EBITDA £1.36m – up 68% Operating cash flow £1.98m – up 112% New £20m banking facility Properties valued at £33.6m at 31 January 2005 (NBV £18.4m) Operational Highlights Storage centres EBITDA £2.48m – up 41% Operating profit £607k up from an operating loss Annualised revenues up to £8.48m Good sales growth in established and in new storage centres Number of customers 6,715 up 20.6% Increased occupancy by 83,417 sq. ft. – up 17.7% Opened Tonbridge centre Property Highlights Increased capacity to 920,000 sq. ft. Building Farnborough centre Acquired Crayford centre 11 Freeholds:10 Leaseholds Planning permission granted at Kingston for residential development 02 Lok’nStore Group Plc Annual Report & Accounts 2005 Chairman’s Statement Substantial growth in shareholder value Sales & Earnings Growth Overview I am pleased to report that Lok’nStore has again made good progress against its stated objectives. The operating performance of our existing centres has continued to improve. We have increased the value of our existing centres and we have acquired new sites. During the year we have revalued all of our properties and signed a new £20m bank facility. Turnover for the year was £7.77m (2004: £6.61m), an increase of 17.6%, with annualised revenues now reaching £8.48m demonstrating the continued growth of the business. The Group made an operating profit for the year of £606,961 compared with a loss of £5,733 in 2004. The Group made a pre-tax profit for the year of £114,325 compared with a loss of £169,104 in 2004. Lok’nStore’s focus on growth has again underpinned satisfactory results. Enquiries, turnover, profits and operating cash in flows have all increased. The acquisition and build-out of sites in Farnborough and in Crayford, and the continued investment in our existing centres, reflect our positive view of the market. We are looking forward to opening these two highly visible new centres around the turn of the year. We believe that the UK self-storage market offers great potential for Lok’nStore. Demonstrating the growing cash-flow of the operating business, EBITDA from the storage centres was £2.48m and cash flow from operating activities grew from £0.93m to £1.98m. At 31 July 2005, the number of customers had risen to 6,715 from 5,566 at 31 July 2004, an increase of 20.6% over the year. Our established centres have continued to grow alongside the more rapid sales increases at our newest centres. Centres trading for more than 250 weeks grew (snapshot) revenue by 9.7 %, centres with 100 to 250 weeks’ trading grew 22.2%, while newer centres trading for less than 100 weeks grew at 113%. Lok’nStore’s 11 most established centres (over 250 weeks old) made EBITDA margins of 48%, demonstrating the strong underlying profitability of the business. New Centres Property Assets During the year we opened a new centre in Tonbridge, obtained planning permission and started construction on our new centre in Farnborough, and acquired a new centre in Crayford. They are all located in attractive markets with high visibility and provide 167,000 net sq. ft. This will take the total number of our centres to 21 with 920,000 sq. ft. of net storage space when fully completed. Following the exercise of an option to purchase the freehold of our Poole centre, we have now fitted out a further 12,000 net sq. ft. providing the centre with total capacity of 64,000 sq. ft. Our objective continues to be to increase our number of centres within the current geographical coverage of South-East England. Our trading freehold and leasehold centres were valued at 31 January 2005. This report valued our trading properties at £31.84m. Including the Farnborough site, the total valuation is £33.6m compared to a net book value of £18.4m. These valuations do not include any uplift for alternative use with planning permission obtained at Kingston, nor do they include the value of the Crayford site, other investment in established centres since January 2005, or the build-out costs at Farnborough. During the year we were pleased to obtain planning permission for a high-density residential development at our existing Kingston site. The permission is for 124 flats and a new 7,000 square feet GP’s surgery. This potentially creates much greater value than can be obtained as a self-storage site. The management are making progress towards realising this value. 2005 Annual Report & Accounts Lok’nStore Group Plc 03 +17.6% sales growth Outlook The self-storage market continues to offer an unrivalled combination of predictable profits and potential for growth. Lok’nStore’s proven ability to expand steadily within this market gives us confidence in the future performance of the Group. Growing turnover from existing centres and growth in the number of centres are combining to produce attractive growth and profits. Our priorities are to further improve the operating performance of existing centres; to enhance the value of existing centres; to grow the number of centres; and to optimise the Group’s capital structure. I believe that Lok’nStore’s market position, leading brand, and active management team will continue to deliver substantial growth in shareholder value. Simon G Thomas Chairman 28 October 2005 New Bank Facility Self-Storage in The UK Lok’nStore People Lok’nStore Group Plc has agreed a new £20m revolving credit facility at a reduced interest margin. The new facility replaces the previous £10m facility and provides sufficient additional liquidity for the Group’s immediate expansion plans. Interest payable on the loan is on improved terms, paying between 1.25% and 1.35% over LIBOR. The facility is secured on the existing self-storage portfolio, excluding the Kingston and Reading properties. Following the signing of this new facility, the management is confident that the Group has full flexibility to maximise the value of any potential exit or realisation of these two redevelopment opportunities and that the Group is in a position to continue to grow its self-storage business. The UK self-storage market continues to grow rapidly and offers a great opportunity, particularly to the major operators with specialist skills. The more mature US market, grew from 2.9 sq. ft. per member of the population in 1994 to 5 sq. ft. in 2004. Despite this increase in capacity, the average weekly price for a 100 sq ft. unit has increased by 45% between 2000 and 2004*(* Source: Pramerica Real Estate Investors). The population density of the US is only 32 per square kilometre against 246 in the UK. This creates far more pressure to use property resources efficiently in the UK, which is a driver of demand for self-storage. Lok’nStore is now one of only two quoted storage operators in the UK, ranked fourth in size in the UK and sixth in Europe. Andrew Jacobs, as Chief Executive Officer, is supported by an experienced executive team. Our storage centre personnel are committed and motivated and help maintain the levels of friendly service that Lok’nStore gives its customers, which, we believe, is exemplary. I would therefore like to thank all of the people who work both in our head office and in our centres for their commitment to our business and for their hard work. Their continued efforts will provide us with the necessary platform for our ongoing success. 0 Lok’nStore Group Plc Annual Report & Accounts 2005 Good progress against objectives Improving… the operating performance of existing centres + 17.6% sales up year on year Enhancing… the value of existing centres £33.6M property valuation Growing… the number of centres 21 centres now acquired Optimising… the Group’s capital structure £20 M revolving bank facility 8 % EBITDA margin at centres opened for more than 250 weeks Let area up by 83,417 sq. ft. Number of customers up 20.6%. Sales up 17.6%. Operating expenses up 8.3%. Poole storage centre freehold acquired. 67,000 sq. ft. of new space fitted in the year. Property valuations, based on trading storage centres, increased to £33.6m. Farnborough & Crayford storage centres to open winter 2005, adding an extra 128,000 sq. ft. of lettable space. Tonbridge centre opened August 2004. Lok’nStore Group Plc has agreed a new £20m revolving credit facility at a reduced interest margin. The new facility replaces the previous £10m facility. 2005 Annual Report & Accounts Lok’nStore Group Plc 0 “ “ “ “ Sales have been pushed up in the last year by more competitive marketing, better sales training, performance-related bonus schemes, high conversion rates, income/yield management and more space provided for rental. While sales were up 17.6%, operating expenses were only up 8.3%. “ Lok’nStore continues to look to opportunities to increase the value of our existing centres. Buying the freehold, as at Poole, is a good example. The property valuations of our eight freehold centres were valued at £20.1m at 31 January 2004. These centres were valued at 31 January 2005 at £22.84m representing an uplift of 13.6%. “ 11 of our 21 centres are owned freehold by the Group accounting for 56.5% of lettable space, with the remainder as leasehold. Our acquisition strategy remains driven by prospective rates of return, site location and visibility. We remain committed to finding new, high quality self-storage sites. “ The £20m revolving bank facility is secured on the existing self-storage portfolio excluding the Kingston and Reading sites. With the new facility the Company has full flexibility to maximise the value of its Kingston and Reading sites and is in a position to continue to grow its self-storage business. “ £’s Sales 8,000 6,000 4,000 2,000 0 7.77 6.61 5.61 5.00 3.96 01 02 03 04 05 Number of centres 23 21 19 17 15 21 19 18 17 16 01 02 03 04 05 Number of customers Number of customers 8,000 8,000 6,000 6,000 4,000 4,000 2,000 2,000 0 0 02 02 03 03 04 04 05 05 Household Customer Business Customer Household Customer Business Customer 06 Lok’nStore Group Plc Annual Report & Accounts 2005 Operating Review The focus on standards delivers growth In the last year… 48% EBITDA margin for established centres (open for more than 250 weeks) Occupied space of 555,445 sq. ft. – increased by 83,417 sq. ft. Opened a new centre in Tonbridge 14 centres are now trading profitably at the pre-tax level 17 centres have positive operating cash flow +20.6% more customers Sales Performance We have continued to raise operational standards and to focus centre personnel on taking responsibility for increasing turnover. This work has continued to improve the consistency of performance across the centres. Our central sales team are now running more frequent and improved sales training courses. In addition, we regularly review the bonus scheme to link performance and reward more directly to turnover growth and consistently high quality customer service. As a result our conversion ratio of enquiries into customers remains very high. During the year we increased occupied space by 83,417 sq. ft. (17.7%), with total occupied space at 31 July 2005 of 555,445 sq. ft. (2004: 472,028 sq ft). We have included a table summarising the trading performance of all our centres over the year, analysed between centres open less than 100 weeks, between 100 and 250 weeks, and more than 250 weeks at the end of the period. Both first generation, converted buildings and modern, well-located centres continue to show good growth. The lower cost base associated with the older converted buildings ensures that they generate returns equal to the more highly specified, but higher cost base new centres. Also, encouragingly, revenue occupancy of these 11 older centres (over 250 weeks) increased 9.7% on the year. We believe there is room for further increases with new space still to be fitted out in some of these centres in addition to improving income from existing space. Lok’nStore’s established centres (over 250 weeks old) achieved EBITDA margins of 48%. During the year we opened our new Tonbridge centre, bringing the number of centres trading to 19. Total capacity is currently 792,000 sq. ft. With the new centres at Crayford and Farnborough coming on stream in Winter 2005/06 the number of centres trading will be 21 and will increase total capacity to 920,000 sq. ft. 14 of the centres are now trading profitably at the pre-tax level (2004:12) and 17 have positive operating cash flow (2004:14). Packing materials, insurance and other sales increased 11% over the year accounting for 7.7% of turnover. 2005 Annual Report & Accounts Lok’nStore Group Plc 07 2.6% of turnover from business customers Marketing Systems Security Issues Our People During the year we have increased the penetration of direct debit facilities, which reduces the administrative burden and use of paper and postage at the centres, as well as being a positive service to our customers and reducing the time committed to credit management. The current focuses are on greater systems centralisation, greater audit capability and a continued focus on efficient and timely data. The new centre audit system has been effective in terms of improved security, credit control and centre presentation. The safety and security of our customers and centres remains a high priority. With today’s heightened terrorist concerns this is of particular importance. We already invest in CCTV systems, intruder and fire alarm systems and the remote monitoring of our centres out of hours and we have rigorous security procedures in relation to customers. Furthermore, we are currently reviewing our security resources and we are upgrading our security in line with up-to-date equipment, for example, colour CCTV monitors of greater capability and detail. The importance of security and the need for vigilance is communicated to all personnel and reinforced through our various training procedures. At 31 July 2005, we had 94 employees. Attracting, retaining and encouraging the right people is key to the success of Lok’nStore. We are committed to providing a positive attitude in the business and an enjoyable working environment. Lok’nStore encourages all personnel to build their skills through appropriate training and regular performance monitoring. Regular training courses support these objectives. All employees are eligible to participate in share ownership plans after 3 months of employment and 38% of our employees have EBT shares or options. 45% of the personnel are members of the contributory pension scheme. I would like to thank all of our people for their contribution to a successful year. The continuing progress of the Group is being achieved as a result of their efforts and hard work. The Company spent 6.4% approx. of turnover on advertising and marketing (including postage, printing and stationery) (2004: 7.7%). Our marketing costs should remain at these levels over the coming years. Marketing resources and efforts have been upgraded, and this contributed to Lok’nStore achieving another excellent increase in occupancy over the year of 83,417 sq. ft, up 17.7% on the previous year, whilst reducing pro-rata costs. We are still reviewing new and better opportunities in the media and through local marketing efforts and each of these shows progress. New centres will benefit from the marketing and promotion effort already applied to our existing centres. Work on centre visibility is also improving response to our marketing. Our new Farnborough centre with its prominent design and position adjacent to the M3 motorway will help to raise the profile of the whole Lok’nStore brand. We are conspicuous in our directory advertising, which is targeted in all of the areas in which our stores operate, and produces a significant proportion of our enquiries. We apply coordinated sales and marketing messages and our storage centre personnel are as involved as our head office, which ensures our expenditure remains effective. 08 Lok’nStore Group Plc Annual Report & Accounts 2005 Investing in new and existing centres Property and Construction The total portfolio of centres and sites is now 21, of which 11 are held freehold. We prefer to acquire freeholds if possible, and where opportunities arise we will seek to acquire the freehold of our leasehold centres. Indeed, we achieved the early exercise of our option to purchase the freehold interest in our Poole centre during the year, and this also allowed an expansion of the space available by 12,000 sq. ft. to a total of 64,000 sq. ft. However, our overriding objective is to increase the number of storage centres we operate and we are comfortable to take leases on appropriate terms. Our new Farnborough Centre is a freehold and will be our first purpose-built centre. It will open in January 2006. Our new freehold centre in Crayford is currently being fitted out and is expected to open in December 2005. These centres are located within our existing geographical coverage and will be managed by our existing sales team. The Company continues to focus on the efficiency of our fitting out programme in order to bring forward the revenue stream and maximise our rate of return. We optimise the available space in new centres by fitting mezzanine floors and storage units as customer demand dictates. This allows revenue to be generated by utilising open storage space, and thereby keeping tighter control on capital expenditure until it is required. Over the year under review we fitted out a further 67,000 sq. ft. of self- storage units. Subject to market conditions, it is our current aim to acquire between 2 and 4 centres per annum. Our current average centre size is around 40,000 net sq. ft. and this may increase for new centres up to 60,000 net sq. ft. The exact timing of centre openings will largely depend on market availability, and we will retain our disciplined and flexible approach to site acquisition. Centre Analysis The map below shows the centres by location and by freehold, leasehold and recent acquisitions. 1 2 5 12 18 9 10 17 6 13 14 19 3 4 11 15 7 8 16 Leasehold Freehold Recent Acquisitions 1. Ashford 2. Basingstoke 3. Crayford . Eastbourne . Fareham 6. Farnborough 7. Horsham 8. Kingston 9. Luton 10. Milton Keynes 11. Northampton 12. Poole 13. Portsmouth 1. Reading 1. Southampton 16. Staines 17. Sunbury 18. Swindon East 19. Swindon West 20. Tonbridge 21. Woking 2005 Annual Report & Accounts Lok’nStore Group Plc 09 16 % more capacity added by Farnborough and Crayford Maturity Analysis Weeks old Sales (£’000) Stores EBITDA (£’000) EBITDA MARGIN (%) Maximum net area (‘000 sq. ft.) Freehold Leasehold Total centres Customer Analysis Over 250 4,813 2,307 47.9 423 7 4 11 100 to 250 2,398 349 14.6 289 2 4 6 July 05 To be Under opened in 100 2005/06 437 –179 –41.0 80 0 2 2 128 2 0 2 Total 7,648 2,477 32.4 920 11 10 21 At the end of July 42.6% of our turnover was from business customers (28.6% by number) and 57.4% was from household customers (71.4% by number). Andrew Jacobs Chief Executive Officer 28 October 2005 10 Lok’nStore Group Plc Annual Report & Accounts 2005 Financial Review Generating cash Trading During the financial year Lok’nStore has shown 17.6% growth in turnover to £7.77m (2004: £6.61m). The continuing growth during the year and since the year- end is shown by the increase in annualised turnover to £8.48m. Demonstrating the cash generative nature of the business, EBITDA was up 68% to £1.36m (2004: £0.81m before exceptional items). Operating profit increased to £606,961 (2004: Loss: £5,733). There were no exceptional costs this year (2004; £127,407). Credit control remains tight with £36,000 of bad debts written off during the year representing less than 0.5% of turnover. The net interest charge increased from £162,501 to £492,636. This increase is a consequence of the Group utilising its bank facilities to acquire the freehold sites at Farnborough and Crayford, the continuing fit-out programme at our existing stores, and the full year effect of the share buy back implemented in March 2004. Year- end borrowings of £8.15m together with outstanding expenditure on the Farnborough and Crayford build-outs mean that the interest charge will rise significantly next year on a full-year charge. The Group made a profit on ordinary activities before tax of £114,325 (2004: £169,104 loss). No charge to corporation tax arises as a result of the Group’s tax loss in the year. Tax losses available to carry forward for offset against future profits amount to some £3m. In addition the business had capital losses available to carry forward of £362,636. Basic earnings per share was 0.47p per share (2004: loss of 0.16p per share before exceptional items: loss of 0.64p per share after exceptional items). Borrowings & Cash Flow Buyback Authority Cash flows from the Group remain encouraging, with increasing cash flows as turnover increases continuing to demonstrate the cash generative nature of the business. The Group had cash balances at the year-end of £0.42m (2004: £0.65m). Cash Inflow from operating activities before interest and capital expenditure was £1.98m, compared to £0.93m for 2004. Capital expenditure totalling some £2.6m reflects the Group’s commitment to growing its business through a combination of site acquisition and related works (£1.1m) and investing in our existing stores (£1.5m). At 31 July 2005, the Group had £8.15m of borrowings representing gearing on a NBV basis of 72% on net debt of £7.73m. Gearing, when adjusted on the basis of the Group’s revalued stores, drops to 22%. At the Company’s AGM on 16 December 2004, shareholders gave approval to replace the existing share buy-back authority. This authority will be sought annually at the Company’s annual general meeting each year. The authority is restricted to a maximum of 5,845,299 Ordinary Shares, which is equivalent to 23.3% of the Company’s issued share capital and is equal to the number of shares available for purchase under the previous authority. The buy-back authority will only be exercised in circumstances where the Directors regard such purchases to be in the best interests of Shareholders as a whole and is subject to the waiver of Rule 9 by the Panel of Takeovers and Mergers being approved by the Shareholders. The total number of shares in issue is 25,071,144 Ordinary Shares. 2005 Annual Report & Accounts Lok’nStore Group Plc 11 8M £1.9 cash inflow from operations Property assets Valuation £m NBV £m Properties valued 31.01.05 by ‘CWHB’ 31.84 16.69 Farnborough – at cost Total Valuation (8 freehold Centres) 1.76 1.76 33.6 18.45 Uplift % 13.6 31 Jan 05 £m 31 Jan 04 £m 22.84 20.10 £ 33.6M property valuation Treasury All cash deposits are placed with Royal Bank of Scotland Plc on treasury deposit utilising either one- day or two-day money funds. The Group’s cash position is reviewed daily and cash is transferred daily between these accounts and the Company’s operational current accounts as required. During the year the Company obtained improved terms on its treasury deposit rates. Ray Davies Finance Director 28 October 2005 Balance Sheet Net assets at the year-end increased to £10.7m (2004: £10.6m). The Employee Benefit Trust owns 627,500 (2004: 627,500) shares, the costs of which are shown as a deduction from shareholders’ funds in accordance with Urgent Issues Task Force Abstract 38. On 31 January 2005, professional valuations were prepared by external valuers, Cushman & Wakefield Healey & Baker, (‘CWHB’) in respect of all trading freehold and leasehold properties as operational self-storage businesses. The freehold land at Farnborough, acquired on 30 July 2004 was not valued on this occasion, as building works had not commenced. This Report was prepared on the basis of Market Value/Existing Use Value, having regard to its trading potential as appropriate, in accordance with RICS Appraisal and Valuation Standards, but on the special assumption that any potential for residential development was excluded. (See note 11 in the notes to the accounts for a more detailed description of valuation methodology). The Report indicates a total for properties valued of £31.84m. Including Farnborough, (NBV £1.76m), this gives a total value of properties held of £33.6m (NBV £18.4m). These valuations have not been included in the Balance Sheet. These valuations do not account for any further uplift in values, which would result from the planning permission achieved for residential at the Kingston site, nor any successful outcome of the planning application for residential at the Reading site. These valuations also do not account for any further uplift arising from the acquisition of the Crayford site or further investment in existing centres since January 2005 and in particular the further build-out works to the Farnborough centre, which is under development. While the Company does not envisage routinely revaluing its properties it will do so when appropriate. Over the years Lok’nStore has acquired the freehold interest in previously leased centres at Horsham, Reading and Poole. This tactical approach combines the early cash flow advantages of leasehold centres with the long-term income security and investment potential of freeholds. Eight of our 10 leaseholds are within the terms of the 1954 landlord and tenant act giving a degree of security of tenure. The average length of the leases was 11.1 years at the date of the 2005 Valuation (Source: ‘CWHB’). Financing & Liquidity The Company has signed a new £20m revolving credit facility at a reduced interest margin for the Group. The new facility replaces the previous £10m facility and provides sufficient additional liquidity for the Group’s immediate expansion plans. Interest payable on the loan is on improved terms, paying between 1.25% and 1.35% over LIBOR. Non-utilisation charges have also been reduced to 0.25% on the value of the undrawn facility. Undrawn committed facilities at the year-end amounted to £11,850,000. The facility is secured on the existing self-storage portfolio, excluding the Kingston and Reading properties. This ensures that the Group has full flexibility to maximise the value of any potential exit or realisation of these two redevelopment opportunities, as well as using the proceeds in the best interests of Shareholders. The £20m revolving credit facility agreed with The Royal Bank of Scotland Plc is a five-year committed facility and during the year the Company complied with all corresponding debt covenants. 12 Lok’nStore Group Plc Annual Report & Accounts 2005 Board of Directors and Management Executive Directors Andrew Jacobs (6) Chief Executive Established Lok’nStore in February 1995. An MPhil in Economics from Cambridge University and a BSc in Economics from the London School of Economics. Simon Thomas () Chairman An Executive Director of Lok’nStore since 1997. Ray Davies (8) Finance Director Ray joined the Board of Lok’nStore in January 2004. A chartered accountant, he has held a number of senior finance positions in the construction and health & fitness sectors. Colin Jacobs (1) Director Has been with Lok’nStore since its inception and a Director since 1997. Non-Executive Directors Robert Ward Jackson (9) Non-Executive Director Joined Lok’nStore in January 2004 as a Non-Executive Director. Robert is a qualified Chartered Accountant with extensive experience in investment banking in London. Since 1994, Robert has had a wide range of experience in the quoted and unquoted arenas. More recently this included his role as Chief Executive of FII Group PLC. Richard Holmes () Non-Executive Director Former Director of Boots Health & Beauty previously Head of Strategy development for Unilever’s worldwide dental business. MSc in economics and BSc in economics from the London School of Economics. Marcus Stanton (1) Non-Executive Director Previously the Chief Operating Officer of Global Capital Markets at Robert Fleming & Co, now part of JP Morgan, and a Director in corporate finance at Hill Samuel. A graduate of Oxford University and a Chartered Accountant. Management (top to bottom, left to right) Abigail Birks Personnel & Sales Support Manager Kevin Elster Operations Manager Martin Lawley Associate Director Sales Jane Stafford Associate Director Sales Sobayo Soyemi Financial Controller John Ogburn Facilities Manager Rhys Warren Thomas Associate Director Property 2005 Annual Report & Accounts Lok’nStore Group Plc 13 Advisers Company Registration No. 4007169 Directors Chairman S G Thomas Chief Executive A Jacobs Finance Director R A Davies Director C M Jacobs R J Holmes Non-Executive Director M J G Stanton Non-Executive Director R W Jackson Non-Executive Director Management A Birks K Elster M Lawley S Soyemi J Stafford J Ogburn R Warren-Thomas Associate Director Property Personnel & Sales Support Manager Operations Manager Associate Director Sales Financial Controller Associate Director Sales Facilities Manager Secretary and Registered Office Secretarial Solutions Limited 5 Old Bailey London EC4M 7JX Registered in England and Wales No. 4007169 Nominated Adviser and Broker Investec Bank (UK) Ltd 2 Gresham Street London EC2V 7QP Auditors Baker Tilly Registered Auditor Chartered Accountants 2 Bloomsbury Street London WC1B 3ST Solicitors Maclay Murray Spens/ City Law Partnership 5 Old Bailey London EC4M 7JX Registrars Capita Registrars Capita Group Plc The Registry 34 Beckenham Road Beckenham Kent BR3 4TU Bankers The Royal Bank of Scotland Plc Thames Valley Corporate Business Centre Abbey Gardens 4 Abbey Street Reading RG1 3BA 14 Lok’nStore Group Plc Annual Report & Accounts 2005 Directors’ Report The directors submit their report and the audited financial statements of the Company and of the Group for the year ended 31 July 2005. Principal Activity The principal activity of the Group during the year was that of providing business and household self-storage and related services. Review of the Business and Future Developments These are dealt with in the Chairman’s Statement. Dividend The directors do not recommend the payment of a dividend, however the Board will keep this matter under periodic review. Directors The following directors have held office during the year and subsequently: A Jacobs S G Thomas R A Davies C M Jacobs R J Holmes M J G Stanton R W Jackson In accordance with the Company’s Articles of Association Andrew Jacobs and Simon Thomas retire by rotation and, both being eligible, they offer themselves for re-election at the next Annual General Meeting. Substantial Shareholdings The directors have been notified or are aware that the following are interested in 3% or more of the issued ordinary share capital of the Company as at 11 October 2005: A Jacobs Mercury Real Estate Advisors LLC S G Thomas North Atlantic Smaller Companies Investment Trust plc/ Oryx International Growth Fund Ltd Gartmore Investment Management Universities Superannuation Scheme Charles Stanley Number of ordinary shares of 1p each 5,314,000 3,354,764 2,437,500 2,100,000 1,723,452 1,403,799 1,175,525 Percentage of issued Share Capital 21.2 13.4 9.7 8.4 6.9 5.6 4.7 Policy on Payment of Creditors The Company does not follow any formal code or standard on payment practice. The Company’s policy, which is also applied by the Group, is to ensure that, in the absence of dispute, all suppliers are dealt with in accordance with its standard payment practice, whereby all outstanding trade accounts are settled within the terms agreed with the supplier at the time of the supply or otherwise 30 days from invoice date. Directors’ Interests in Shares Directors’ interests in the shares of the Company, including family interests, were as follows: At the year-end the credit taken from suppliers by the Group was 57 days (2004: 33 days). Ordinary shares of 1p each On appointment or 31 July 2005 31 July 2004 5,314,000 2,437,500 – 95,000 27,000 15,000 – 5,314,000 2,437,500 – 95,000 27,000 12,496 – A Jacobs S G Thomas R A Davies R J Holmes M J G Stanton C M Jacobs R W Jackson Additionally, Andrew Jacobs and Simon Thomas are two of the three beneficiaries of a pension fund that holds 460,425 Lok’nStore ordinary shares. The Company was notified on 4 November 2004 that the Aylestone Pension Fund had sold 50,000 ordinary shares in the Company and on 15 December 2004 that the Aylestone Pension Fund has sold 50,000 ordinary shares in the Company with a resultant holding of 164,573 (31 July 2004: 264,575) ordinary shares representing 0.66% of the issued share capital. Colin Jacobs, a director of Lok’nStore is interested in this transaction by being one of three beneficiaries of the Aylestone Pension Fund. Details of directors’ share options are disclosed in notes 23, 24 and 26. Market Valuation of Freehold Land and Buildings On 31 January 2005, professional valuations were prepared by external valuers, Cushman & Wakefield Healey & Baker, in respect of all trading freehold and leasehold properties as operational self-storage businesses. The freehold site at Farnborough, acquired on 30 July 2004, was not valued on this occasion as building had not yet commenced. This Report was prepared on the basis of Market Value/Existing Use Value, having regarded its trading potential as appropriate, in accordance with RICS Appraisal and Valuation Standards but on the special assumption that any potential for residential development was excluded. (See note 11 in the notes to the accounts for a more detailed description of valuation methodology). The Report indicates a total for properties valued of £31.84m. Including Farnborough (NBV £1.76m), this gives a total value of properties held of £33.6m as at 31 January 2005. (NBV £18.4m at 31 January 2005). These valuations do not account for any further uplift in values, which would result from the planning permission achieved for residential at the Kingston site, nor any successful outcome of the planning application for residential at the Reading site. These valuations also do not account for any further uplift arising from the acquisition of the Crayford site or further investment in existing stores since January 2005, and in particular the further build-out works to the Farnborough store, which is under development. While the Company does not envisage routinely revaluing its properties it will do so when appropriate. 2005 Annual Report & Accounts Lok’nStore Group Plc 15 Environment Introduction The Group is committed to minimising adverse environmental impacts. The new Operating and Financial Review and the EU Accounts Modernisation Directive regulations came into force this year. The Board is following the new standards in this year’s annual report which require companies to consider their environmental impacts. It is our assessment that the Group is not exposed to any significant environmental risk. We believe, however, that by measuring, managing and communicating our environmental performance we are inherently well placed to understand how to improve our processes, reduce costs and comply with current and future regulatory requirements. Environmental Policy Our Environmental Policy, which is circulated to all our staff, is to manage our waste, control our polluting emissions and to encourage our suppliers to minimise their impact on the environment. Environmental Management and Performance We continue to build on the progress made last year using the Trucost Environmental System, which has provided us with a measure of our overall environmental impact, including that of our supply chain. We have focused our efforts specifically on our greenhouse gas emissions (including energy use), water use and waste, which Trucost have identified as our key environmental performance indicators in line with the Department for Environment, Food and Rural Affairs’ (Defra) Environmental Reporting Guidelines for UK Business. The minimisation of emissions of greenhouse gases, and in particular carbon dioxide, is our greatest environmental priority. This year we have started to measure emissions caused by the consumption of fuels (vehicles and boilers) and the electricity we use. This data provides us with a baseline against which to improve our performance over time. We have set a target of reducing our indirect CO2 by 4% on a normalised basis. Our commitment to reducing emissions is underlined by our continued use of Green Energy plc, a provider of renewable energy, who supplies 46% of our electricity. Environmental Key Performance Indicators (for period covering Financial Year 2005) Direct Impacts (Operational) Greenhouse gases Definition Data source and calculation methods Absolute Normalised* Quantity Gas Emissions from utility boilers. Petrol and diesel used by staff and van hire fleet. Yearly consumption in kWh collected from fuel bills, converted according to Defra Guidelines. Expense claims and MOT recorded mileage, converted according to Defra Guidelines. 88 tonnes CO2 92 tonnes CO2 180 tonnes CO2 11 tonnes CO2/£m 12 tonnes CO2/£m 23 tonnes CO2/£m Quantity Definition Data source and calculation methods Absolute Normalised* General office waste, which includes a mixture of paper, card, wood, plastics and metals. General office waste recycled, primarily cardboard. Volume of waste generated per annum, calculated by recording the number of bins and skips removed, converted to tonnes according to Defra Guidelines. Volume of waste recycled per annum, calculated by recording the number of bins and skips removed for recycling, converted to tonnes according to Defra Guidelines. 913 tonnes 119 tonnes/£m 24 tonnes 3 tonnes/£m Vehicle fuel Total Waste Landfill Recycled Indirect Impacts (Supply Chain) Greenhouse gases Definition Data source and calculation methods Absolute Normalised* Quantity Energy use Directly purchased electricity, which generates greenhouse gases including CO2 emissions. Yearly consumption of directly purchased electricity in kWh, converted according to Defra Guidelines. 863 tonnes CO2 112 tonnes CO2/£m Water Definition Data source and calculation methods Absolute Normalised* Quantity Supplied water Consumption of piped water. No water directly abstracted by the Group. Yearly consumption of purchased water. 5,143 m3 668 m3/£m *Normalised by unit emission per million of 2005 annualised revenues of £7.7m. 16 Lok’nStore Group Plc Annual Report & Accounts 2005 Directors’ Report Corporate Governance Share Capital Further details are given in the Financial Review and in note 17. Annual General Meeting The Company’s Annual General Meeting will be held on 1 December 2005 at 10.00am at the offices of Maclay Murray Spens/City Law Partnership, Fifth Floor, 5 Old Bailey, London EC4M 7JX. Auditors A resolution to reappoint Baker Tilly, Chartered Accountants, as auditors will be put to the members at the Annual General Meeting. A formal notice together with explanatory circular and Form of Proxy will be sent to shareholders. By order of the Board SG Thomas Chairman 28 October 2005 Introduction The Combined Code is intended to promote the principles of openness, integrity and accountability. The Company fully supports these principles and although not required to do so, the directors have decided to provide Corporate Governance disclosures. The Board formally adopted the principles of good governance set out in the Code. However, in view of the size and nature of the Group, the directors have taken into consideration the recommendations of the Guidance for Smaller Quoted Companies on the Code produced by the Quoted Companies Alliance. The Company’s governance policies already in place matched closely the position set out in the Combined Code. Narrative Statement Directors There is a Board of directors, which is set up to control the Company and consists of four executive and three non-executive directors. The Board considers all of the non-executive directors to be independent of the Group. S G Thomas is Chairman of the Board and it has a formal schedule of matters reserved for its consideration and decision. This schedule includes approval of financial strategy, major investments, review of performance, monitoring risk; ensuring adequate capital resources are available and reporting to shareholders. The full Board meets every three months to discuss a whole range of significant matters including strategic decisions, major acquisitions and Group 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. R J Holmes continues as the senior independent director as required by the Code. Each Board meeting receives the latest financial information available, which consists of detailed management accounts with the relevant comparisons to budget. A current trading appraisal is given by the executive directors. Each member of the Board is subject to the re-election provisions of the Articles of Association, which requires them to offer themselves for re-election at least once every three years. In the event of a proposal to appoint a new director, this would be discussed at a full Board meeting with each member being given the opportunity to meet the individual concerned prior to any formal decision being taken. Directors’ Remuneration The Remuneration Committee, which consists of R J Holmes (Chairman of the Committee), M J G Stanton and R W Jackson. The Committee meets and considers, within existing terms of reference, which were reviewed, and during the year, the remuneration policy and makes recommendations to the Board for each executive director. The Committee’s remuneration policy aims to design a package that will align the interests of executive directors and those of shareholders. The executive directors’ remuneration consists of a package of basic salary, bonuses, and share options, which are linked to corporate achievements and these levels are determined by the Remuneration Committee. The details of each director’s remuneration is set out in the notes to the financial statements on page 25 under note 7. The Committee meets once a year and considers proposals from the Chairman and Chief Executive. 2005 Annual Report & Accounts Lok’nStore Group Plc 17 Shareholders’ Relations The Board has always sought good relations with the Company’s shareholders. The directors meet and discuss the performance of the Group with shareholders during the year. Queries raised by a shareholder, either verbally or in writing, are promptly answered by whoever is best placed on the Board to do so. All directors are individually introduced to shareholders at the Annual General Meeting. Audit Committee The Company has an established Audit Committee to whom the external auditors, Baker Tilly, report. The Committee’s terms of reference were reviewed and updated during the year. The Committee consists of M J G Stanton (Chairman of the Committee), R J Holmes and R W Jackson. It is responsible for the relationship with the Group’s external auditors and the review of the Group’s financial reporting and the Group’s internal controls. Accountability and Audit 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 Committee meets a minimum of twice a year, prior to the announcement of Interim and Annual results and, should it be necessary, would convene at other times. The Chairman’s Statement contains a detailed consideration of the Group’s position and prospects. Internal Control The Board is responsible for ensuring that the Group has in place a system of internal control. In this context, control is defined as those policies and processes established to ensure that business objectives are achieved cost effectively, assets and shareholder value are safeguarded, and laws, regulations and policies are complied with. Controls can provide reasonable but not absolute assurance that risks are identified and adequately managed to achieve business objectives and to minimise material errors, losses and fraud or breaches of laws and regulations. The Group operates a strict system of internal financial 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. The Group continues to develop the internal audit function utilising operational management to make unannounced store visits as part of a process supported by audit control checklists and other procedures. This undertaking has contributed to sales by promoting efficient store management, but also addresses risk and credit control, cash and store banking and space and client management. The internal audit checks ensure any fraud or mismanagement is quickly identified. The Group has a whistle blowing procedure within its staff handbook, which is issued to all salaried staff. All employees may raise concerns about malpractice or improper or potentially illegal behaviour in confidence without concern of victimisation or disciplinary action. Going Concern The directors can report that based on the Group’s budgets and financial projections, they have satisfied themselves that the business is a going concern. The Board has a reasonable expectation that the Company and Group have adequate resources and facilities to continue in operational existence for the foreseeable future and therefore the accounts are prepared on a going concern basis. The Audit Committee also undertakes a formal assessment of the auditors’ independence each year, which includes: n n n n A review of non-audit services provided to the Group and related fees. Discussion with the auditors of a written report detailing all relationships with the Company and any other parties that could affect independence or the perception of independence. A review of the auditors’ own procedures for ensuring the independence of the audit firm and partners and staff involved in the audit, including the regular rotation of the audit partner every five years. Obtaining written confirmation from the auditors that, in their professional judgement, they are independent. An analysis of the fees payable to the external audit firm in respect of both audit and non-audit services during the year is set out in note 5 to the financial statements. The Company is satisfied that the external auditors remain independent in the discharge of their audit responsibilities. Compliance Statement The Board supports the highest standards in corporate governance, appropriate to its size, and continues to review the Combined Code on Corporate Governance (July 2003) as well as the Company’s procedures to maintain proper control and accountability. The Board has reviewed compliance with the Combined Code. In common with many small companies, a nomination committee has not been established and appointments to the Board are decided on by the Board as a whole. The Chairman is not independent, as he is a substantial shareholder of the Company and was formerly the Chief Executive. Throughout the year ended 31 July 2005, the Group has complied substantially with the other Code Provisions set out in Section 1 of the Combined Code on Corporate Governance issued by the UK Listing Authority. By order of the Board Simon G Thomas Chairman 28 October 2005 18 Lok’nStore Group Plc Annual Report & Accounts 2005 Directors’ Responsibilities in the Preparation of Financial Statements Company law requires the directors to prepare financial statements and other information in the annual report for each financial year which give a true and fair view of the state of affairs of the Company and of the Group and of the profit or loss of the Group for that period. In preparing those financial statements, the directors are required to: a. b. make reasonable and prudent judgements and estimates; c. select suitable accounting policies and apply them consistently; state whether accounting standards have been followed, and give details of any departures; and prepare the accounts on a going concern basis unless in our view the Group and Company will be unable to continue in business. d. They are also responsible for: a. b. c. keeping proper accounting records; safeguarding the Group’s and Company’s assets; taking reasonable steps for the prevention and detection of fraud and other irregularities; ensuring that our report and other information included in the annual report is prepared in accordance with company law in the United Kingdom; and for ensuring that the annual report includes information required by the rules of the Alternative Investment Market of the London Stock Exchange. d. e. The maintenance and integrity of the website is also the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the information contained in the financial statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements and other information included in annual reports may differ from legislation in other jurisdictions. 2005 Annual Report & Accounts Lok’nStore Group Plc 19 Independent Auditors’ Report to the Members of Lok’nStore Group Plc Basis of Audit Opinion We conducted our audit in accordance with United Kingdom Auditing Standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of the affairs of the Group and the Company as at 31 July 2005 and of the Group’s profit for the year then ended and have been properly prepared in accordance with the Companies Act 1985. Baker Tilly Registered Auditor Chartered Accountants 2 Bloomsbury Street London WC1B 3ST 28 October 2005 Auditors’ Report to the Members of Lok’nStore Group Plc We have audited the financial statements of Lok’nStore Group Plc for the year ended 31 July 2005 which comprise the Consolidated Profit and Loss Account, the Group and Company Balance Sheet, the Consolidated Cash Flow Statement and the related notes. This report is made solely to the Company’s members, as a body, in accordance with section 235 of the Companies Act 1985. 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. Respective Responsibilities of Directors and Auditors The directors’ responsibilities for preparing the annual report and the financial statements in accordance with applicable law and United Kingdom Accounting Standards are set out in the Statement of Directors’ Responsibilities. Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and United Kingdom Auditing Standards. We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the Directors’ Report is not consistent with the financial statements, if the Company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and transactions with the Company and other members of the Group is not disclosed. We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements. This other information comprises only the Chairman’s Statement, the Operating Review, the Financial Review, the Directors’ Report, the Corporate Governance Statement and the statement on the Directors’ Responsibilities in the Preparation of Financial Statements. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. Our responsibilities do not extend to any other information. 20 Lok’nStore Group Plc Annual Report & Accounts 2005 Consolidated Profit and Loss Account for the year ended 31 July 2005 Turnover Operating expenses Operating Profit/(Loss) Loss on disposal of fixed assets Interest receivable Profit on Ordinary Activities before Interest Payable Interest payable Profit/(Loss) on Ordinary Activities before Taxation Taxation Profit/(Loss) for the Year Earnings Per Share Basic Diluted Notes 2005 £ 2004 £ 1 2,6 7,774,541 (7,167,580) 6,611,911 (6,617,644) 606,961 (5,733) – (870) 3 35,898 36,950 642,859 (528,534) 30,347 (199,451) 114,325 – (169,104) – 4 5 8 18 114,325 (169,104) 9 9 0.47p (0.64p) 0.44p (0.64p) The operating profit for the year arises from the Group’s continuing operations. No separate statement of Total Recognised Gains and Losses has been presented as all such gains and losses have been dealt with in the Profit and Loss Account. Balance Sheets 31 July 2005 Fixed Assets Intangible assets Tangible assets Investments Current Assets Stocks Debtors Cash at bank and in hand 2005 Annual Report & Accounts Lok’nStore Group Plc 21 Group 2005 £ Group 2004 £ Company 2005 £ Company 2004 £ 359,068 383,323 20,032,760 18,162,957 – – – – 214,563 – – 214,563 Notes 10 11 12 20,391,828 18,546,280 214,563 214,563 13 14 88,648 1,684,793 424,738 103,880 1,948,711 654,361 – 6,025,331 – – 5,994,621 – 2,198,179 2,706,952 6,025,331 5,994,621 Creditors: Amounts falling due within one year 15 (3,736,384) (3,094,644) – – Net Current (Liabilities)/Assets (1,538,205) (387,692) 6,025,331 5,994,621 Total Assets Less Current Liabilities 18,853,623 18,158,588 6,239,894 6,209,184 Creditors: Amounts falling due after more than one year 16 (8,150,000) (7,600,000) – – 10,703,623 10,558,588 6,239,894 6,209,184 17 18 18 18 18 18 19 250,711 51,976 34,205 6,295,295 5,903,002 (1,321,980) (509,586) 250,481 21,496 34,205 6,295,295 5,903,002 (1,436,305) (509,586) 250,711 51,976 34,205 – 5,903,002 – – 250,481 21,496 34,205 – 5,903,002 – – 20 10,703,623 10,558,588 6,239,894 6,209,184 Capital and Reserves Called up share capital Share premium account Capital redemption reserve Merger reserve Other distributable reserve Profit and loss account ESOP shares Shareholders’ Funds Approved by the Board of Directors on 28 October 2005 and signed on its behalf by: A Jacobs Chief Executive R Davies Finance Director 22 Lok’nStore Group Plc Annual Report & Accounts 2005 Consolidated Cash Flow Statement for the year ended 31 July 2005 Cash flow from operating activities Returns on investments and servicing of finance Taxation Capital expenditure and financial investment Cash Outflow before Financing Financing Decrease in Cash in the Period Reconciliation of Net Cash Flow to Movement in Net Funds/(Debt) Decrease in cash in the period Cash inflow from increase in debt and lease financing Movement in Net (Debt)/Funds in Period Net (Debt)/Funds at 1 August Net Debt at 31 July Notes 21a 21b 21b 21b 2005 £ 2004 £ 1,983,832 (500,901) – (2,293,945) 934,854 (122,163) – (5,429,344) (811,014) 581,392 (4,616,653) 4,169,204 (229,622) (447,449) Notes 2005 £ 2004 £ (229,622) (549,852) (447,449) (7,597,153) (779,474) (8,044,602) (6,945,788) 1,098,814 21c (7,725,262) (6,945,788) 2005 Annual Report & Accounts Lok’nStore Group Plc 23 Accounting Policies Basis of Accounting The financial statements have been prepared under the historical cost convention in accordance with applicable accounting standards. Basis of Consolidation The Group accounts consolidate the accounts of the Company and its subsidiaries for the year to 31 July 2005. No profit and loss account is presented for Lok’nStore Group Plc as provided by Section 230(3) of the Companies Act 1985. There were no transactions in the profit and loss account of the Company during the period. Purchased Goodwill Goodwill representing the excess of the purchase price compared with the fair value of assets acquired is capitalised and written off over 20 years as in the opinion of the directors this represents the period over which the goodwill is effective. Provision is made for any impairment. Investments Shares in subsidiary undertakings are considered long-term investments and are classified as fixed assets. All investments are stated at cost. Provision is made for any impairment in the value of fixed asset investments. Tangible Fixed Assets Depreciation is provided on all tangible fixed assets other than freehold land at rates calculated to write each asset down to its estimated residual value over its expected useful life, as follows: Freehold Short leasehold improvements Fixtures, fittings and equipment Motor vehicles Computer equipment over 50 years straight line over the unexpired lease period on 10% to 15% reducing balance on 25% reducing balance over 2 years straight line Stock Stock is valued at the lower of cost and net realisable value. Net realisable value is based upon estimated selling prices less any costs of disposal. Provision is made for obsolete and slow moving items. Turnover Turnover, which excludes value added tax, is derived from the continuing operations of the Group. Self-storage fees and related income are recognised as turnover in the profit and loss evenly on a time apportioned basis over the period to which they relate. Deferred Taxation Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between the Group’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is measured on a non- discounted basis. Leased Assets and Obligations Where assets are financed by leasing agreements that give rights approximating to ownership (‘finance leases’), the assets are treated as if they had been purchased outright. The amount capitalised is the present value of the minimum lease payments payable during the lease term. The corresponding leasing commitments are shown as obligations to the lessor. Lease payments are treated as consisting of capital and interest elements, and the interest is charged to the profit and loss account in proportion to the remaining balance outstanding. All other leases are ‘operating leases’ and the annual rentals are charged to the profit and loss account on a straight line basis over the lease term. Pensions Contributions Pension costs are all to defined contribution schemes which are independently administered. The amount charged to the profit and loss account in respect of pension costs and other post retirement benefits is the contributions payable in the year. Employee Benefit Trust The Group operates an employment benefit trust and has de facto control of the shares held by the trust and bears their benefits and risks. The Group records certain assets and liabilities of the trust as its own. Finance costs and administrative expenses are charged as they accrue. ESOP Shares The cost of own shares held by the employee benefit trust (‘ESOP shares’) is shown as a deduction from shareholders’ funds. Earnings per share are calculated on the net shares in issue. 24 Lok’nStore Group Plc Annual Report & Accounts 2005 Notes to the Financial Statements for the year ended 31 July 2005 1 Turnover The Group’s turnover was all derived from its principal activity of self-storage and related services undertaken wholly in the United Kingdom and is stated net of value added tax. 2 Operating Expenses Administration expenses Recurring expenses Exceptional expenses (see note 6) 3 Interest Receivable Bank interest 4 Interest Payable Finance leases Bank loans 5 Profit on Ordinary Activities before Taxation Profit on ordinary activities before taxation is stated after charging: Depreciation and amounts written off tangible fixed assets: – owned assets – leased assets Amortisation of goodwill Operating lease rentals: – Land and buildings Exceptional items (see note 6) Auditors’ remuneration Audit services Further assurance services Tax services – statutory audit Other services – compliance services – advisory services – corporate finance work in respect of share buyback – corporate finance work in respect of new bank facility The above fees have been expensed, capitalised or charged to the distributable reserve as appropriate. 6 Exceptional Items Termination payments Professional fees re bid approach Director’s compensation for loss of office - 2005 £ 2004 £ 7,167,580 – 6,490,237 127,407 7,167,580 6,617,644 2005 £ 2004 £ 35,898 36,950 2005 £ 2004 £ 42 528,492 794 198,657 528,534 199,451 2005 £ 2004 £ 728,522 – 24,255 664,006 147 24,255 1,294,527 – 1,178,549 127,407 25,100 3,150 6,850 6,100 9,100 – 22,000 3,000 6,500 19,500 8,000 30,000 50,300 89,000 2005 £ – – – – 2004 £ 20,246 38,600 68,561 127,407 2005 Annual Report & Accounts Lok’nStore Group Plc 25 7 Employees The average monthly number of persons (including directors) employed by the Group during the year was: Store management Administration Staff costs for the above persons: Wages and salaries Social security costs Pension costs In relation to pension contributions, there was £1,767 (2004: £2,444) outstanding at the year-end. Directors’ Remuneration 2005 A Jacobs* S G Thomas* R A Davies ** C M Jacobs R J Holmes R W Jackson M J G Stanton 2004 A Jacobs* S G Thomas* R A Davies ** C J R Stevens C M Jacobs R J Holmes R W Jackson M J G Stanton Emoluments £ 150,000 75,000 82,917 47,500 15,000 15,000 15,000 400,417 Emoluments £ 75,000 120,000 40,385 43,494 47,500 15,000 8,423 15,000 *Fees £ – – – – – – – – *Fees £ 50,000 5,000 – – – – – – Bonuses £ – – 7,500 11,875 – – – Benefits £ 1,603 1,577 – 1,458 – – – 19,375 4,638 Bonuses £ 25,000 25,000 5,000 – 7,000 – – – Benefits £ 1,488 1,447 – 993 1,290 – – – 2005 No. 2004 No. 75 19 94 70 20 90 2005 £ 2004 £ 1,779,142 170,496 24,431 2,063,253 197,541 25,555 1,974,069 2,286,349 23,160 447,590 Loss of office £ Gain on share options £ – – – 23,160 – – – – – – – – – – – Loss of office £ Gain on share options £ –- – – 66,663 – – – – – – – – – – – – – Total £ 151,603 76,577 90,417 83,993 15,000 15,000 15,000 Total £ 151,488 151,447 45,385 111,150 55,790 15,000 8,423 15,000 553,683 364,802 55,000 62,000 5,218 66,663 * During the year services totalling £285,183 (2004: £105,000) were provided by Value Added Services Limited, a company in which Andrew Jacobs, Simon Thomas et al have a beneficial interest. The amount paid to Value Added Services Limited which is directly attributable to Andrew Jacobs and Simon Thomas is shown in the directors’ emoluments table above. See Note 28 on ‘Related Party Transactions’ for further information. ** £7,500 Bonus attributed to RA Davies was paid to Davies-Elise Consulting Limited, a company owned by RA Davies. Pension contributions of £2,550 (2004: £11,104) were paid by the Company on behalf of one (2003: one) director. The highest paid director did not accrue any pension rights during the year. 26 Lok’nStore Group Plc Annual Report & Accounts 2005 Notes to the Financial Statements for the year ended 31 July 2005 8 Taxation There is no Corporation Tax or deferred tax charge due to the availability of accumulated losses. The tax assessed is lower than the standard rate of corporation tax in the UK (30%). The differences are explained below: Profit/(loss) on ordinary activities before tax Profit/(loss) on ordinary activities multiplied by the standard rate of corporation tax in the UK of 30% (2004: 30%) Expenses not deductible for tax purposes Capital allowances for period in excess of depreciation Accounting loss on disposal of capital assets Tax losses not utilised General provision Deduction for employee share options Depreciation on revenue items Current tax charge for the period 2005 £ 2004 £ 114,325 (169,104) 34,298 15,295 (82,429) – 60,552 (203) (23,277) (4,236) (50,731) 7,492 (52,506) – 95,745 – – – – – The Group has revenue tax losses of approximately £3m available to carry forward against future taxable profits of the same trade. No value is ascribed to these losses, due to the uncertainty as to the utilisation of the losses in the foreseeable future. Future tax charges may be affected by the degree to which deferred tax assets are subject to recognition in the future. It is not the intention of the directors to dispose of any of the properties as operational self-storage centres in the foreseeable future. If, however, the properties were sold at their market values as operational self-storage centres as disclosed in note 11, an estimate of the tax payable on the gain arising would be approximately £3m. This tax payable figure does not take into account any claims to rollover relief that the company might make. At present, it is not envisaged that any tax will become payable in the foreseeable future. 9 Earnings Per Ordinary Share The calculations of earnings per share are based on the following profits and numbers of shares. Profit/(loss) for the financial year before exceptional items Profit/(loss) for the financial year Weighted average number of shares For basic earnings per share Exercise of share options For diluted earnings per share 2005 £ 2004 £ 114,325 (41,697) 114,325 (169,104) 2004 No. of shares No. of shares 2005 24,432,491 26,300,997 1,135,584 1,414,688 25,847,179 27,436,581 2005 Annual Report & Accounts Lok’nStore Group Plc 27 10 Intangible Fixed Assets – Purchased Goodwill Group Cost 1 August 2004 Additions 31 July 2005 Amortisation 1 August 2004 Charged in year 31 July 2005 Net book value 31 July 2005 31 July 2004 11 Tangible Fixed Assets Group Cost 1 August 2004 Additions Transfers Disposals 31 July 2005 Depreciation 1 August 2004 Charged in year Transfers Disposals 31 July 2005 Net book value 31 July 2005 31 July 2004 Total £ 485,093 – 485,093 101,770 24,255 126,025 359,068 383,323 Freehold properties £ Short leasehold improvements £ Furniture, fixtures and fittings £ Motor vehicles £ Total £ 13,070,018 1,383,094 – – 1,468,364 29,278 – – 6,275,757 1,181,014 – – 64,110 20,878,249 2,598,325 – – 4,939 – – 14,453,112 1,497,642 7,456,771 69,049 23,476,574 350,493 76,989 – – 384,735 117,728 – – 1,946,113 526,472 – – 33,951 7,333 – – 2,715,292 728,522 – – 427,482 502,463 2,472,585 41,284 3,443,814 14,025,630 995,179 4,984,186 27,765 20,032,760 12,719,525 1,083,629 4,329,644 30,159 18,162,957 The additions to freeholds includes the acquisition/development of the freehold sites in Hawley Lane, Farnborough for £0.6m and the initial payments on the Crayford site on the Optima Business Park for £0.5m. The additions to fixtures and fittings includes the balance of fit-out for Tonbridge and significant phased fit-outs at Ashford, Southampton, Northampton, Luton, Eastbourne and Milton Keynes stores. The Head lease at Poole contained an irrevocable option to purchase the freehold of the site for the sum of £1 exercisable at any time after 20 August 2010. The Company successfully negotiated the exercise of this option during the year. The net book value of fixtures and fittings had no amounts (2004: £1,392) in respect of assets held under finance leases. 28 Lok’nStore Group Plc Annual Report & Accounts 2005 Notes to the Financial Statements for the year ended 31 July 2005 11 Tangible Fixed Assets continued Market valuation of freehold land and buildings On 31 January 2005, professional valuations were prepared by external valuers, Cushman & Wakefield Healey & Baker, in respect of all trading freehold and leasehold properties as operational self-storage businesses. The freehold site at Farnborough, acquired on 30 July 2004, was not valued on this occasion as building had not yet commenced. This Report was prepared on the basis of Market Value/Existing Use Value, having regarded its trading potential as appropriate, in accordance with RICS Appraisal and Valuation Standards but on the special assumption that any potential for residential development was excluded. (See below for a more detailed description of valuation methodology). The Report indicates a total for properties valued of £31.84m. Including Farnborough (NBV £1.76m), this gives a total value of properties held of £33.6m as at 31 January 2005. (NBV £18.4m) at 31 January 2005. These valuations do not account for any further uplift in values, which would result from the planning permission achieved for residential at the Kingston site, nor any successful outcome of the planning application for residential at the Reading site. These valuations also do not account for any further uplift arising from the acquisition of the Crayford site or further investment in existing stores since January 2005, and in particular the further build-out works to the Farnborough store, which is under development. While the Company does not envisage routinely revaluing its properties it will do so when appropriate. Valuation Methodology Background The USA has over 40,000 self-storage centres trading in a highly fragmented market with the largest five operators accounting for less than 16% of market share based on net rentable square footage. The vast majority of centres are owned and managed singly or in small portfolios. These properties have a well established track record of being traded and are therefore considered as liquid property assets. Many valuations of this asset class are undertaken by appraisers in the USA and the accepted valuation approach is to value the properties having regard to trading potential. This approach is recognised in the RICS Appraisal & Valuation Standards published by The Royal Institution of Chartered Surveyors and is adopted for other categories of property that are normally bought and sold on the basis of their trading potential. Examples include hotels, bars, restaurants, marinas and petrol stations. In the UK the scope for active trading of these property assets is likely to be less, in a smaller market. However there is now some evidence that there will be liquidity as the market continues to develop. Cushman & Wakefield Healey & Baker (‘C&W/H&B’) believe that the valuation methodology adopted in the USA is the most appropriate for the UK market. Methodology C&W/H&B have adopted different methodologies for the valuation of the leasehold and freehold assets as follows: Freehold The valuation is a discounted cash flow of the net operating income projected over a 10 year period and notional sale of the asset at the end of the tenth year. Assumptions A. B. C. Net operating income is based on actual revenue received less actual operating costs together with a central administration charge representing 7% of the estimated annual revenue. The initial net operating income is calculated by estimating the net operating income in the first 12 months following the valuation date. The net operating income in future years is calculated assuming straight-line absorption from day one actual occupancy to an estimated stabilised/mature occupancy level. In the valuation the assumed stabilised occupancy level for the 18 stores (both freehold and leasehold) averages 78%. The projected revenues and costs have been adjusted for estimated cost inflation and revenue growth. Capitalisation rates of existing and future net cash flow have been estimated by reference to underlying yields for industrial and retail warehouse property, bank base rates, 10 year money rates and inflation. On average, for all 18 stores, the yield (net of purchaser’s costs) arising from the first year of the projected cash flow is 6%. This rises to 12.86% based on the projected cash flow for the first full cash flow year following estimated stabilisation in respect of each property. D. The notional sale of the freeholds at the end of the tenth year has been calculated at an average weighted exit yield of 9.66%. E. The future net cash flow projections (including revenue growth and cost inflation) have been discounted at a rate that reflects the risk associated with each asset. The weighted average annual discount rate adopted (for both freeholds and leaseholds) is 12.5%. On all assets, purchaser’s costs of 5.75% have been assumed initially and sale and purchaser’s costs totalling 7.75% are assumed on the notional sales in the tenth year in relation to the freehold stores. F. Leaseholds The same methodology has been deployed as for freeholds, except that no sales of the assets in the 10th year is assumed, but the discounted cash flow is extended to the expiry of the lease. The average unexpired term (unweighted) of the Group’s leaseholds is approximately 11 years and 1 month (as at 31 January 2005). 2005 Annual Report & Accounts Lok’nStore Group Plc 29 12 Investments Company Cost At 1 August 2004 and 31 July 2005 Lok’nStore Limited Shares in subsidiary undertakings £ 214,563 The Company holds more than 20% of the share capital of the following companies, all of which are incorporated in England and Wales: Subsidiary undertakings Lok’nStore Limited Lok’nStore Trustee Limited 13 Stocks Class of shareholding % of shares held Directly Indirectly Nature of business Ordinary Ordinary 100 – – 100 Self-storage Trustee Company Group 2005 £ Group 2004 £ Company 2005 £ Company 2004 £ Consumables and goods for resale 88,648 103,880 – – 14 Debtors Due within one year: Trade debtors Other debtors Amounts owed by subsidiaries Prepayments and accrued income 15 Creditors: Amounts falling due within one year Trade creditors Obligations under finance leases Taxation and social security costs Corporation tax Other creditors Accruals and deferred income Group 2005 £ Group 2004 £ Company 2005 £ Company 2004 £ 718,282 63,806 – 902,705 642,095 217,783 – 1,088,833 – 837 6,024,494 – – 837 5,993,784 – 1,684,793 1,948,711 6,025,331 5,994,621 Group 2005 £ Group 2004 £ Company 2005 £ Company 2004 £ 1,321,098 – 148,425 45,700 782,131 1,439,030 1,010,063 148 61,971 45,700 656,194 1,320,568 3,736,384 3,094,644 – – – – – – – –- – – – – – – 30 Lok’nStore Group Plc Annual Report & Accounts 2005 Notes to the Financial Statements for the year ended 31 July 2005 16 Creditors: Amounts falling due after more than one year Group 2005 £ Group 2004 £ Company 2005 £ Company 2004 £ Bank loans repayable in more than two years but not more than five years 8,150,000 7,600,000 – – The bank loans are secured by legal charges and debentures over the freehold and leasehold properties and other assets of the business together with cross-company guarantees of Lok’nStore Limited. The revolving credit facility is for a five-year term and expires on 15 July 2010. The Group is not obliged to make any repayments prior to expiration. The loans bear interest at the London Inter Bank Offer Rate (LIBOR) plus 1.25% –1.35% Royal Bank of Scotland Plc margin. 17 Share Capital Authorised: 35,000,000 ordinary shares of 1p each (2004: 35,000,000) Alloted, issued and fully paid ordinary shares: At July 2004 Options exercised At 31 July 2005 2005 £ 2004 £ 350,000 350,000 Number of shares £ 25,048,144 23,000 250,481 230 25,071,144 250,711 During the year, options were exercised on 23,000 ordinary shares at 37p per share and that number of shares were issued for a consideration of £8,510. At the Company’s Annual General Meeting on 16 December 2004, shareholders gave approval to replace the existing share buy-back authority and this authority will be subsequently renewed annually at the Company’s Annual General Meeting each year thereafter. The authority is restricted to a maximum of 5,845,299 ordinary shares, which is equivalent to 23.3% of the Company’s issued share capital and is equal to the number of shares available for purchase under the previous authority. The buy-back authority will only be exercised in circumstances where the directors regard such purchases to be in the best interests of shareholders as a whole and is subject to the waiver of Rule 9 by the Panel of Takeovers and Mergers being approved by the shareholders. 18 Reserves 1 August 2004 Exercise of share options Profit for the year Share premium £ 21,496 30,480 – Merger reserve £ Other distributable reserve £ Capital redemption reserve £ Profit and loss account £ Total £ 6,295,295 – – 5,903,002 – – 34,205 – – (1,436,305) 10,817,693 30,480 114,325 – 114,325 31 July 2005 51,976 6,295,295 5,903,002 34,205 (1,321,980) 10,962,498 The merger reserve represents the excess of the nominal value of the shares issued by Lok’nStore Group Plc over the nominal value of the share capital and share premium of Lok’nStore Limited as at 31 July 2001. 2005 Annual Report & Accounts Lok’nStore Group Plc 31 19 ESOP Shares 1 August 2004 Purchased in the year Sold in the year 31 July 2005 Group 2005 Number Group 2004 Number Group 2005 £ Group 2004 £ 627,500 – – 1,127,500 – (500,000) 509,586 – – 1,023,886 – (514,300) 627,500 627,500 509,586 509,586 The ESOP shares are held by the employee benefit trust (see note 27). The disposals in 2004 arose from the Group’s buyback of shares. 20 Reconciliation of Movement in Shareholders’ Funds Opening shareholders’ funds As previously stated Profit/(loss) for the financial year Share issue on exercise of share options Premium on exercise of share options Gross purchase and cancellation of own shares Purchase and cancellation of own shares from employee benefit trust (note 19) Net movement in shareholders’ funds for the year Closing shareholders’ funds Group 2005 £ Group 2004 £ 10,558,588 14,201,342 114,325 230 30,480 – – (169,104) – 17,000 (4,004,950) 514,300 145,035 (3,642,754) 10,703,623 10,558,588 Opening shareholders’ funds were restated in 2004 following the adoption of Urgent Issues Task Force Abstract 38, which requires that shares held by the employee benefit trust be treated as ESOP shares and their cost deducted from shareholders’ funds. 21 Cash Flows A Reconciliation of operating profit to net cash inflow from operating activities Operating profit/(loss) Depreciation Amortisation Decrease/(increase) in stocks Decrease/(increase) in debtors Increase in creditors Net cash flow from operating activities 2005 £ 2004 £ 606,961 728,522 24,255 15,232 263,089 345,773 (5,733) 664,153 24,255 (2,097) (420,932) 675,208 1,983,832 934,854 32 Lok’nStore Group Plc Annual Report & Accounts 2005 Notes to the Financial Statements for the year ended 31 July 2005 B Analysis of cash flows for headings netted in the cash flow Returns on Investments and Servicing of Finance Interest received Interest paid Interest element of finance lease rental payments 2005 £ 2004 £ 35,898 (536,757) (42) 36,950 (158,319) (794) Net Cash Outflow for Returns on Investments and Servicing of Finance (500,901) (122,163) Capital Expenditure and Financial Investment Purchase of tangible fixed assets Proceeds from sale of tangible fixed assets (2,293,945) – (5,429,644) 300 Net Cash Outflow for Capital Expenditure And Financial Investment (2,293,945) (5,429,344) Financing Bank loans Capital element of finance lease rental payments Exercise of share options Purchase of own shares (incl. costs) Net Cash Inflow from Financing C Analysis of net debt Cash at bank and in hand Debt due after 1 year Finance leases Total At 31 July 2004 £ Cash flow £ 654,360 (7,600,000) (148) (229,622) (550,000) 148 (6,945,788) (779,474) 550,000 (148) 31,540 – 7,600,000 (2,847) 17,000 (3,444,949) 581,392 4,169,204 Other non At cash changes 31 July 2005 £ £ – – – – 424,738 (8,150,000) – (7,725,262) 22 Commitments under Operating Leases At 31 July 2005 the annual commitments under non-cancellable operating leases were as follows: Group 2005 £ Group 2004 £ Company 2005 £ Company 2004 £ Land and buildings expiring within one year expiring in the second to fifth year expiring after five years 115,000 69,996 1,091,415 80,000 192,492 1,014,198 1,276,411 1,286,690 – – – – – – – – 2005 Annual Report & Accounts Lok’nStore Group Plc 33 23 Share Option Agreements Following admission to AIM, the following share options were granted in year ended 31 July 2000: At 31 July 2004 Granted £ Exercised At £ 31 July 2005 Exercise price (pence) Date from which exercisable Expiry date A Jacobs S G Thomas C M Jacobs P Crisp 992,978 496,489 153,000 122,000 – – – – – – (23,000) (60,000) 992,978 496,489 130,000 62,000 37 37 37 38 04.04.02 04.04.02 04.04.02 04.04.02 03.04.07 03.04.07 03.04.07 03.04.07 On 25 January 2005, C M Jacobs exercised an option to acquire 23,000 ordinary shares at 37p per share. In addition, on the same day, C M Jacobs sold 20,496 ordinary shares at 150p per share. Following these transactions his total beneficial holding (including family interests) in the Company increased from 12,496 to 15,000 ordinary shares and represents his beneficial holding as at 31 July 2005. The total number of share option agreements outstanding at the year-end was 1,681,467 as outlined above. The criteria for exercising these options are as follows: 1. Group turnover exceeds £5m. 2. Share price exceeds 150p. 3. Control of the Company changes. 24 Enterprise Management Initiative Scheme The Company operates a share option scheme under the Enterprise Management Initiative (‘EMI’). The following share options have been granted to directors of the Company under the EMI scheme: At 31 July 2004 Granted £ Exercised At £ 31 July 2005 25,540 25,000 22,759 – 98,039 – – – 31,414 – (25,000) – – – – 540 25,000 22,759 31,414 98,039 Exercise price (p) Date from which exercisable 191 102 113 152 102 30.04.04 20.01.07 30.07.07 30.07.08 19.01.07 Expiry date 30.04.09 20.01.14 30.07.14 30.07.15 19.01.14 C M Jacobs C M Jacobs C M Jacobs C M Jacobs R A Davies On 20 July 2005, C M Jacobs agreed to waive his rights to exercise the grant of an option made on 30 April 2001 over 25,000 shares in the Company at £1.91 per share under the terms of the Enterprise Management Incentive employee share option scheme. A further 50,000 options were granted to key management for an exercise price of 116p per share and a further 121,007 options for an exercise price of 152p per share during the year. The total number of EMI options outstanding as at the year-end were 678,977 (2004: 529,056). The table below summarises those options not held by directors: Date from which Options held (no.) exercisable Exercise price (p) 30.04.04 30.05.04 13.06.04 01.10.04 31.10.05 27.11.06 30.07.07 03.12.07 30.07.08 56,781 2,554 2,554 5,108 47,500 52,618 163,103 50,000 121,007 501,225 191 176 178 140 93 93.5 113 116 152 The share options granted will only be exercisable upon the achievement of one of the following performance criteria: 1. The turnover for any period commencing after the date of grant has exceeded £10m. 2. The profits for any period commencing after the date of grant has exceeded £3m. 3. The share price has exceeded £5. 4. Control of the Company changes. 34 Lok’nStore Group Plc Annual Report & Accounts 2005 Notes to the Financial Statements for the year ended 31 July 2005 25 Approved Share Option Scheme No share options were granted under this scheme during the year (2004: nil). The share options granted will only be exercisable upon the achievement of one of the following performance criteria: 1. Group turnover exceeds £5m. 2. Share price exceeds 150p. 3. Control of the Company changes. Since year ended 31 July 2002, the Company’s turnover has exceeded £5m. The total number of approved options outstanding as at the year-end remains unchanged at 22,377 (2004: 22,377). The table below summarises those options not held by directors: Date from which Options held (no.) exercisable Exercise price (p) 08.07.02 31.05.03 13,621 8,756 22,377 73 171 26 Unapproved Share Options The Company issues unapproved share options. The following unapproved share options have been granted to directors of the Company: At 31 July 2004 Granted £ Exercised At £ 31 July 2005 50,000 50,000 – 50,000 50,000 – 1,961 50,000 – 2,241 – – – – 50,000 – – 50,000 – – 100,000 – 25,000 18,586 – – – – – – – – – – – – 50,000 50,000 50,000 50,000 50,000 50,000 1,961 50,000 100,000 2,241 25,000 18,586 Exercise price (pence) Date from which exercisable 102 113 152 102 113 152 102 113 152 113 148 152 20.01.07 30.07.07 30.07.08 20.01.07 30.07.07 30.07.08 20.01.07 30.07.07 30.07.08 30.07.07 16.05.08 30.07.08 Expiry date 20.01.14 30.07.14 30.07.15 20.01.14 30.07.14 30.07.15 20.01.14 30.07.14 30.07.15 30.07.14 16.05.15 30.07.15 A Jacobs A Jacobs A Jacobs S Thomas S Thomas S Thomas R Davies R Davies R Davies C Jacobs C Jacobs C Jacobs The total number of unapproved options outstanding as at the year-end was 668,856 (2004: 361,277). The table below summarises those options not held by directors: Date from which Options held (no.) exercisable Exercise price (p) 08.07.02 31.05.03 31.10.05 27.11.06 20.01.07 30.07.07 30.07.08 13,621 11,674 15,000 4,882 **50,000 11,898 63,993 171,068 73 171 93 106 102 113 152 **50,000 options are held by Value Added Services Limited, a company in which Andrew Jacobs and Simon Thomas have a beneficial interest. 2005 Annual Report & Accounts Lok’nStore Group Plc 35 26 Unapproved Share Options continued The share options exercisable from 8 July 2002 and 31 May 2003 will only be exercisable upon the achievement of one of the following performance criteria: 1. Group turnover exceeds £5m. 2. Share price exceeds 150p. 3. Control of the Company changes. Since year ended 31 July 2002, the Company’s turnover has exceeded £5m. All other options will only be exercisable upon the achievement of one of the following performance criteria: 1. The turnover for any period commencing after the date of grant has exceeded £10m. 2. The profits for any period commencing after the date of grant has exceeded £3m. 3. The share price has exceeded £5. 4. Control of the Company changes. 27 Employee Benefit Trust The Group operates an Employee Benefit Trust (‘EBT’) under a settlement dated 8 July 1999 between Lok’nStore Limited and Lok’nStore Trustee Limited, constituting an employees’ share scheme. Funds are placed in the Trust by way of employees’ salaries as they so instruct for purchase of shares in the Company. The loan does not attract interest and is repayable within one year. As at 31 July 2005, the Trust held 627,500 ordinary shares of 1p each with a market value of £953,800. No dividends were waived during the year. No options have been granted under the EBT. 28 Related Party Transactions The Company maintains a service agreement for strategic services with Value Added Services Limited, a company in which Andrew Jacobs, Simon Thomas et al have a beneficial interest. The total fees payable to Value Added Services Limited are as shown in note 7. Fees are settled monthly and there were no outstanding amounts due to Value Added Services Limited at the year-end. The maximum balance outstanding at any time during the year is £23,765 (ex VAT). During the year the Company entered into a retainer agreement for investor relations services with H2JL Limited, a company in which Robert Jackson has a beneficial interest. The total fees payable to H2JL Limited are £1,000 per month. There was £2,000 outstanding due to H2JL Limited at the year-end. The maximum balance outstanding at any time during the year is £2,000 (ex VAT). During the year the Company entered into an agreement with Keith Jacobs, a brother of Andrew Jacobs and Colin Jacobs, for the provision of marketing services and support on a consultancy basis. The fees payable to Keith Jacobs during the year under this arrangement were £34,000. There was £8,599 outstanding due to Keith Jacobs at the year-end. The maximum balance outstanding at any time during the year is £8,599 (ex VAT). 36 Lok’nStore Group Plc Annual Report & Accounts 2005 Notes to the Financial Statements for the year ended 31 July 2005 29 Financial Instruments The Group’s financial instruments comprise bank borrowings and facilities, cash and short-term deposits. The Group has various other financial instruments, such as trade debtors and trade creditors that arise directly from its operations, which have not been included in the following disclosures. The main risks arising from the Group’s financial instruments are interest rate risk and liquidity risk. The policies for managing these risks are regularly reviewed and agreed by the Board. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments shall be undertaken. Exchange Rate Risk The Group operates in the United Kingdom and as such substantially all of the Group’s financial assets and liabilities are denominated in sterling and there is no exposure to exchange risk. Interest Rate Risk The Group’s policy on interest rate management is agreed at Board level and is reviewed on an ongoing basis. All borrowings are denominated in sterling. The Group has a number of revolving loans within its overall revolving credit facility and as such is exposed to interest rate risks at the time of renewal arising from any corresponding upward movement in the LIBOR rate. The following interest rates applied: 1. LIBOR plus a 1.25%–1.35% for the revolving advances amounting to £8.15m. 2. 0.25% for non-utilisation (i.e. that part of the facility which remains undrawn from time to time). Cash balances held in current account attract no interest but surplus cash is transferred daily to ‘one-day’ or ‘two-day’ treasury deposits and attract interest at the prevailing money market rates. Liquidity Risk It is the Group’s policy to finance its business by means of internally generated funds supported by the Group’s bankers and raising capital. The Group is cash positive in its operating activities and is expected to continue to be for the foreseeable future. Facilities are regularly reviewed by the Board, which will consider carefully liquidity risk for any future acquisitions. Facilities As at the balance sheet date the Group has a committed revolving credit facility and overdraft of £20m (2004: £10m). This facility expires on 15 July 2010. Undrawn committed facilities at the year-end amounted to £11,850,000. Fair Value There is no material difference between the fair value of borrowings and other financial interests and their book value at the balance sheet date. 30 Guarantees The Group has capital expenditure contracted for but not provided for in the financial statements of £5,150,251 (2004: £221,275). The outstanding commitments relate to the fitting out of the existing Tonbridge and Poole stores and the development of the new Farnborough and Crayford stores. The Company has guaranteed the bank borrowings of Lok’nStore Limited. As at the year-end, that Company had bank borrowings of £8.15m (2004: £7.6m). Central Enquiries 0800 587 3322 info@loknstore.co.uk www.loknstore.co.uk Ashford, Kent Wotton Road Ashford Kent TN23 6LL Tel 01233 645500 Fax 01233 646000 Basingstoke, Hants Crockford Lane Chineham Basingstoke Hants RG24 8NA 01256 474700 Tel Fax 01256 477377 Crayford, Kent Block B Optima Park Thames Road Crayford Kent DA1 4QX Tel 0800 740 8280 Eastbourne, Sussex Unit 4, Hawthorn Road Eastbourne East Sussex BN23 6QA Tel 01323 749222 Fax 01323 648555 Fareham, Hants 27 Standard Way Fareham Industrial Park Fareham Hants PO16 8XJ 01329 283300 Tel Fax 01329 284400 Farnborough, Hampshire 112 Hawley Lane Farnborough Hants GU14 8JE Tel 01252 511112 Horsham, Sussex Blatchford Road Redkiln Estate Horsham West Sussex RH13 5QR 01403 272001 Tel Fax 01403 274001 Kingston-upon-Thames, Surrey 12 Skerne Road Kingston-upon-Thames Surrey KT2 5AD 020 8547 2222 Tel Fax 020 8547 1100 Luton, Bedfordshire 27 Brunswick Street Luton Bedfordshire LU2 0HG Tel 01582 721177 Fax 01582 721188 Milton Keynes, Buckinghamshire Etheridge Avenue Brinklow Milton Keynes Buckinghamshire MK10 0BB Tel 01908 281900 Fax 01908 281700 Northampton, Northants Units 1-3 Carousel Way Northampton Northamptonshire NN3 9HG 01604 785522 Tel Fax 01604 785511 Poole, Dorset 50 Willis Way Fleetsbridge Poole Dorset BH15 3SY Tel 01202 666160 Fax 01202 666806 Portsmouth, Hants Norway Road Hilsea Portsmouth Hants PO3 5HT Tel 023 9265 0000 Fax 023 9265 0125 Reading, Berkshire 5-9 Berkeley Avenue Reading Berkshire RG1 6EL Tel 0118 958 8999 Fax 0118 958 7500 Southampton, Hants Manor House Avenue Millbrook Southampton Hants SO15 OLF Tel 02380 783388 Fax 02380 783383 Staines, Middlesex The Causeway Staines Middlesex TW18 3AY Tel 01784 464611 Fax 01784 464608 Sunbury on Thames, Middlesex Unit C, The Sunbury Centre Hanworth Road Sunbury Middlesex TW16 5DA Tel 01932 761100 Fax 01932 781188 Swindon (East), Wiltshire Kembrey Street Elgin Industrial Estate Swindon Wiltshire SN2 8AZ Tel 01793 421234 Fax 01793 422888 Swindon (West), Wiltshire 16 -18 Caen View Rushy Platt Industrial Estate Swindon Wiltshire SN5 8WQ 01793 878222 Tel Fax 01793 878333 Tonbridge, Kent Unit 6 Deacon Trading Estate Vale Road Tonbridge Kent TN9 1SW 01732 771007 Tel Fax 01732 773350 Woking, Surrey Marlborough Road Woking Surrey GU21 5JG Tel 01483 723333 Fax 01483 722444 Lok’nStore Group Plc In 2005 12 Skerne Road Kingston-upon-Thames Surrey KT25AD T: 020 8547 2288 From 2006 onwards 112 Hawley Lane Farnborough Hampshire GU14 8JE T: 01252 521010 

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