Lok'nStore Group Plc Annual Report 2005

FY2005 Annual Report · Lok'nStore Group Plc

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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

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

years of uninterrupted
growth

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

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

+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.

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

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

“

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

7.77

6.61

5.61

5.00

3.96

Number of centres

Number of customers

8,000

6,000

4,000

2,000

Household Customer
Business Customer

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

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.

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.

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

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

100
to 250

2,398
349
14.6
289
2
4

July 05

To be
Under opened in
100 2005/06

437
–179
–41.0
80
0
2

128
2
0

Total

7,648
2,477
32.4
920
11
10

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

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

£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

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.

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

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

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

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.

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

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

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

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.

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.

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

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.

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)

35,898

36,950

642,859
(528,534)

30,347
(199,451)

114,325
–

(169,104)
–

5
8

114,325

(169,104)

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

Group
2005
£

Group
2004
£

Company
2005
£

Company
2004
£

359,068

383,323
20,032,760 18,162,957
–

–

–
–
214,563

Notes

10
11
12

20,391,828 18,546,280

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

(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

(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
–
–

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

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

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

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.

Lok’nStore Group Plc Annual Report & Accounts

2005

Notes to the
Financial Statements

for the year ended 31 July 2005

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)

Interest Receivable

Bank interest

Interest Payable

Finance leases
Bank loans

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.

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

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

70
20

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.

Lok’nStore Group Plc Annual Report & Accounts

2005

Notes to the
Financial Statements

for the year ended 31 July 2005

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.

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

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.

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.

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.

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

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

–
–
–
–
–
–

–

–-
–
–
–
–
–

–

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

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

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

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

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

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

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.

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

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).

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