Self Storage
Lok’nStore Group Plc
ANNUAL REPORT
AND ACCOUNTS
for the year ended 31 July 2018
Self Storage
We are a leading company in the fast growing
UK self-storage market. We opened our first self-
storage centre in February 1995 and have grown
consistently over the last 23 years. We currently
operate 29 self-storage centres and two serviced
document stores in Southern England.
Overview
02 Chairman’s Statement
04 Group at a Glance
Strategic Report
08 The UK Self-Storage Market
10 Our Business Model
12 Our Strategy
13 Chief Executive Officer’s Review
17 Key Performance Indicators
18 Property Review
20 Financial Review
26 Principal Risks and Uncertainties
28 Corporate Social Responsibility Report
Governance
34 Board of Directors and Advisers
36 Corporate Governance
41 Directors’ Report
43 Remuneration Report
44 Statement of Directors’ Responsibilities
45
Independent Auditor’s Report to the Members of Lok’nStore Group Plc
Financial Statements
50 Consolidated Statement of Comprehensive Income
51 Consolidated Statement of Changes in Equity
52 Company Statement of Changes in Equity
53 Consolidated and Company Statements of Financial Position
54 Consolidated Statement of Cash Flows
55 Accounting Policies
64 Notes to the Financial Statements
94 Glossary
95 Our Stores
To find out more visit:
www.loknstore.com/investors
Lok’nStore Group Plc Annual Report and Accounts 2018 Highlights
GROUP REVENUE
up 6.6%
GROUP ADJUSTED
EBITDA1
up 12.3%
PROFIT BEFORE
TAXATION
up 34.3%
£17.75M
£16.65M
ADJUSTED NET ASSET
VALUE PER SHARE4
£4.80
£4.16
up 15.3%
17
18
£7.30M
£6.49M
NET ASSETS
17
18
£5.33M
£3.90M
17
18
up 15.9%
ANNUAL DIVIDEND
PER SHARE
up 10%
17
18
£103.3M
£89.1M
17
18
11.0P
10.0P
17
18
STRONG BALANCE SHEET, EFFICIENT
USE OF CAPITAL, CONSERVATIVE DEBT
• Net debt £32.3 million (2017: £17.4 million)
• Loan to value6 ratio 19.7% (2017: 14.0%)
• Bank facility increased by £10 million to £50 million
• Cash available for distribution5 £5.60 million
MORE NEW STORES TO COME
DELIVERING FURTHER GROWTH
• 3 new stores opened this year accounting for
29.2p of increase in NAV per shares
• 3 new stores opening this coming financial year
• Plus 5 new sites secured this financial year
(2017: £5.17 million)
• Expanding pipeline7 of 13 new landmark stores
“ Lok’nStore Group has had an excellent year successfully implementing our strategic
objectives. We have created a strong platform for an exciting period of growth for Lok’nStore
with revenue, profits and asset values all moving ahead. Our adjusted net asset value per share
has increased by a substantial 15.3% to £4.80 this year and we are raising the dividend by
10.0% to 11 pence per share.
We have achieved a notable acceleration in our new store pipeline to 13 sites which will
increase operating space by 32.4% over the coming three years. This will add considerable
momentum to sales and earnings growth. Lok’nStore’s strong balance sheet and strategy
of opening new landmark stores position the Group well for future growth.”
Andrew Jacobs, CEO
Find out more about our key
performance indicators on page 17
0101
Strategic ReportOverviewGovernanceFinancial Statements
Chairman’s Statement
“ We are fulfilling our commitment to a period
of sustainable growth based on the strong
platform we have built.”
Simon G. Thomas
Chairman
Last year we committed to a period of
rapid and sustainable growth based
on the strong platform we have built.
It is my pleasure to introduce this
year’s results which show that we
are fulfilling that commitment.
• Strong operating performance
resulting in an increase in turnover
and profits
• Growing asset value driven by
existing store performance and
growth in new stores
For the first time in these accounts
(note 2(c)) we are recognising a
carried interest fee receivable of
£361,000 relating to a managed
store demonstrating the value of
this strategy.
During the year we opened 3 new
landmark stores which are all
trading above expectations and
have contributed to both the growth
in turnover and the significant rise
(15.3%) in our Adjusted Net Asset
Value per share to £4.80 (2017:
£4.16). Of this 64.4 pence increase,
29.2 pence was accounted for by the
new store openings demonstrating
the value creative capacity of our
landmark store opening strategy. Our
new store pipeline is 9 secured sites
and we have 4 more progressing
with our lawyers. Of these, 6 are
scheduled to open in 2019 and 3 in
2020. This acceleration in new store
openings is reflected in the increase
in capital expenditure to £21.9 million
this year up from £6.3 million last
year (refer note 10(b)). When these
stores open they will add further to
our profits and asset value.
The detail behind these results
is discussed further in our Chief
Executive’s Review and the Financial
Review on pages 13 and 20
respectively. For me the performance
of Lok’nStore this year can be
summarised under three headings:
• Many more stores under
development and more
acquisitions on the horizon
The increasing value of our assets is
emphasised by further transactions
in the market positively reflecting
the demand for established self-
storage assets, especially of the
quality of our newly built stores. In
their July 2018 Market Commentary
Report JLL estimate, “there have
been around €350m of self-storage
transactions over the last 12 months
in Europe” and note that they are
“seeing a broad base of specialist
self-storage investors, private equity
and institutions looking to invest in
the sector – with real appetite for
scale of over £100m.
Managed Stores
Our growth strategy includes
increasing the number of stores
we manage for third party owners.
This enables the Company to earn
revenue without having to commit
our capital, to amortise fixed central
costs over a wider operating base
and drive further traffic to our
website which benefits our entire
operation. Our current pipeline
includes an additional 4 managed
stores which will take the total
number of managed stores to 12.
Committed People
None of these results are possible
without the commitment of our
members of staff who deserve our
thanks and importantly our continued
investment in them. This year we have
provided over 5,000 hours of training
via our Academy and you can read
more about this in our Corporate
Social Responsibility Report. We have
also reviewed our pay levels to ensure
that all of our employees are paid fairly
and we continue to promote equity
ownership to our staff via our Share
Investment Plan and the granting
of options.
We will continue to invest in our
people because it makes business
sense, directly contributing to our
strategic and operational objectives
which are to:
• Steadily increase cash available
for distribution (CAD) per share
enabling a predictable growth of
the dividend from a strong asset
base with conservative levels
of debt
• Fill existing stores and improve
pricing
• Acquire more sites to build new
landmark stores
•
Increase the number of stores
we manage for third parties
02
Lok’nStore Group Plc Annual Report and Accounts 2018 1995
LOK’N STORE
FOUNDED
£10m
EQUITY RAISED
IN 2001
#4
SELF STORAGE
OPERATOR IN THE UK
Board Governance
In March 2018 the London Stock
Exchange published AIM Notice 50
requiring companies to comply with
a recognised corporate governance
code. Your Board has decided
to apply the Quoted Companies
Alliance’s (QCA) Corporate
Governance code which takes
a proportionate principle based
approach to the application and
reporting of good governance. We
believe this code is appropriate to
the size and nature of the Company.
Please refer to the Corporate
Governance sections of this Report
and our website for more information.
The composition of the Board is
also my responsibility and once
again this year I spent time reviewing
the Board’s configuration with our
team. An account of this work is
given under board performance and
evaluation; it has reconfirmed to me
that the current composition of your
Board continues to be in the best
interest of Shareholders as a whole.
Progressive Dividend Policy
For the seventh consecutive year and
in line with our stated aim to provide
a predictable growth in dividend, we
are proposing to increase the annual
dividend pay-out by one penny.
The Group will therefore pay a final
dividend of 7.67 pence per share
on 11 January 2019 following the
payment of an interim dividend of
3.33 pence per share in June 2018
making a total annual dividend of
11 pence per share, up 10% from
10 pence last year.
I hope you enjoy reading this
year’s report and that you will feel
as confident and optimistic as I
do about the future of Lok’nStore
Group Plc.
Simon G. Thomas
Chairman
26 October 2018
STORE OPENINGS
IN PERIOD
3
NEW LANDMARK
STORES
150,000
ADDITIONAL
SQ. FT. OF
LETTABLE SPACE
ALL
TRADING AHEAD
OF EXPECTATION
03
Strategic ReportOverviewGovernanceFinancial Statements Group at a Glance
Lok’nStore Group Plc is one of the leading companies
in the fast growing UK self-storage market.
We opened our first self-storage centre in 1995 and
have grown consistently over the last 23 years, currently
with 29 self-storage centres open and trading and two
serviced document stores in Southern England.
We have been listed on the AlM Market since June 2000
and the Board accounts for 29.3% of the Total Voting
Rights (TVR) in the ordinary shares of the Company
(2017: 29.4%).
We offer self-storage and serviced document storage
from our own stores, and management services to third
party storage owners. Self-storage and other storage
services are available to both household and business
customers at our highly branded Lok’nStore centres.
HOUSEHOLD STORAGE
• Storage rooms
• Vehicle storage
• Student packages
• Forces & services packages
BUSINESS STORAGE
• Flexible space
• Document storage
• Pallet storage
• Commercial vehicle storage
REVENUE BY
CUSTOMER TYPE
NUMBER OF TRADING
STORES BY TYPE
33.9%
Business customers
66.1%
Household customers
21
Owned stores
8
Managed stores
Our landmark stores
We develop and operate self-storage
centres in prominent locations in Southern
England. Our eye-catching buildings with
their distinctive orange livery create highly
visible landmarks which continue to be a big
contributor of new business for Lok’nStore.
3 landmark stores opened this financial
year: Gillingham, Wellingborough and
Hemel Hempstead.
PAGE
06
GILLINGHAM
04
Lok’nStore Group Plc Annual Report and Accounts 2018 29
10,600+
187
STORAGE CENTRES
CUSTOMERS
EMPLOYEES
Our locations
New Stores
Gillingham
Hemel Hempstead
Wellingborough
Stores Under
Development
Bedford
Bournemouth
Cardiff
Cheshunt
Dover
Exeter
Gloucester
Ipswich
Leicester
Stores
Aldershot
Ashford
Basingstoke
Bristol
Broadstairs
Chichester
Crawley
Crayford
Eastbourne
Farnborough
Fareham
Harlow
Horsham
Luton
Maidenhead
Milton Keynes
Northampton Central
Northampton Riverside
Poole
Portsmouth
Reading
Southampton
Sunbury
Swindon
Tonbridge
Woking
To find out more about our
store locations visit:
www.loknstore.com
PAGE
32
PAGE
48
WELLINGBOROUGH
HEMEL HEMPSTEAD
05
Strategic ReportOverviewGovernanceFinancial Statements 06
Lok’nStore Group Plc Annual Report and Accounts 2018 Strategic Report
08 The UK Self-Storage Market
10 Our Business Model
11 Our Strategy
12 Chief Executive Officer’s Review
17 Key Performance Indicators
18 Property Review
20 Financial Review
26 Principal Risks and Uncertainties
28 Corporate Sustainability Report
LANDMARK STORE
Gillingham
61,000
SQUARE FEET OF MAXIMUM
LETTABLE AREA
NOW
OPEN
Lok’nStore Gillingham opened in December 2017
and early trading has been excellent.
Located 2 miles from the M2, this strongly branded
freehold store is at the centre of the largest out of
town retail offer in the area. Four floors high, this store
dominates the skyline above Tesco Extra, McDonalds,
KFC and Dobbie’s Garden Centre.
The store serves business and household customers
across the Medway area, which has a population of in
excess of 275,000. Offering a range of storage spaces
from 20 sq. ft. – 5,000 sq. ft. the store will have 700
individual rooms when fully developed.
07
Strategic ReportOverviewGovernanceFinancial Statements The UK Self-Storage Market
The UK self-storage market at a glance
The Self-Storage Association UK Annual Industry Survey 2018 reports
that the UK Self Storage industry is made up of about 1,505 sites offering
44.6 million square feet of space. It calculates an 8.8% increase in space
used by customers in 2017.
SQUARE FEET
OF SELF STORAGE PER
HEAD OF POPULATION
9.3
1.8
0.7
UK
AUSTRALIA
US
£750m
ANNUAL TURNOVER
OF UK SELF
STORAGE
INDUSTRY
29,600
SQ. FT. AVERAGE
STORE SIZE
2.4m
SQ FT OF
ADDITIONAL
SPACE USED BY
CUSTOMERS IN 2017
3%
RISE IN OCCUPANCY
ACROSS THE
INDUSTRY IN 2017
42%
ONLY
OF PEOPLE HAVE A
REASONABLE OR
GOOD AWARENESS
OF SELF STORAGE
08
Lok’nStore Group Plc Annual Report and Accounts 2018 Drivers of demand
for self-storage
Demand for self-storage by both
business and household customers
is driven by a specific need based
on changing circumstances as
well as economic activity and
business confidence.
For household customers their need
is often linked to a life event where
they will need space temporarily, for
example to support a house sale, but
increasingly householders are using
storage on a semi-permanent basis
to free up space at home or store
belongings they don’t have room for.
Business customers use self-
storage for a variety of purposes
including storage of goods, excess
or seasonal stock, document
archiving or storage of equipment
and tools. Businesses tend to
store for longer than household
customers and take larger units,
although they also take advantage
of self-storage for temporary periods
to support seasonal sales or office
moves or refurbishments.
Lok’nStore’s Opportunity
in the Market
The Self-Storage Association UK
(SSA UK) Annual Industry Survey
2018 notes that public awareness
of and demand for self-storage is
increasing. We know that on average
customers chose a store within 5
miles of their home or business.
With a pipeline of 9 secured stores
and a further 4 stores progressing
through the acquisitions process,
Lok’nStore is well placed to attract
these customers and add further
momentum to the growth of our
sales and profits.
Combining the Company’s
competitive strengths (recognised
brand, excellent customer service,
rigorous cost control) and the
attractive market dynamics of the
storage sector (growing sector, under
supply, proven resilience during
an economic downturn) with our
strong balance sheet and flexible
operating and ownership model
(see our portfolio strategy on page
18), we believe Lok’nStore can take
advantage of the opportunities
presented and grow at a rapid rate
without significantly increasing risk.
Market overview
As reported in the Self-Storage
Association UK (SSA UK) Annual
Industry Survey 2018 the UK self-
storage market continues to grow
but remains under-developed
relative to Australia and the US.
In the UK, there are an estimated
1,505 self-storage facilities providing
approximately 44.6 million square
feet of storage space. With a
population of 65.2 million people
in the UK this equates to only 0.7
square feet per person compared
to 9.3 square feet per person in the
USA and 1.8 square feet in Australia.
The structure of the UK industry
is changing. When the industry
first emerged companies were
predominately single owner occupied
sites often located in industrial
areas but larger operators (defined
as operators managing 10 or more
sites), such as Lok’nStore, have
recently been developing purpose
built stores in retail facing locations
offering customers a higher standard
of product and service.
The main barriers to entry to the
market remain the difficulty in finding
and securing suitable sites as well
as gaining the appropriate planning
consents. As a result, according to
the SSA UK, larger operators now
own or manage around 30% of
facilities which translates to 40% of
market share in terms of revenue
and space. Currently Lok’nStore is
the 4th largest operator in the UK
with 29 stores providing 1.4 million
square feet of space.
09
Strategic ReportOverviewGovernanceFinancial Statements
Our Business Model
Our overriding objective is to steadily increase the cash available for
distribution (CAD) enabling a predictable growth of the dividend from
a strong asset base and conservatively geared balance sheet.
WHAT WE DO
• Buy (or lease) prominent sites
• Build (or refurbish) landmark, highly
visible orange storage centres
• Offer clean, dry, secure storage to
business and household customers
HOW WE CREATE VALUE
• Take a flexible approach to
site selection
•
Increase our asset base
• Careful cost control
• Managed pricing strategy
• Earn fees from managing
stores on behalf of others
29
UK STORES
£17.75m
REVENUE
10
Lok’nStore Group Plc Annual Report and Accounts 2018 SHARING VALUE WITH OUR STAKEHOLDERS
SHAREHOLDERS
CUSTOMERS
OUR PEOPLE
• High quality earnings
• Easy to locate stores
• Growing NAV
• Progressive dividend policy
• Friendly and high level
customer service
• Wide range of storage
solutions
• Transparent and open
contracts
• Development opportunities
through the Lok’nStore
Academy
• Uncapped store bonus
scheme
• Share ownership plans
• Strong health and safety
approach
11p
DIVIDEND
PER SHARE
5 STAR
CUSTOMER REVIEWS
ON TRUST PILOT &
FEEFO
£400,000
PAID OUT IN
STORE BONUSES
11
Strategic ReportOverviewGovernanceFinancial Statements Our Strategy
OUR OBJECTIVES
ACHIEVEMENTS IN 2018
STRATEGY IN ACTION
STEADILY INCREASE
CASH AVAILABLE FOR
DISTRIBUTION (CAD)
PER SHARE
Cash available for distribution
(CAD) per share up 7.5% to
19.4 pence (2017: 18.1 pence).
10%
increase in annual
dividend to 11 pence
per share
FILL EXISTING STORES
AND IMPROVE PRICING
We developed the customer
journey giving customers the
ability to find and respond to
previous quotes with one click.
We focussed on developing
our teams’ sales and customer
service through the Lok’nStore
Academy. These actions resulted
in conversion of new enquiries
improving by 1% over the year.
ACQUIRE MORE
SITES TO BUILD NEW
LANDMARK STORES
Gillingham and Wellingborough
stores opening in the year.
Both are in prominent retail
locations with little established
competition.
INCREASE THE NUMBER
OF STORES WE MANAGE
FOR THIRD PARTIES
The Hemel Hempstead store
opened during the year.
We are developing managed
stores in Exeter, Dover,
Gloucester and Ipswich and
have 1 managed store site
with lawyers.
7.7%
Self-storage unit
occupancy up
0.5%
Self-storage
pricing up
5
sites acquired
4
managed stores
in pipeline
12
Lok’nStore Group Plc Annual Report and Accounts 2018 Chief Executive Officer’s Review
“ Store visibility remains pivotal to our marketing
efforts. Our new landmark stores are located in
highly prominent locations and we continually invest
in new signage and lighting at our existing stores.”
Andrew Jacobs
Chief Executive Officer
With costs firmly under control
revenue growth translates into
healthy profit growth. Total adjusted
store EBITDA in self-storage, a key
performance indicator of profitability
and cash flow of the business,
increased 9.3% to £8.42 million (2017:
£7.70 million). The overall adjusted
EBITDA margin across all stores was
nearly 2 percentage points higher at
57.0% (2017: 55.1%) with the adjusted
Store EBITDA margins of the freehold
stores at 64.1% (2017: 63.4%) and
the leasehold stores at 44.1%
(2017: 41.5%).
Over the course of the year unit
occupancy rose by a healthy 7.7%
and unit pricing increased 0.5%. Out
of 29 stores open 15 were trading at
above 70% occupancy. At the end
of July 2018 33.9% of Lok’nStore’s
self-storage revenue was from
business customers (2017: 33.5%)
and 66.1% was from household
customers, (2017: 66.5%). By
number of customers 17.8% of our
customers were business customers
(2017: 18.1%) and 82.2% household
customers (2017: 81.9%).
By the year-end we had 8 managed
stores following the opening of
the Hemel Hempstead store in
November 2017.
Lok’nStore Group has had
an excellent year successfully
implementing all of our strategic
objectives. Revenue, profits and asset
values have all moved ahead steadily.
Our rapidly expanding pipeline of new
stores will substantially increase the
proportion of our store space which
is new or purpose-built and will add
further momentum to the growth of
sales and profits with plenty of new
capacity contributing to growth over
the coming three years.
Robust trading
Group revenue for the year was
£17.75 million, up 6.6% year on
year (2017: £16.65 million) driven by
occupancy increases in both old and
new stores. This revenue growth
led to a 12.3% increase in Group
Adjusted EBITDA. Tight control
over operating costs leading to a
2% increase in self-storage margins
has also contributed in pushing the
Group’s profits to record levels.
• Self-storage revenue
£14.78 million up 5.6%
(2017: £13.99 million)
• Adjusted Store EBITDA
£8.42 million up 9.3%
(2017: £7.70 million)
• Unit occupancy up 7.7%
• Unit pricing up 0.5%
The average unexpired term of the
Group’s operating leaseholds is
approximately 11 years and 1 month
as at 31 July 2018 (10 years and 8
months: 31 July 2017). The leaseholds
produced 27.6% of the total store
EBITDA in the year (2017: 28.5%).
In the table overleaf we show how
the performance of the stores varies
between freehold and leasehold
stores. Currently 67.2% of Lok’nStore
owned trading space is freehold and
32.8% is leasehold. Inevitably the
leaseholds trade on lower margins
due the rent payable, but nevertheless
the 44.1% margins achieved is
substantial, and leads to a higher
return on capital than the freehold
stores which require much larger
capital expenditure to buy the land
and buildings. The freehold stores
produce 72.4% of the store EBITDA
and account for 88.8% of valuations
(including secured pipeline stores).
When the secured pipeline is
fully developed the freeholds will
account for 55.8% of trading space,
leaseholds will be 19.5% and
managed stores 24.7%. This mix
of tenures with their different risk
and return characteristics provides
strength in the balance sheet
and opportunities to create value
throughout the cycle, and is always
driven solely by consideration of the
operating business.
13
Strategic ReportOverviewGovernanceFinancial Statements Chief Executive Officer’s Review
6.7%
INCREASE IN SELF-
STORAGE REVENUE
Portfolio Analysis and Performance Breakdown
Number
of stores
% of
Valuation
14
7
8
29
5
4
38
2
78.6
11.2
–
–
10.2
–
100
–
% of
Adjusted
store
EBITDA
72.4
27.6
–
–
–
–
100
–
Adjusted
store
EBITDA
margin
(%)
% lettable
space When fully developed
Lok
owned
Number
of stores
Total %
lettable
space
64.1
44.1
100
–
–
–
57.0
–
67.2
32.8
–
–
–
–
100
–
19
7
12
38
–
–
38
2
55.8
19.5
24.7
–
–
–
100
–
As at 31 July 2018
Freehold and long leasehold
Operating Leaseholds
Managed Stores
Total Stores Trading
Pipeline Stores
Owned
Managed Stores
Total Self-Storage
Document Storage
In the table below we show how the performance breaks down between the age brackets of the stores. Clearly
older stores have had time to fill up and produced a 67% EBITDAR profit (earnings before interest, tax, depreciation,
amortisation and rent) margins. Over time as new stores goes through their life cycle they will progress towards the
same margins as the fully established stores and add substantially to revenues and profits.
Operating Performance at a glance (Lok’nStore owned stores only)
Weeks Old
Year Ended 31 July 2018
Sales £’000
Stores Adjusted EBITDA £'000
EBITDA Margin (%)
Stores Adjusted EBITDAR £'000
EBITDAR Margin (%)
As at 31 July 2018 ('000 sq ft)
Maximum Net Area
Freehold & Long Leasehold ('000 sq ft)
Short Leasehold ('000 sq ft)
Number Stores
Freehold and Long Leasehold
Short Leasehold
Total Stores
Pipeline Under 100 100 to 250
over 250
Total
180
(75.91)
(42%)
(75.91)
(42%)
105
105
–
2
–
2
1,607
1,025
64%
1,025
64%
111
111
–
2
–
2
12,992
7,471
58%
8,662
67%
915
544
372
10
7
17
14,779
8,420
57%
9,611
65%
1,432
1,060
372
19
7
26
300
300
–
5
–
5
In respect of the Farnborough Store (>250 weeks) the total store revenue includes a £100,000 contribution receivable from
Group Head Office.
14
Lok’nStore Group Plc Annual Report and Accounts 2018
9.3%
23.7%
INCREASE IN
ADJUSTED STORE
EBITDA
INCREASE IN
SERVICED DOCUMENT
STORAGE EBITDA
7.7%
INCREASE IN
UNIT OCCUPANCY
Ancillary Sales
Ancillary sales which consist of boxes and packaging materials, insurance and other sales increased 4.0%
(2017: 2.6%) over the year accounting for 11.0% of self-storage revenues (2017: 11.2%).
Serviced document storage revenue and profits up
• Revenue £2.38 million up 2.4% (2017: £2.33 million)
• Adjusted EBITDA £0.662 million up 23.7% (2017: £0.54 million) (after adjustment for Lok’nStore Management charges)
Revenue and adjusted EBITDA have increased in our document storage business as operating metrics improve
in response to the Company's more customer facing marketing stance. This approach has resulted in excellent
customer feedback and puts us in a good position to win new business.
Marketing
Store visibility remains pivotal to our marketing efforts. Our new landmark stores are located in highly prominent
locations and we continually invest in new signage and lighting at our existing stores.
During the year our marketing efforts have continued to focus on the presentation of our buildings to attract passing
traffic and internet marketing. With their prominent positions, distinctive design and bright orange elevations, our
stores raise the profile of the Lok’nStore brand and generate a substantial proportion of our business. We continue
to invest in new signage and lighting at our existing stores as well as creating striking designs for our new landmark
stores to promote and enhance their visual prominence, and engage the local community.
The internet continues to be the main media channel for our advertising. Our website at www.loknstore.co.uk is one
of the most established self-storage websites in the UK. The website delivers a high level of customer experience
across desktop, tablet and smartphone devices. This is a very dynamic area and we are committed to its continued
development. We believe the internet provides a strong competitive advantage for the major operators such as
Lok’nStore with relatively large marketing budgets.
Pipeline of new stores
Against this background of ever improving operating performance we have invested £21.7 million in store
development this year and we have now seen a rapid increase in our new store pipeline to 9 secured stores by
the reporting date, which will take the total to 38 stores. These will all be purpose built landmark stores in highly
prominent locations and will add substantially to the Group’s capacity for revenue, profit and asset growth. We have
4 further store acquisitions progressing through the legal process.
15
Strategic ReportOverviewGovernanceFinancial Statements Chief Executive Officer’s Review continued
The graph below shows the speed of fill-up of our stores broken down into their age groups. You can see that over
time the stores have filled up faster with the most recently opened stores (on the left of the graph) filling fastest of all. We
believe that this shows that the UK self-storage market is still in its infancy with low penetration and increased consumer
awareness leading to faster fill. It also shows the strength of Lok’nStore’s newly developed landmark store model.
Store Revenue Growth after Opening
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Time Open
2015–2018
2010–2015
2004–2010
1995–2004
Management stores
Lok’nStore manages an increasing number of stores for third party owners. Under this model Lok’nStore provides a
turnkey package for investors wishing to own the underlying self-storage assets. The investor supplies all the capital
for the project which Lok’nStore manages. Lok’nStore will buy, build and operate the stores under the Lok’nStore
brand and within our current management structure.
The operating expenses of the store are paid for by the third party out of the store revenue with Lok’nStore receiving
various fees and performance bonuses. Lok’nStore has no costs directly associated with this function and no equity
capital at risk. Therefore this activity generates an increasing return at minimal risk increasing the overall risk adjusted
return of the Group as a whole.
Notable in this year’s accounts (note 2(c)) is a carried interest receivable of £361,000 in relation to a management
contract, over and above the £534,000 store management fees noted elsewhere. This is the first time the Group has
recognised such a gain. As the number of managed stores increases rapidly over the coming years the revenue from
them will rise commensurately.
Future
Lok’nStore Group has had an excellent year successfully implementing our strategic objectives. We have created a
strong platform for an exciting period of growth for Lok’nStore with revenue, profits and asset values all moving ahead.
Against this background of a strong performance from our existing stores, we have also achieved a notable increase
in our pipeline to 13 new stores. This will increase operating space by 32.4% over the coming three years, adding
considerable momentum to sales and earnings growth.
Lok’nStore’s strong operating performance and robust balance sheet underpin our strategy of new landmark store
openings positioning the Group well for future growth.
Andrew Jacobs
Chief Executive Officer
26 October 2018
16
Lok’nStore Group Plc Annual Report and Accounts 2018
Key Performance Indicators
What we mean when we say… (and why we use these key performance indicators (KPIs))
In addition to IFRS accounting performance measures, we use some Alternative Performance
Measures (APMs) to help us understand how the underlying business is performing. The following
table identifies those measures and explains what we mean when we use them and importantly
why we use them and what they tell you about our business and performance.
9. Gearing – refers to the level of a
company’s debt related to its equity
capital, usually expressed in percentage
form. It is a measure of a company’s
financial leverage and shows the extent
to which its operations are funded by
lenders versus shareholders. Gearing
can be measured by a number of ratios
and we use the debt-to-equity ratio in
this document. The calculation of the
Gearing percentage, also referred to as
the net debt to equity ratio is set out in
note 16 of the Financial Statements.
10. Group Adjusted EBITDAR –
EBITDAR is Earnings before interest,
tax, depreciation amortisation and rent.
The measure is designed to give clarity
on the effect of the rent payable by
leasehold stores and how its elimination
enables an analytical comparison
between freehold stores operating
performance (which do not pay rent) and
leasehold stores operating performance.
This analysis is set out in a table in the
Chief Executive Officer’s Review on
page 14.
11. Cost Ratio – calculates the ratio
of the total operating costs of the
business as set out on page 21 of
the Financial Review, expressed as
a percentage of total group revenue
(refer note 1(a)), giving a perspective
on the cost efficiency of the business
when compared to the cost ratio of the
previous year.
See also the glossary on page 94.
1. Group Adjusted EBITDA –
Earnings Before Interest, Tax,
Depreciation and Amortisation –
The measure is designed to give
clarity on the operating cash flow of
the business stripping away non-cash
charges, finance charges and tax.
Adjusted EBITDA is defined as EBITDA
before losses or profits on disposal,
share-based payments, acquisition
costs, exceptional items, finance
income, finance costs and taxation.
5. CAD – Cash Available for
Distribution – is calculated as Adjusted
EBITDA minus total net finance cost,
less capitalised maintenance expenses,
New Works Team costs and current
tax. This measure is designed to give
clarity to the capacity of the business
to generate ongoing net operating cash
that can be used to pay dividends to
shareholders. The calculation of the
Cash available for Distribution is set out
in the Financial Review on page 22.
2. Exceptional Items – refers to ‘one-off’
items of a non-operational nature which
arose during the year and are unlikely to
be recurring (refer note 2(c) of the Financial
Statements).
3. Adjusted Total Assets – The value
of adjusted total assets of £181.4 million
(2017: £153.5 million) is calculated
by adding the independent valuation
of the leasehold properties of £18.2
million (2017: £16.7 million) less their
corresponding net book value (NBV)
£2.7 million (2017: £2.9 million) to the
total assets in the Statement of Financial
Position of £165.9 million (2017: £139.7
million). This provides clarity on the
significant value of the leasehold stores
as trading businesses which under
accounting rules on operating leases are
only presented at their book values within
the Statement of Financial Position.
4. NAV – Net Asset Value Per Share –
Adjusted net asset value per share is the
net assets adjusted for the valuation of
leasehold stores (properties held under
operating leases) and deferred tax divided
by the number of shares at the year-end.
The shares held in the Group’s employee
benefits trust and treasury shares are
excluded from the number of shares.
The calculation of the Net Asset Value
per share is set out in the Financial Review
on page 24.
6. LTV – Loan to Value Ratio –
measures the debt of the business
expressed as a percentage of total
property assets giving a perspective
on the gearing of the business. The
calculation is based on net debt of £32.3
million as set out in note 27(b) (2017:
£17.4 million) as a percentage of the total
properties independently valued by JLL
and including development land assets
totalling £162.8 million (2017: £124.8
million) as set out in the Financial Review
on page 21.
7. Pipeline Sites – means sites for new
stores that we have either exchanged
contracts on or have agreed heads of
terms on and are now with our lawyers
for completion. We now have 13 pipeline
sites which include 9 secured and 4
sites which are currently with lawyers.
8. Adjusted Store EBITDA –
is Adjusted EBITDA (see 1 above) before
the deduction of central and head office
costs. This important information provides
an insight into the underlying performance
of the trading stores and shows the cash
generating core of the business. Use of
this metric enables us to provide additional
information on store EBITDA contributions
and the margins analysed between
freehold and leasehold stores and
according to the age of the stores. This
analysis is set out in a table in the Chief
Executive Officer’s Review on page 14.
G
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17
Strategic ReportOverview
Property Review
Store and portfolio strategy
In the self-storage industry each operating store is a profitable unit in its own right. Therefore our strategy is to
continue to increase the number of stores we operate without stretching our balance sheet. The core focus of this
strategy is the acquisition of highly prominent freehold locations in busy towns in Southern England where we will
build well branded landmark stores.
Flexible approach to site acquisition
All of the projects detailed below are part of our strategy of actively managing our operating portfolio to ensure we
are maximising both trading potential and value. This includes strengthening our distinctive brand, increasing the
size and number of our stores and replacing stores or sites where it will increase shareholder value.
We prefer to own freeholds if possible, and where opportunities arise we will seek to acquire the freehold of our
leasehold stores. However we are happy to take leases on appropriate terms and benefit from the advantages of
a lower entry cost, with further options to create value later in the store’s development. We also consider selling
established stores on sale and manage back contracts in order to recycle the capital and protect the balance sheet.
Indeed some of our stores have been freehold, leasehold and managed stores during their operating life cycle!
Our most important consideration is always the trading potential of the store rather than the property tenure.
The chart below illustrates the rapid growth of store numbers and the changing tenure mix over time. Noteworthy
is the growth of managed stores over recent years.
Number of Stores Trading Since Inception by Tenure
40
35
30
25
20
15
10
5
0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018 Coming
Soon
Freehold
Leasehold
Managed
Lok’nStore now operates 29 stores and 2 serviced document stores in Southern England. Of the 29 stores
Lok’nStore owns the freehold or long leasehold interest in 14 stores, 7 stores are held under commercial leases
with all of our leasehold stores inside the Landlord and Tenant Act providing us with a strong security of tenure.
The average unexpired term of the Group’s operating leaseholds is approximately 11 years and 1 month as at
31 July 2018.
A further 5 freehold stores are under development which will be owned by Lok’nStore.
18
Lok’nStore Group Plc Annual Report and Accounts 2018 3
9
NEW LANDMARK
STORES TRADING
LANDMARK STORES
SECURED AND UNDER
DEVELOPMENT
32%
INCREASE IN
TRADING SPACE
Additionally we have 8 managed stores for third party owners and a further 4 managed stores under development.
One of the features of Lok’nStore’s strategy is to increase the number of stores we manage for third parties selling
our expertise in storage solutions management, operating systems and marketing, leveraging our brand and skill
rather than retaining a proprietary interest in the land. From a very low base Lok’nStore has grown this managed
store revenue to around £0.5 million currently (up 27.3%) but with the pipeline of secured sites and further additional
sites anticipated for the foreseeable future we expect this revenue stream to continue to grow strongly.
Management fees
Management fees
Total management fees
Group
Year ended
31 July 2018
£
534,888
534,888
Group
Year ended
31 July 2017
£
420,117
420,117
When this secured development pipeline of 9 sites has been completed Lok’nStore will operate from 38 stores
and 2 serviced document stores, including 12 managed stores. In addition 4 further new store opportunities are
progressing with lawyers.
The 9 secured pipeline sites represent a combination of owned and managed stores. These will add 465,000 sq.
ft. of new capacity adding 39% to freehold trading space and 54% to the managed store portfolio delivering a 32%
increase in overall trading space.
Lok’nStore’s strong operating cash flow, solid asset base, and tactical approach to its store property portfolio
provide the Group with opportunities to improve the terms of its property usage in all stages of the economic cycle.
Our focus on the trading business gives us many opportunities and our property tenure is always driven by the
requirements of the trading business.
Growth from new stores and more new stores to come
• Early trading at our new Hemel Hempstead, Gillingham and Wellingborough stores has been excellent
• Dover store to open December 2018
• Exeter store to open spring 2019
• Cardiff store to open spring 2019
•
Ipswich store to open summer 2019
Acquisition of sites for new landmark stores – sites acquired during FY2018
• Bedford
• Bournemouth
• Cheshunt
• Leicester
• Cardiff
– scheduled to open in 2020
– scheduled to open in 2020
– scheduled to open in 2020
– scheduled to open end of 2019
– see above
55,000 sq. ft.
80,000 sq. ft.
60,000 sq. ft.
60,000 sq. ft.
We have 4 more pipeline sites currently with lawyers.
Growing Store property assets and Net Asset Value
• Adjusted total assets now circa £181.4 million3 (2017: £153.5 million) up 18.2% on last year
• Adjusted net asset value of £4.80 per share up 15.3% on last year (2017: £4.16 per share)
Lok’nStore has a strong and growing asset base. Our freehold and operating leasehold stores have been
independently valued by Jones Lang LaSalle (JLL) at £146.2 million (Net Book Value (NBV) £55.4 million) as at 31 July
2018 (2017: £119.6 million: NBV £45.3 million). The change in property valuation is referred to further in the Financial
Review section of the Strategic Report and is detailed in note 10b of the notes to the financial statements.
Adding our stores under development at cost and land and buildings held at director valuation, our total property
valuation is £165.2 million (2017: £127.8 million). This translates into an adjusted net asset value of £4.80 per share
up 15.3% on last year (2017: £4.16 per share).
The increase in the property values of properties which were also valued last year was 6.33% (2017: 6.14%).
19
Strategic ReportOverviewGovernanceFinancial Statements Financial Review
“ Capital expenditure of £21.7 million up from
£6.3 million last year is reflective of our
expanding pipeline of new stores.”
Ray Davies
Finance Director
Record financial results on all measures
• Group Revenue £17.75 million up 6.6%
(2017: £16.65 million)
Weighted average
number of shares
No. of
shares
No. of
shares
For basic earnings per share
28,792,029
27,780,676
• Group Adjusted EBITDA £7.30 million up
Dilutive effect of share options
490,064
999,657
12.3% (2017: £6.49 million)
• Operating profit (before exceptional items2)
£5.17 million up 16.9% (2017: £4.38 million)
• Operating profit (after exceptional items)
£5.71 million up 33.9% (2017: £4.26 million)
The Group has again delivered strong financial results.
Earnings per share
Basic earnings per share (EPS) were 13.05 pence
up 18.4% (2017: 11.02 pence per share). Diluted EPS
were 12.83 pence up 20.6% (2017: 10.64 pence per
share). If 2018 figures are adjusted to eliminate the
2018 exceptional items of £0.59 million, the 2018 EPS
is adjusted to 11.0 pence per share (2017: 11.43 pence
per share) and the 2018 diluted EPS to 10.81 pence per
share (2017: 11.03 pence per share).
Earnings per share
(EPS)
Profit for the year
Exceptional (income)/costs
Adjusted earnings
Year ended
31 July 2018
£’000
Year ended
31 July 2017
£’000
3,757
(591)
3,166
3,061
113
3,174
For diluted earnings per share
29,282,093
28,780,333
Basic EPS (pence)
Diluted EPS (pence)
13.05p
12.83p
11.02p
10.64p
Purchase of treasury shares
The Group did not buy or sell any Treasury shares
during the year. We are proposing to renew our ongoing
authority to buy back shares at this year’s AGM to ensure
the Group continues to have flexibility to make purchases
should it be considered to be in the best interests of
shareholders to do so.
Operating costs
• Cost ratio11 reduced to 57% (2017: 59%)
We have a strong record of reducing our Group operating
costs each year. We cautioned in our 2017 year end
results that although we maintain a disciplined approach
to costs, continuing to reduce them is increasingly
challenging while delivering an acceleration of our store
opening programme.
Group operating costs amounted to £10.1 million for
the period, a 2.7% increase year on year (2017: £9.84
million) which derived from higher aggregate costs as
we opened new landmark stores. We are also spending
more on internet marketing. Nevertheless our tight
discipline on costs has enabled us to reduce our cost
ratio by 2.0% points to 57%.
In respect of property costs which mainly constitute rent
and rates we had in the previous year felt the effects of
higher rates bills as we opened our new landmark stores
and had incurred rates on a development site. We have
now negotiated rate reductions on these stores resulting
in an overall cost reduction this year in property costs.
20
Lok’nStore Group Plc Annual Report and Accounts 2018 £17.75M
GROUP REVENUE
UP 6.6%
£7.30M
GROUP ADJUSTED
EBITDA UP 12.3%
£5.71M
OPERATING PROFIT*
UP 33.9%
* after exceptional items
Rents have remained broadly static but overall are lower
in this period as the closure of a store has eliminated rent
costs (2017: £70,944). Utility costs are lower as a result
of a renegotiation of our energy tariffs. Overall property
costs are down 3.2%.
Staff costs increased by 6.6% as we staffed the new
stores and paid performance bonuses to all our store
staff for exceptional sales growth. We also incurred
additional national insurance costs arising on the exercise
of employee share options.
The principal increase in overhead costs have been
driven by a higher level of legal and professional costs
due to work on rent reviews, business rate reductions
and abortive costs arising on prospective store
acquisitions that did not proceed.
Overall the cost increases are driven by the expansion
of the business and we are seeing little other cost
pressures. Significantly, if we exclude the costs of the
new stores overall costs increased by a modest 1.4%
compared to last year.
Increase/
Decrease
in costs
%
(3.2)
6.6
10.6
(2.9)
2018
£’000
4,043
4,681
1,214
166
Group
Property costs
Staff costs
Overheads
Distribution costs
Total
2.7%
10,104
2017
£’000
4,179
4,389
1,098
171
9,837
Strong balance sheet, efficient use of
capital, conservative level of debt
•
Increase in £40 million Bank facility to £50 million
on same terms
• £21.7 million invested in new store pipeline
• Net debt £32.3 million (2017: £17.4 million)
• Loan to value ratio (LTV) 19.7% (2017: 14.0%)
• Cost of debt averaged 1.85% in the year on
£32.3 million drawn (2017: 1.66%)
Lok’nStore is a robust business with an excellent credit
model, low debt and gearing9 and which is strongly cash
generative from an increasing asset base. Its increased
bank facilities at low rates of interest position the
business for new store development.
Increase in £40 million Banking
Facility to £50 million
Following the agreement of a two year extension on its
existing banking facility with Royal Bank of Scotland last
year, the Group has now agreed an increase in its £40
million facility to £50 million which will provide continued
funding for site acquisitions as well as working capital for
the development of the business over the medium term.
The Group is not obliged to make any repayments prior
to the facilities expiration in January 2023 and bank
covenants and interest margin on existing facilities
are unaffected by this increase in the facility size.
Management of interest rate risk
Under the current bank facility the Group is not
committed to enter into hedging instruments but
rather to keep such matters under review. Given our
relatively low level of indebtedness, low Loan to Value
ratio and high interest cover, combined with the wider
uncertainties within the economy, it is not the intention
of the Group to enter into an interest rate hedging
arrangement at this time.
Cash flow and financing
At 31 July 2018 the Group had cash balances of £5.0
million (2017: £11.4 million). Cash inflow from operating
activities before investing and financing activities
was £7.0 million (2017: £5.5 million). As well as using
cash generated from operations to fund some capital
expenditure, the Group has a revolving credit facility
which runs to 2023. This provides sufficient liquidity
for the Group’s current needs. Undrawn committed
facilities at the year-end amounted to £12.7 million
(2017: £11.2 million).
Gearing
At year end there was £37.3 million of gross borrowings
(2017: £28.8 million) representing gearing of 31.3%
(2017: 19.6%) on net debt of £32.3 million (2017: £17.4
million) (refer note 16 – Capital management). The
leaseholds are stated at depreciated historic cost in
the statement of financial position. If these leaseholds
are adjusted for the uplift in value to their Jones Lang
LaSalle (JLL) valuation, gearing drops to 27.2% (2017:
16.9%). If the deferred tax liability carried at year-end
of £19.7 million (2017: £16.4 million) is excluded gearing
drops further to 23.4% (2016: 14.6%).
21
Strategic ReportOverviewGovernanceFinancial Statements Financial Review continued
Strong cash flow supports 10.0%
dividend increase
• Annual dividend 11 pence per share up 10.0%
(2017: 10 pence per share)
• Cash available for Distribution (CAD) from operations
£5.60 million up 8.3% (2017: £5.17 million)
• Cash available for Distribution (CAD) of 19.4 pence
per share (2017: 18.1 pence per share)
Cash available for Distribution (CAD)
Cash available for Distribution (CAD) provides a clear
picture of ongoing cash flow available for dividends.
To illustrate this fully the table below shows the
calculation of CAD.
Analysis of Cash Available
for Distribution (CAD)
CAD
Year ended
31 July 2018
£’000
Year ended
31 July 2017
£’000
7,295
6,493
(297)
(90)
(138)
(792)
(1,317)
5,176
(537)
(80)
(149)
(924)
(1,690)
5,605
8.3%
Group Adjusted EBITDA
(per Statement of
Comprehensive Income)
Less: Net finance costs1
Capitalised maintenance
expenses
New Works Team
Current tax (note 7)
Total deductions
Cash Available for Distribution
Increase in CAD over last year
Closing shares in issue
(less shares held in EBT)
Number
Number
28,875,403
28,679,711
CAD per share
19.4p
18.1p
1
Net finance costs represent finance costs paid per the cash flow
statement of £0.42 million less bank interest received of £0.08 million
adjusted for capitalised interest of £0.2 million to give the true cash
flow effect.
Total CAD has increased by 8.3% as a result of higher
EBITDA profit and despite a higher net finance charge due
to the repayment of the development loan in November
2017. Interest received in the year relating to this loan was
£62,500 (2017: £250,000).
Capital expenditure and capital
commitments
The Group has grown through a combination of new site
acquisition, existing store improvements and relocations.
Capital expenditure during the year totalled £21.74 million
(2017: £6.63 million). This was primarily the completion
of construction works at our development sites in
Gillingham and Wellingborough which are now open
and trading as well as completing the acquisition of our
Bournemouth, Bedford, Cardiff, Cheshunt, Gloucester
and Ipswich sites. £0.2 million (2017: nil) of interest was
capitalised against development assets.
The Group has capital expenditure contracted but not
provided for in the financial statements of £3.4 million
(2017: £2.6 million).
Statement of Financial Position
Net assets at the year-end were £103.3 million up
15.9% (2017: £89.1 million). Freehold and long leasehold
properties were independently valued at 31 July 2018 at
£128.0 million up 24.4% (2017: £102.9 million). Refer to
the Analysis of Total Property Value table on page 23.
Review of distributable reserves
and rectification of prior dividends
(the Relevant Dividends)
The Board has become aware of certain technical
issues relating to the levels of distributable reserves
within the Lok’nStore Group and the payment of interim
and final dividends by Lok’nStore Group Plc to our
shareholders during the period from 2013 to 2016
(‘the Relevant Dividends’).
Lok’nStore’s Group structure is that almost all of
the self-storage operations and assets and cash sit
within the principal operating subsidiary Lok’nStore
Limited. Lok’nStore Group Plc is of itself a non-
trading holding company. Throughout this period at all
relevant times, the Group had adequate distributable
reserves in subsidiary companies to enable payment
of the Relevant Dividends, and each year payment of
the final dividends was approved by the Company’s
shareholders at its annual general meeting.
However, a review of historical intra-group transactions
revealed that internal dividends were not paid up from
Lok’nStore Limited through the Group structure to
Lok’nStore Group Plc in the period from 2013 to 2016
and thereby did not create distributable reserves in
Lok’nStore Group Plc in the manner that had been
intended. As a consequence, the Relevant Dividends
paid by Lok’nStore Group Plc were not paid out of
distributable reserves and were therefore not paid in
accordance with the Companies Act 2006.
22
Lok’nStore Group Plc Annual Report and Accounts 2018 We are undertaking a series of procedural steps in
order to rectify this issue and put the Company and its
subsidiaries, in the position that was originally intended
with respect to the creation of distributable reserves in
Lok’nStore Group Plc.
Our thirteen freehold properties and one long leasehold
are held in the statement of financial position at fair value
and have been valued by JLL. Refer to note 10(b) –
property, plant and equipment and also to the accounting
policies for details of the fair value of trading properties.
We will put a resolution to shareholders at the
forthcoming Annual General meeting to be held on 11
December 2018 which, if passed, would put all potentially
affected parties, in so far as possible, in the position
they would be had the Relevant Dividends been paid
in accordance with the requirements of the Companies
Act 2006. Full details will be included in the circular and
notice of general meeting to be sent to shareholders.
Taxation
The Group will pay tax on its earnings and has made
a tax provision of £0.92 million (2017: £0.79 million), an
effective tax rate of 17.4% (2017: 20%). The deferred tax
provision is calculated at forward corporation tax rates
of 17% and is substantially a tax provision against the
potential crystallisation (sales) of revalued properties and
past ‘rolled over’ gains and amounts to £19.7 million
(2017: £16.4 million) See note 18.
Market Valuation of Freehold and
Operating Leasehold Land and Buildings
It is the Group’s policy to commission an independent
external valuation of its properties at each financial
year-end.
The valuations of the leasehold stores held as ‘operating
leases’ are not taken onto the statement of financial
position. However these have also been valued and
these valuations have been used to calculate the
adjusted net asset value position of the Group. The
value of our operating leases in the valuation totals £18.2
million (2017: £16.7 million) and we have reported by way
of a note the underlying value of these leasehold stores
in our revaluations and adjusted our Net Asset Value
(NAV) calculation accordingly to include their value. This
ensures comparable NAV calculations.
A deferred tax liability arises on the revaluation of the
properties and on the rolled-over gain arising from the
disposal of some trading stores. It is not envisaged that
any tax will become payable in the foreseeable future on
these disposals due to the availability of rollover relief. It is
not the intention of the Directors to make any significant
disposals of operational stores, although individual
disposals may be considered where it is clear that added
value can be created by recycling the capital into other
store opportunities.
The Board will continue to commission independent
valuations on its trading stores annually to coincide with
its year-end reporting.
Analysis of Total Property Value
Freehold & Long Leasehold valued by JLL1
Short Leasehold valued by JLL2
Freehold land and buildings at Director valuation 3
Subtotal
Sites in development at cost4
Total
No of stores/
sites
14
7
1
22
7
29
31 July 2018
Valuation
£
128,000,000
18,200,000
3,603,013
149,803,013
16,568,961
166,371,974
No of stores/
sites
12
7
1
20
2
22
31 July 2017
Valuation
£
102,900,000
16,725,000
4,195,479
123,820,479
5,124,567
128,945,046
1
2
Includes related fixtures and fittings (refer to note 10b)
The seven leaseholds valued by JLL are all within the terms of the Landlord and Tenant Act (1954) giving a degree of security of tenure. The average
length of the leases on the leasehold stores valued was 11 years and 1 month at the date of the 2018 valuation (2017 valuation: 10 years and 8 months).
3
For more details refer note 10b – Directors valuation
4
Includes £114,507 of capitalised interest
Total freeholds and long leasehold account for 89.1% of property valuations (2017: 87.0%).
23
Strategic ReportOverviewGovernanceFinancial Statements Financial Review continued
Significant increase in Adjusted Net Asset Value per Share
• Adjusted Net Asset Value per share up 15.3% to £4.80 (2017: £4.16)
Adjusted net assets per share are the net assets of the Group adjusted for the valuation of leasehold stores and
deferred tax divided by the number of shares at the year-end. The shares currently held in the Group’s employee
benefits trust (own shares held) and in treasury (zero) are excluded from the number of shares.
At July 2018 the adjusted net asset value per share (before deferred tax) increased 15.3% to £4.80 from £4.16 last
year. This increase is a result of higher existing property values as well as the maiden valuations of our new stores as
the strength of our landmark stores is recognised, and cash generated from operations, offset in part by an increase
in the shares in issue due to the exercise of share options during the year.
Analysis of net asset value (NAV)
Net assets
Adjustment to include operating/short leasehold stores at valuation
Add: JLL operating leasehold valuation
Deduct: leasehold properties and their fixtures and fittings at NBV
Deferred tax arising on revaluation of leasehold properties1
Adjusted net assets
Shares in issue
Opening shares in issue
Shares issued for the exercise of options
Closing shares in issue
Shares held in EBT
Closing shares for NAV purposes
Adjusted net asset value per share after deferred tax provision
Adjusted net asset value per share before deferred tax provision
Adjusted net assets
Deferred tax liabilities and assets recognised by the Group
Deferred tax arising on revaluation of leasehold properties1
Adjusted net assets before deferred tax
Closing shares for NAV purposes
Adjusted net asset value per share before deferred tax provision
Group
Year ended 31
July 2018
£’000
Group
Year ended 31
July 2017
£’000
103,251
89,119
18,200
(2,691)
118,760
(2,636)
116,124
Number
(‘000s)
29,303
196
29,499
(623)
28,876
£4.02
116,124
19,735
2,636
138,495
28,876
£4.80
16,725
(2,878)
102,966
(2,354)
100,612
Number
(‘000s)
29,109
194
29,303
(623)
28,680
£3.51
100,612
16,363
2,354
119,329
28,680
£4.16
1
A deferred tax adjustment in respect of the uplift in the value of the leasehold properties has been included, calculated by applying a tax rate of 17%
(2017: 17%). Although this is a memorandum adjustment as leasehold properties are included in the Group’s financial statements at cost and not
at valuation, this deferred tax adjustment is included in the adjusted net asset value calculation in order to maintain a consistency of tax treatment
between freehold and leasehold properties.
24
Lok’nStore Group Plc Annual Report and Accounts 2018 Summary
Lok’nStore is a robust business with an excellent credit model, low debt and gearing and which is strongly cash
generative from an increasing asset base. The business operates within the UK self-storage sector which is still
relatively immature. With a low loan to value and flexible bank facilities through to 2023 this market presents an
excellent opportunity for further growth of the business. Recently opened landmark stores in Gillingham and
Wellingborough and our strong pipeline of more landmark stores demonstrate the Group’s ability to use those
strengths to exploit the opportunities available.
IFRS UPDATE
IFRS 16 Leases
Although not relevant for the year under review (or the
next) when applied IFRS 16 will represent a significant
change to the way that the Group will prepare its
financial statements. The effective date of adoption is
for accounting periods commencing after 1 January
2019 and will therefore apply to Lok’nStore’s financial
statements for the year ended 31 July 2020.
Nevertheless it is important now to give the users
of our financial statements sufficient overview of the
effects of IFRS 16 on the profit and loss, balance sheet,
financial performance and cash flows of the Group as
a significant lessee in respect of our leased stores.
IFRS 16 will primarily affect the accounting by lessees
and will result in the recognition of almost all leases
on the balance sheet. The standard removes the
current distinction between operating and financing
leases and requires recognition of an asset (the right
to use the leased item) and a financial liability to pay
rentals for virtually all lease contracts.
The Statement of Profit or Loss: will also be affected
because the total expense is typically higher in the
earlier years of a lease and lower in later years.
Additionally, the rent operating expense currently
reported in these financial statements at £1.44 million
(2017: £1.49 million) will be replaced with interest and
depreciation as a consequence of the ‘capitalisation
effect’ of the leases, so the Group’s key metric of
Adjusted EBITDA will increase significantly by the
removal of the rent expense from the operating profit
and loss. Other performance measures including
Operating Profit will also increase although reported
interest and depreciation will be higher.
The Consolidated Statement of Cash Flows: While
overall underlying cash flow is unaffected by the
changes the presentation within the Consolidated
Statement of Cash Flows will change. Reported
operating cash flows will be higher as cash payments
for the principal portion of the lease liability are
classified within financing activities. Only the part of
the payments that reflects interest can continue to be
presented as operating cash flows.
The Statement of Financial Position: The Group’s
operating leases on its leased stores will be recognised
as a ‘right of use asset’ and as a corresponding liability
at the year-end. Each lease payment is allocated
between the liability and finance cost. The finance
costs are charged to profit and loss over the lease
period so as to produce a constant periodic rate of
interest on the remaining liability for the period. The
right-of-use asset is depreciated over the lease term
on a straight line basis. Assets and liabilities arising
from a lease will initially be measured on a present
value basis which will include the fixed rental payments
less any lease incentives receivable. If the interest rate
implicit in the lease cannot be readily determined the
lease payments will be discounted by the Group’s
incremental borrowing rate (cost of debt) to obtain an
asset of similar value over a similar term with similar
security. Right of use assets will be measured at cost
comprising the initial measurement of the lease liability
plus any initial direct costs (if any). The Groups current
operating lease commitments are reported in note 28.
The effect on financial ratios such as gearing or
leverage will be to cause them to rise as the lease
liability now forms part of net debt.
25
Strategic ReportOverviewGovernanceFinancial Statements Principal Risks and Uncertainties
Risk Management Team
Ray Davies, Group Finance Director,
is the Board member responsible for
ensuring that the risk management
and related control systems are
effective and that the communication
channels between the Board and
the Executive Management team
are open and working correctly.
The Executive Management Team
is responsible for the day to day
management of the risk factors.
Responsibility for identifying,
managing and controlling the risk is
assigned to an individual as shown
on the risk register depending
on the business area. Reporting
against the risks forms part of the
monthly executive management
meeting and the risk factor may be
amended if applicable. There are
also sub-committees for particular
risk areas which meet regularly. The
Risk Management and Reporting
Structure is shown below.
Principal Risks and
Uncertainties in operating
our Business
Risk management has been a
fundamental part of the successful
development of Lok’nStore. The
process is designed to improve the
probability of achieving our strategic
objectives, keeping our employees
safe, protecting the interests of our
shareholders and key stakeholders,
and enhancing the quality of
our decision-making through
understanding the risks inherent in
both the day-to-day operations and
the strategic direction of the Group
as well as their likely impact.
Management of our risks helps us
protect our reputation which is very
important to the ability of the Group
to attract customers particularly
with the growth of social media. We
always try to communicate clearly
with our customers, suppliers,
local authorities and communities,
employees and shareholders and to
listen and take account of their views.
We operate strict Health and Safety
policies and procedures and more
information on these can be found
on page 30.
Our Risk Management
Governance
The Board has overall responsibility
for the management of the Group’s
risks. As the Group’s strategic
direction is reviewed and agreed
the Board identifies the associated
risks and works to reduce or
mitigate them using an established
risk management framework in
conjunction with the executive
management team. This is a
continuing and evolving process
as we review and monitor the
underlying risk elements relevant to
the business.
Risk Management
Framework
The Risk Register covers all areas
of the business including property,
finance, employees, insurance,
customers, strategy, governance
and disaster recovery. The risks are
categorised by risk area and rated
based on a combination of ‘likelihood’
and ‘consequences and impact’ on
the business. The combination of
these two becomes the ‘risk factor’
and any factor with a rating over 15
is reported to the Board.
Our Risk Management and Reporting Structure
THE BOARD
Reviews Risk Register in full twice a year
Considers specific risk areas as raised
by the Executive Board
EXECUTIVE BOARD COMMITTEE
Reviews risks at monthly executive management meetings and if material requests for
the Board to consider risk at next scheduled Board Meeting (or earlier if necessary)
CAPEX COMMITTEE
PROPERTY RISK COMMITTEE
Meets Monthly
Meets Quarterly
Manages proposed capital expenditure,
actual spend, rolling capex requirements
Considers: Risks associated with properties
including Health & Safety
Environmental Impact
26
Lok’nStore Group Plc Annual Report and Accounts 2018 Principal Risks
The principal risks our business faces and our key mitigations are outlined in the table below.
Risk
Description
Key mitigation
Interest Rate
and Liquidity
Risk
The main risks arising from the Group’s
financial instruments are interest rate risk and
liquidity risk (for details please see note 16,
page 80).
• Regular review by the Board (full details are set
out in the Financial Review, page 21)
Tax Risk
Property
Acquisition
Changes to tax legislation may impact the
level of corporation tax, capital gains tax, VAT
and stamp duty land tax which would in turn
affect the profits of the company.
Acquiring new sites is a key strategic objective
of the business but we face significant
competition from other uses such as hotels,
car showrooms and offices as well as from
other self-storage operators.
• Regular monitoring of changes in legislation
• Use of appointed professional advisers and
trade bodies
• We hold weekly property meetings to manage the
search process and property purchases
• Use of property acquisition consultants
• Regular communication with agents
• Attendance at industry relevant property events
Planning
Permission
The process of gaining planning permissions
remains challenging.
• Where we can we acquire sites subject to planning
• We work with an established external planning
consultant
• Our property team has over 20 years’ experience
Construction
Poor construction may affect the value of
the property and/ or the efficient operation
of the centre.
• We use a design and build contract with a
variety of established contractors
• We use external project managers
Maintenance/
Damage
Damage to properties through poor
maintenance or flood or fire could render
a centre inoperable.
Increased
Competition
An increasing number of competitors
in the industry may negatively impact
Lok’nStore’s existing operations
(e.g. pricing / available sites).
• All projects are overseen by our property team
which has over 20 years’ experience
• Regular site checks by staff
• Rolling maintenance plan for all stores
• Comprehensive disaster recovery plan
• Appropriate Insurance cover
• Prominent locations
• High visibility
• Distinctive designs and bright orange elevations
and strong signage to attract customers
• Continued investment in internet marketing
• Ensure high levels of customer service through
training & monitoring
Employee
Retention
Loss of employees may affect our ability to
operate our stores and provide the high levels
of customer service expected.
• Agreed aim to offer a good work/life balance and
career development
• Regular reviews of remuneration levels against market
• Achievable bonus systems
• Generous Employee Share Schemes
• High quality training via Lok’nStore Academy
(for further information see page 28)
• New Intranet for improved communications
• Established Employee rewards program
IT System
Breach
A breach of our IT systems might adversely
affect the operations of the business and
our reputation.
• Strong and regularly reviewed IT security systems
• Well communicated policies and procedures for
handling and managing a systems breach
27
Strategic ReportOverviewGovernanceFinancial Statements Corporate Social Responsibility Report
Corporate and Social
Responsibilities
Lok’nStore conducts its business
in a manner that reflects honesty,
integrity and ethical conduct. Our
Corporate Social Responsibility
Report sets out our environmental
policy and how we manage our
impact on the environment and our
policies and principles in relation to
our responsibilities to stakeholders
including suppliers, customers
and employees.
We believe that the long-term success
of our business is best served by
respecting the interests of all of our
stakeholders. Management of social,
environmental and ethical issues is
of high importance to Lok’nStore.
These issues are dealt with on a
day-to-day basis by the Group’s
managers with principal accountability
lying with the Board of Directors. We
look for opportunities to address our
responsibility to the environment, and
we pay close attention to our energy
use, carbon dioxide emissions, water
use and waste production. A full
assessment is set out below in our
Environmental Policy.
Customers
We believe in clarity and
transparency. Brochures and
literature are written in plain English,
explaining clearly our terms of
business without hiding anything
in the small print. We are open and
honest about our products and
services and do not employ pressure
selling techniques or attempt to
take advantage of any vulnerable
groups. If we make a mistake
we acknowledge it, deal with the
problem quickly, and learn from our
error. We listen to our customers
as we know that they can help us
improve our service to them. In return
a substantial amount of our business
comes from previous customers,
existing customers taking more
space and customer referrals.
THE LOK’nSTORE ACADEMY
The Lok’nStore Academy continues to bring strategic and operational
benefits to the business, aligning our training under one branded
project, improving the sales skills of and providing personal development
opportunities to our team members. During the year the Academy offered
training courses on 21 different subjects resulting in 5,000 hours of
interactive classroom based training to our team members – the equivalent
of 30 hours per person. We are delighted to report that 9 team members
completed National Vocational Qualifications (NVQ’s) during the financial
year bringing the total number of NVQ’s attained to 27 since the
Academy opened.
Development of our teams through the Academy supports our strategic
aim to fill future Centre Manager roles internally. Almost 50% of our current
Centre Managers are internal appointments and we expect to improve this
percentage as the business grows, giving us committed and talented team
members right at the customer facing heart of our business. The Academy
encompasses all in house training and quality audits such as our monthly
mystery shop programme and standards audits and performance reviews.
28
Lok’nStore Group Plc Annual Report and Accounts 2018 Suppliers
We are committed to conducting our
business with suppliers in a fair and
honest manner, with openness and
integrity, operating in accordance
with the terms and conditions agreed
upon. We expect our suppliers to
operate to these same principles.
Policy on Payment
of Suppliers
The Group 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 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. At the year-
end the credit taken from suppliers
by the Group was 40 days (2017:
43 days).
Employees
At 31 July 2018 we had 187
employees (2017: 167).
We treat our employees with dignity
and respect and are committed
to providing a positive attitude in
the business and an enjoyable
working environment. We have a
professional open culture where
staff can exchange ideas and offer
suggestions for work and business
improvement. This encourages our
staff to build on their skills, through
appropriate training and regular
performance review. Regular training
courses at our Farnborough Head
Office support these objectives
and we talk below about the
contribution Lok’nStore Academy
makes to this (see the case study
on the work of the Academy). We
have a large conference room which
ENVIRONMENTAL CASE STUDY
As a socially responsible company Lok’nStore is committed to
reducing the impact our operations have on the environment. To
ensure this commitment is fulfilled for this year and in the future we
are proud to confirm that electricity for the entire Lok’nStore Group
now comes from 100% renewable energy.
Our electricity supplier obtains its energy either from renewable
generators or from combined heat and power sources. The
Group stipulates that all energy supplied must be from renewable
generation. We believe that a large part of being a socially
responsible company is ensuring our suppliers share our
commitment to our green policies.
We continue to install photovoltaic (PV) solar panels on the roofs of
our new buildings and are proud that we have managed to eliminate
greenhouse gas emissions from our electricity consumption whilst
exporting clean green energy to the national grid.
Further information on our environmental management and
performance can be found on page 31.
can accommodate all our training
requirements for the foreseeable
future. This reduces outgoings and
increases and improves contact
between Head Office and the stores
by bringing staff into Head Office for
their training. This in turn contributes
to attracting and retaining the right
people which is key to the success
of Lok’nStore.
A review of our pay levels was also
undertaken in the year to ensure all
of our employees are paid fairly and
to check our levels are comparable
in the market. Where necessary, pay
levels were adjusted but the effect on
employment costs was minimal.
This year we launched our company
Intranet to provide a central point
of knowledge for all employees
across the organisation. The system
is regularly updated with news,
events and files making it a first
point of reference for company
communication and documents.
Share Ownership Plans
We are proud to have share
ownership plans in which all
employees are eligible to participate.
Almost two thirds of our employees
are members of our Share Incentive
Plan (SIP) – a tax efficient equity
scheme. SIP members purchased
a total of 52,000 shares in the year
and received a further 46,000
free shares on top of dividend
reinvestment. This high level of
participation is testament to the
loyalty and commitment of our staff.
Our personnel are committed and
motivated and help maintain the
exemplary levels of friendly service
that Lok’nStore provides to its
customers. The Board would like
to thank all of our staff for their
commitment to our business and
for their hard work and efforts over
the year.
29
Strategic ReportOverviewGovernanceFinancial Statements
Corporate Social Responsibility Report continued
Employee Benefit Trust
The Employee Benefit Trust owns
623,212 shares (2017: 623,212),
the costs of which are shown as a
deduction from shareholders’ funds.
Full details are provided in note 26 –
Own Shares.
Health and Safety
The Board recognises the prime
importance of maintaining high
standards of Health & Safety and
healthy working conditions for staff,
customers, visitors, contractors and
other people who may be affected
by our business activities. Lok’nStore
has a Property Risk Committee
which meets every other month
and considers issues relevant to
Health and Safety and other risk
issues within the Group under the
overall supervision of Ray Davies,
Finance Director, who carries Board
responsibility for risk management.
The Health and Safety policy is
reviewed by the Committee on an
annual basis. It is also amended to
include changes to Health and Safety
Law as they occur. The Health and
Safety policy clearly sets out the
duties and responsibilities of the
Chief Executive Officer, Managers
and all staff within the Group.
Environmental Performance
Lok’nStore remains committed
to reducing waste and ensuring
commitment to its green policies.
We have been actively monitoring
and measuring our environmental
impacts since 2005. By monitoring
environmental key performance
indicators (eKPIs) including
greenhouse gas emissions
(GHG), water use and waste, and
reviewing them against our stated
Environmental Policy, we continue to
achieve our stated aims; to manage
waste effectively, control polluting
emissions and to encourage
suppliers to minimise their impact
on the environment.
The UK government requires all
quoted companies to report on
their GHG emissions as part of their
annual director’s report under the
Companies Act 2006 (Strategic
Report and Director’s Report)
Regulations 2013. As in previous
years, Lok’nStore engaged Trucost to
review its reporting of environmental
impacts for the financial year ending
31 July 2018. A summary of their
findings is included on page 31. More
detail can be found on our website.
30
Lok’nStore Group Plc Annual Report and Accounts 2018 5,000
HOURS OF
ACADEMY TRAINING
65%
OF EMPLOYEES ARE
MEMBERS OF SHARE
INCENTIVE PLAN
100%
OF ELECTRICITY FROM
RENEWABLE SOURCES
Environmental Management and Performance
Highlights for the year ending 31 July 2018:
Impact
Trend Comment
Direct Operational
GHG Emissions
(scope 1)
Indirect Operational
GHG Emissions
(scope 2)
Water Consumption
Waste Generation
This year we worked with our customers to reduce the use of heating from gas sources
whenever possible. This combined with an active reduction in mileage of Head Office staff
countered the slight increase in mileage of our maintenance and service vans to effect an
overall reduction in our direct operational GHG emissions.
We continue to emit no indirect operational GHG emissions due to all our electricity
coming from renewable feed stocks and onsite photovoltaic electricity generation. Where
possible PV solar panels will be installed on all new sites going forward.
By identifying and resolving waste and leakage at the earliest opportunity we have
continually reduced our consumption of water since 2005. Since 2005, absolute water
consumption and water use intensity have decreased by 34% and 68% respectively.
Total waste generation decreased by 35% in the year and during the year we sent more
waste to recycling than to landfill. We continue to promote recycling in our stores and
offices to both our staff and our customers.
The company’s environmental reporting is consistent with, “Environmental Key Performance Indicators:
Reporting Guidelines for UK Business 2006”
Lok’nStore’s GHG reporting for 2017–18 aligns with government guidelines
Trucost found that Lok’nStore assessed and disclosed all material environmental impacts – GHG emissions,
water consumption and waste generation for its own facilities
Operational GHG emissions decreased by 8%. Since 2005, GHG emissions have decreased by 83% and when
normalised by annual revenue have decreased by 92%
GHG emissions from the consumption of purchased electricity remains at 0 due to the Group’s use of electricity
derived from renewable sources
The Board is committed to considering the impact our operations have on the environment and minimising them
wherever possible. We will continue to monitor and report our environmental impacts in line with government guidelines.
The Strategic Report as set out in pages 7 to 31 was approved by the Board of Directors and authorised
for issue on 26 October 2018 and signed on its behalf by:
Andrew Jacobs
Chief Executive Officer
Ray Davies
Finance Director
31
Strategic ReportOverviewGovernanceFinancial Statements
32
Lok’nStore Group Plc Annual Report and Accounts 2018 Governance
34 Board of Directors and Advisers
36 Corporate Governance
41 Directors’ Report
43 Remuneration Report
44 Statement of Directors’ Responsibilities
45 Independent Auditor’s Report to the
Members of Lok’nStore Group Plc
LANDMARK STORE
Wellingborough
45,000
SQUARE FEET OF MAXIMUM
LETTABLE AREA
NOW
OPEN
Lok’nStore Wellingborough opened in spring 2018
and early trading has been very good.
The prominent store, with its strong orange livery, can be
seen from almost two miles away on the A509! Following the
success of our two centres in Northampton, this becomes
our third store to open in Northamptonshire.
Located just off the A45, the store sits in a perfect location
on the main entrance to the Victoria Retail Park, home
to a large Tesco Extra as well as Halfords and a B&M
Homestore. With little established competition, the store
offers storage space from 16 sq. ft. to over 5,000 sq. ft. and
will attract customers from across Wellingborough and the
surrounding areas.
33
Strategic ReportOverviewGovernanceFinancial Statements Board of Directors and Advisers
EXECUTIVE DIRECTORS
Andrew Jacobs (59)
Chief Executive Officer
Ray Davies (61)
Finance Director
Neil Newman-Shepherd (41)
Director
Experience
Andrew established Lok’nStore over
20 years ago after 8 years working in
the Japanese equity market. Andrew
is responsible for strategy, corporate
finance and property. He has an MPhil in
Economics from Cambridge University
and a BSc in Economics from LSE.
Experience
Ray is a Fellow of the Institute of
Chartered Accountants and the
Institute of Chartered Secretaries &
Administrators. Prior to joining Lok’nStore
in 2004, Ray held several senior finance
positions in listed companies in the
construction, health and fitness sectors.
Experience
Neil joined the Lok’nStore Group in
October 2006 becoming Sales Director
in November 2015. Prior to joining
Lok’nStore, Neil gained retail experience
at Wickes and Woolworths plc. Neil is
responsible for sales, marketing and
our people.
Key Areas of Expertise
Strategy, corporate finance,
economics and property.
Key Areas of Expertise
Finance and accounting, corporate
reporting, risk management, legal,
tax and compliance.
Key Areas of Expertise
Sales, Marketing and Human
Resource Management.
NON-EXECUTIVE DIRECTORS
Simon Thomas (58)
Non-Executive Chairman
Edward Luker (69)
Senior Non-Executive Director
Richard Holmes (58)
Non-Executive Director
Experience
Simon joined Lok’nStore in 1997 following
successful careers in the publishing and
finance sectors. He worked at Reed
International, Swiss Bank Corporation,
Nomura International and co-founded
the emerging markets investment trust
business at LCF Edmond de Rothschild.
Simon is responsible for the composition
and performance of the Board.
Experience
Edward is a Fellow of the Royal Institution
of Chartered Surveyors. Edward is a well-
known figure in the UK property industry,
having worked for CB Richard Ellis for
33 years, where he has been a Director
and Partner for 20 years. Edward joined
Lok’nStore in 2007.
Experience
Richard joined Lok’nStore in 2000
having held senior marketing and
commercial roles in Unilever, Boots (as
Marketing Director and Commercial
Director) and latterly Specsavers (as
Group Marketing Director).
Key Areas of Expertise
Corporate Finance.
Key Areas of Expertise
Commercial Property.
Key Areas of Expertise
Marketing including digital marketing,
and customer experience.
34
Lok’nStore Group Plc Annual Report and Accounts 2018
The Board has over 100 years
of self-storage experience.
Audit Committee
Remuneration Committee
Find out more about the Company’s
committees on page 40.
Charles Peal (63)
Non-Executive Director
Experience
Charles joined Lok’nStore in 2007.
Charles started his career in 1977
at 3i Group, the leading UK quoted
Venture Capital Company. He was Chief
Executive of Legal and General Ventures
from 1988 to 2000 and has served on
several boards since then.
Key Areas of Expertise
Capital Markets and Fund Management.
DIRECTORS AND ADVISERS
Directors
The Board of Directors is supported by an Assistant Company
Secretary who assists the Chairman with the setting of meeting
agendas and provides the information to the Board members
prior to the meetings. A procedure to enable Directors to take
independent professional advice if required has been agreed
by the Board and formally confirmed by all Directors.
S.G. Thomas
Non-Executive Chairman
A. Jacobs
R.A. Davies
Chief Executive Officer
Finance Director
N. Newman-Shepherd Director
E.T.D. Luker
R.J. Holmes
C.P. Peal
Senior Non-Executive Director
Non-Executive Director
Non-Executive Director
In addition the Board is advised by:
Secretary and
Registered Office
Dentons Secretaries Limited
One Fleet Place
London
EC4M 7WS
Nominated Adviser
and Broker
finnCap Ltd
60 New Broad Street
London
EC2M 1JJ
Solicitors
Dentons UKMEA LLP
(formerly Maclay Murray
Spens LLP)
One Fleet Place
London
EC4M 7WS
Solicitors
Glovers LLP
6 York Street
London
W1U 6QD
Auditor
RSM UK Audit LLP
25 Farringdon Street
London
EC4A 4AB
Registrars
Link Asset Services
(Formerly Capita Registrars)
Link Group
6th Floor, 65 Gresham Street,
London
EC2V 7NQ
Solicitors
Goodman Derrick LLP
10 St Bride Street
London
EC4A 4AD
To find out more visit:
www.loknstore.com/
investors/the-board
35
Strategic ReportOverviewGovernanceFinancial Statements Corporate Governance
The Board of Lok’nStore Group Plc has always sought to operate the highest level of
governance standards appropriate to the size and nature of the Company. Although the
Company has not been obliged to comply with a recognised code, its annual reporting
has previously detailed how the company has followed the UK Corporate Governance
Code and where it has departed from the code explained why.
Internal Control
The Board is responsible for ensuring that the Group has
established and operates a system of internal control. In
this context, internal 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 customer management. The
internal audit checks are designed to ensure any fraud
or mismanagement is quickly identified. The Group has
a whistle-blowing procedure within its staff handbook,
which is issued to all staff. All employees may raise
concerns about malpractice or improper or potentially
illegal behaviour in confidence without concern of
victimisation or disciplinary action.
In March 2018, the London Stock Exchange published
Aim Notice 50 which requires AIM companies to state
which of the recognised corporate governance codes
the Board of directors has decided to apply, how the
company complies with that code and where it departs
from the code an explanation of the reasons for doing so.
Having reviewed the two recognised codes, the Board
has decided to apply the Quoted Companies Alliance’s
Corporate Governance code (‘QCA Code’).
As Chairman it is my responsibility to ensure the Company
complies with the QCA code and where the company
deviates to explain why the Director’s believe this to be
in the best interests of the Company. In this section, we
hope to demonstrate our company’s good corporate
governance structure and where our practices differ from
the expectations set by the QCA Code, why they do so.
You can find more information including our reporting
directly referenced to the 10 principles of the QCA code
on the corporate governance page in the investor section
on our website.
Our Governance Structure
THE BOARD
Remuneration Committee
Meets Once a Year
Audit Committee
Meets Twice a Year
Chaired by Edward Luker
Chaired by Charles Peal
See page 40 for more information
See page 40 for more information
EXECUTIVE BOARD COMMITTEE
Meets Monthly
Considers:
Strategy, Management accounts, Store operations,
Customer Issues & Human Resources
Capex
Committee
Property
Committee
Property Risk
Committee
Meets Monthly
Meets Weekly
Meets Quarterly
Considers:
proposed capital
expenditure, actual
spend against budgets
Considers:
Sites under
development
New acquisitions
Considers:
Risks associated
with properties
including HS&E
OPERATIONAL MANAGEMENT
Day-to-day Business Delivery
36
Lok’nStore Group Plc Annual Report and Accounts 2018 The Board
Three Executive Directors and Four Non-Executive Directors
Meets:
Considers:
Receives:
5 times a year with
teleconferences
when required
• Financial strategy
• Company performance
• Major investments
• Capital resources
• Risk Management
• Reporting to shareholders
• Detailed management accounts against
budgets
• A current trading appraisal
• Minutes of all subcommittees
• The Risk Register
• The Conflicts Register
The Directors
The Board consists of three Executive Directors and Four Non-Executive Directors. The expertise of the directors
covers Company Law, Corporate Finance, Economics, Finance and Accounting, Corporate Reporting, Risk
Management, Tax and Compliance, Marketing, Operations, Property Law and Strategy.
Activities
The Non-Executive Directors provide considerable support to the Chief Executive Officer and while much of this is via
informal meetings, telephone calls and email correspondence, the Non-Executive Directors also lend their expertise
and experience to other members of the management team (see ‘Our Board in Action’ for an account of this).
Conflicts of Interest
The Directors have a responsibility to act in the best interests of the Group and its Shareholders and in keeping with
this responsibility it is imperative that Directors are aware of and properly manage potential conflicts of interest.
The table below shows the directorships that the current Group Directors hold in other Companies both inside and
outside the Group:
Andrew Jacobs
Andrew Jacobs (UK) Limited
Lok’nStore Limited*
Saracen DataStore Limited*
Ray Davies
Ash Road SS Limited
Davies Elise Consulting Limited
Lincoln Space Solutions Limited
Lok’nStore Limited*
Lok’nStore Trustee Limited*
ParknCruise Limited*
Saracen DataStore Limited*
Semco Engineering Limited*
Semco Machine Tools Limited*
Southern Engineering and Machinery Co. Limited*
* Lok’nStore Group Companies
**Guernsey registered company
Neil Newman-Shepherd
Lok’nStore Limited*
Simon Thomas
Lok’nStore Limited*
Simon Thomas (UK) Limited
Edward Luker
Edward Luker Consultancy Limited
St George’s School Ascot Trust Limited
Richard Holmes
Lok’nStore Limited*
Lok’nStore Trustee Limited*
First Contact Limited**
Charles Peal
Warnborough Asset Management Limited
37
Strategic ReportOverviewGovernanceFinancial Statements Corporate Governance continued
Conflicts of interest arise where an individual’s personal
interests or those interests related to legitimate outside
roles may conflict with the interests of the Group. This
could, for example, inhibit open discussions or lead to
a perception that the individual is acting outside of the
Group’s interests.
It is recognised that conflicts of interest will inevitably occur
from time to time and that Directors legitimately undertake
roles outside of the Group. The Board therefore believes
it is important to be transparent in terms of such interests
and to ensure they are properly recorded and, where
necessary, Directors will withdraw from decision-making
if there is a danger of perceived conflict.
Board Evaluation and Composition
A register of interests is maintained by the Assistant
Company Secretary and is circulated to the Directors in
advance of each Board meeting. Conflicts of Interest are
considered and authorised by the Board as they arise.
We report in note 29 related party transactions.
Additionally, within note 29, in the interests of
transparency we include items which, while not strictly
falling within the definition of a related party transaction,
are still considered matters of interest.
Board Attendance
Total Number of
Meetings in 2017/2018
Executive Directors
Andrew Jacobs
Ray Davies
Neil Newman-Shepherd
Non-Executive Directors
Simon Thomas
Edward Luker
Charles Peal
Richard Holmes
Board
5 (2 Telecon)
5 (2)
5 (2)
5 (2)
5 (2)
5 (2)
5 (2)
5 (1)
Audit
Committee
Remuneration
Committee
Annual
General
Meeting
%
Attendance
2
n/a
n/a
n/a
n/a
2
2
n/a
1
n/a
n/a
n/a
n/a
1
n/a
1
1
1
1
1
1
1
1
1
100%
100%
100%
100%
100%
100%
89%
The 2018 QCA Code expects companies to, ‘evaluate
board performance based on clear and relevant
objectives, seeking continuous improvement.’ Our
Executive Directors are evaluated on a quarterly basis
via the company’s senior management review system in
which objectives are set and performance against these
objectives is subsequently measured. Remuneration
is linked to these objectives and may include relevant
performance targets such as number of new properties
acquired or turnover growth. Our Non-executives were
evaluated informally within this year’s review of our Board
composition and we report on this below.
We have previously reported (against The UK Corporate
Governance Code’s requirement that a smaller
company should have at least 2 Non-Executive
Directors that are deemed independent) that all of
our non-executive directors have served for longer
than 9 years and were therefore no longer deemed
independent. Our new code, the Quoted Companies
Alliance Code, takes a more pragmatic approach
stating that, ‘length of tenure does not automatically
affect independence’ and that the Board should, ‘make
a decision regarding such director’s independence.’
Therefore as part of our review of the Board composition
this year we looked at the ability of our Non-Executive
directors to be objective, the experience each of our
non-executive directors brings to the business and the
contribution they have made in the year. We established
that the broad range of skills, expertise and attitude
amongst the Executive and Non-Executive Directors
includes all the matters that the Company deals with –
strategy, property, finance, human resources, marketing,
and organisation. Further the long experience of Board
Members continues to be considered an asset and all
express challenges freely and robustly.
38
Lok’nStore Group Plc Annual Report and Accounts 2018 We also met with potential non-executive directors to
explore what expertise they might bring to the Board
and discussed the balance between new experiences
and increasing costs. After careful consideration we
concluded that the current composition of the Board
remains in the best interest of shareholders and the
company as a whole.
Non-Executive Directors who have served over 9 years
must offer themselves for re-election at every Annual
General Meeting and accordingly Simon Thomas,
Edward Luker, Charles Peal and Richard Holmes offer
themselves for re-election at every AGM.
Directors’ Remuneration
The Remuneration Committee consists of Edward Luker
(Chairman of the Committee) and Richard Holmes.
The Committee meets and considers, within existing
terms of reference, 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.
Performance related bonuses are calculated in
accordance with strict and measurable performance
criteria. There are no specific performance conditions
relating to the historic grant of share options beyond the
share price performance. The Remuneration Committee
has introduced appropriate performance criteria to apply
for the grant of future share options as part of long term
performance awards in order to meet the objectives
of the business and accord with accepted corporate
governance. The details of each Director’s remuneration
are set out in note 6 in the financial statements.
The Committee meets once a year and considers
proposals from the Chairman and Chief Executive Officer.
Shareholder Relations
We aim to provide balanced, clear and transparent
communications which allow our shareholders to
understand our performance, strategy and prospects.
Further aiding transparency is the fact that the Group has
a straight forward capital structure; one class of shares
and one lending bank.
The Directors also meet and discuss the performance
of the Group with shareholders throughout the year with
specific schedules to visit institutional investors, analysts
and the media being held after the announcement of
the half year and full year results. At the AGM the Board
give a presentation of events and progress during the
year. Attendee shareholders are encouraged to mix and
engage with the Directors after the formal business of the
AGM has concluded.
Regular Regulatory News Service announcements
(RNS) are made via the London Stock Exchange
throughout the year keeping all shareholders informed
about acquisitions, trading conditions, director dealings
etc. Queries raised by a shareholder, either verbally or
in writing, are promptly answered by whoever is best
placed on the Board to do so.
Accounting Dates and
Reporting Calendar 2018
January
February
March
April
May
June
July
August
September
October
November
December
H1 Period-End
Pre-close Trading Statement (H1)
Interim Results announced
Institutional Investor visits
Institutional Investor & Media Site visits
Financial Year-End
Pre-close Trading Statement
Preliminary Statement
Institutional Investor visits
AGM
Accountability and Audit
The Board believes that the audited Annual Report
and Accounts play an important part in presenting all
shareholders with an assessment of the Group’s position
and prospects. The Strategic Review contains a detailed
consideration of the Group’s position and prospects.
39
Strategic ReportOverviewGovernanceFinancial Statements Corporate Governance continued
OUR BOARD IN ACTION
As the Director responsible for Specsavers’
compliance with the General Data Protection Act
(GDPR) our Non-Executive Director Richard Holmes’
knowledge and experience was invaluable in our
own GDPR compliance project. Richard spent time
with our team discussing the implications of the new
rules and how our data collection and management
processes might have to change in order to comply.
He reviewed our project plan and supported the
team towards compliance when the Act came into
force in May this year.
Board Committees
The following section introduces the Group’s
committees, members and the terms of reference.
Nomination Committee
A Nomination Committee would oversee the appointment
of a new Director. Due to the relatively small size of the
Company, the Board do not believe that a Nomination
Committee is necessary. In the event of a proposal to
appoint a new Director, this is 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.
Each member of the Board is subject to the re-election
provisions of the Articles of Association, which require
them to offer themselves for re-election at least once
every three years.
Remuneration Committee
The Remuneration Committee consists of Edward Luker
(Chairman of the Committee) and Richard Holmes. The
Committee meets once a year and considers, within
existing terms of reference, the remuneration policy and
makes recommendations to the Board for each Executive
Director. Further the committee considers proposals
from the Chief Executive Officer on the remuneration of
the operational management team especially in relation
to bonus share option awards under the long term
performance related pay schemes.
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 long term performance related pay including
share options, which are linked to corporate achievements
and these levels are determined by the Remuneration
Committee. The details of each Director’s remuneration
are set out in the Remuneration Report on page 43 and
more details are given in note 6 in the financial statements.
Audit Committee
The Company has an Audit Committee, to whom
the external auditor, RSM UK Audit LLP, reports. The
Committee consists of Charles Peal (Chairman of the
Committee) and Edward Luker. Charles Peal is the
Committee’s Nominated Financial Expert (for details
of Charles’s experience please see his biography on
page 35).
The Committee is responsible for the relationship with the
Group’s external auditor and the review of the Group’s
financial reporting and internal controls.
The Committee meets prior to the announcement of the
Group’s financial results to consider the Auditors’ Findings
Report and consider any corresponding recommendations.
It also convenes to discuss and review the findings of the
external JLL Valuation Report prior to the Group’s year-
end results. The Committee, would convene at other times
should it be necessary.
The Audit Committee also undertakes a formal assessment
of the auditor’s independence each year, which includes:
• a review of non-audit services provided to the
Group and related fees;
• discussion with the auditor 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 auditor’s 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; and
• obtaining written confirmation from the auditor 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 Committee is satisfied that the external auditor remains
independent in the discharge of their audit responsibilities.
The Board will continue to review the Company’s corporate
governance and annual reporting against the QCA Code
and to implement appropriate systems in order to support
the Directors in executing their responsibilities to all of the
Company’s Stakeholders.
On behalf of the Board.
Simon G Thomas
Chairman
26 October 2018
40
Lok’nStore Group Plc Annual Report and Accounts 2018 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 2018.
Principal Activity
The principal activity of the Group during the year was
that of providing self-storage and related services.
Review of the Business and Future
Developments
A detailed account of the Group’s progress during
the year and its future prospects are set out in the
Chairman’s Statement on page 2 and the Strategic
Report on pages 7 to 31.
The key performance indicators are set out in the
Highlights on page 1 and discussed in more detail in the
Financial Review on page 20 and the Chief Executive’s
Review on page 13. Commentary on financial risk
management is included on page 26 and disclosures
on financial instruments are provided in note 16.
Going Concern
A review of the Group’s business activities, together with
the matters likely to influence its future development,
performance and its position in the wider market are
set out in the Strategic Report. The financial position
of the Group, its cash flows and borrowing facilities
are shown in the Statement of Financial Position, Cash
Flow Statement and corresponding notes and policies
contained within the financial statements.
with all bank covenants and undertakings and is not
obliged to make any repayments prior to expiration.
The financial statements are therefore prepared on a
going concern basis.
Dividend
In respect of the current year, the Directors propose
that a final dividend of 7.67 pence per share (2017:
6.33 pence) will be paid on 11 January 2019 to
shareholders on the register on 30 November 2018. The
corresponding ex-dividend date is 29 November 2018.
The total estimated dividend to be paid is £2.22 million
based on the number of shares in issue on 17 October
2018 as adjusted for shares held in the Employee
Benefits Trust. This dividend is subject to approval by
shareholders at the Annual General Meeting and has not
been included as a liability in these financial statements.
Events after the Reporting Date
Reportable events after the reporting date are set out
in note 31 in the financial statements.
Directors
The following Directors held office during the year and
subsequently:
SG Thomas
A Jacobs
RA Davies
N Newman-Shepherd
ETD Luker
RJ Holmes
CP Peal
Further information concerning the Group’s objectives,
policies, its financial risk management objectives as well
as details of financial instruments and credit and liquidity
risk are also found in the Strategic Report and in the
notes to the financial statements.
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 the Group have adequate resources and facilities
to continue in operational existence for the foreseeable
future based on Group cash balances of £5.0 million,
(2017: £11.4 million) undrawn committed facilities at 31
July 2018 of £12.7 million (2017: £11.2 million) and cash
generated from operations (2018: £7.0 million 2017: £5.5
million). In February 2018, the Group increased its bank
facility by £10 million to £50 million with Royal Bank
of Scotland on equivalent terms; the Group will now
operate its £50 million revolving credit facility with RBS
plc until 14 January 2023. The Group is fully compliant
Details of the interests of the Directors in the shares
of the Company are set out below and details of
their remuneration are disclosed in note 6 of the
financial statements.
Biographical details of the Directors are set out on
pages 34 and 35.
Reappointment of Directors
Richard Holmes, Edward Luker and Charles Peal who
have over 14, 11 and 11 years tenure respectively as
Non-Executives are required under the Companies Act
2006 to offer themselves for re-election at every AGM
and accordingly offer themselves for re-election at the
next AGM. Simon Thomas by virtue of his accumulated
tenure both as an executive and a non-executive director
also offers himself for re-election at the next AGM.
Directors’ and Officers’ Liability Insurance
The Company has liability insurance covering the Directors
and Officers of the Company and its subsidiaries.
41
Strategic ReportOverviewGovernanceFinancial Statements Directors’ Report continued
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 17 October 2018:
Current
rank
% at
17 Oct
2018
Number
of shares
Total
shares
in issue)
% at
13 Oct
2017
Andrew Jacobs
Miton Asset Management
Simon Thomas
Canaccord Genuity Wealth
Management (previously Hargreave
Hale Investment Managers)
Cavendish Asset Management
Slater Investments
Downing
1
2
3
4
5
6
7
17.64
5,204,600
8.50
6.03
5.56
5.07
4.16
4.15
2,509,455
1,780,000
1,640,000
1,496,500
1,228,750
1,225,250
17.75
10.46
6.14
5.59
5.14
4.19
2.24
Total
shares
in issue)
Number
of shares
5,205,600
3,067,171
1,800,000
1,640,000
1,507,750
1,228,750
656,399
29,505,919
29,323,9231
1 Represents total shares in issue.
Market Valuation of Freehold Land and Buildings
The changes in property, plant and equipment during the year and details of property valuations at 31 July 2018
are shown in note 10(b) to the Financial Statements. Further commentary on the property portfolio is contained
in the Property Review on page 18 and in the Financial Review on page 22.
Share Buy-back Authority
Authority will be sought at the Company’s AGM on 11 December 2018 from shareholders to approve a share
buyback 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.
Statement of Disclosure of Information to the Auditor
The Directors who were in office at the date of approval of these financial statements have confirmed that, as far
as they are aware, there is no relevant audit information of which the auditor is unaware. Each of the Directors has
confirmed that they have taken all the steps that they ought to have taken as Directors in order to make themselves
aware of any relevant audit information and to establish that it has been communicated to the auditor.
Annual General Meeting
The Company’s Annual General Meeting will be held on 11 December 2018 at 5.30pm at the offices of Goodman
Derrick LLP 10, St Bride Street London EC4A 4AD.
Auditor
A resolution to reappoint RSM UK Audit LLP as auditor 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.
On behalf of the Board:
Ray Davies
Director
26 October 2018
42
Lok’nStore Group Plc Annual Report and Accounts 2018 Remuneration Report
Although the Group is not required to set out a formal Remuneration Report we set out below the
key components of the Directors’ remuneration in accordance with AIM Rule 19.
Base Salary: Provides competitive fixed remuneration
to retain key employees and reflect their experience and
expertise in the context of the role and set by reference
to the market.
Annual and Monthly Bonuses: Aligns reward to
key Group strategic objectives and drives short-term
performance.
Long Term Incentive Plan: Following strict
performance criteria aligns Executive Director interests
with those of shareholders and rewards achievement
of the long term plan. (See below and note 22(b) of the
financial statements).
All Employee Scheme: The Group operates an HMRC
approved Share Incentive Plan (SIP). This encourages
share ownership by all employees and allows them to
share in the long term success of the Group. R Davies
and N Newman, Executive Directors, also participate in
this scheme.
Other Benefits: The benefits reported in the table below
all relate to medical insurance premiums paid on behalf
of the Directors. An additional benefit is Death in Service
Insurance typically at four times base salary (subject to a
cap of £0.5 million).
Service Contracts: Executive Directors’ service
contracts operate on a rolling basis without a specific
end-date providing for one year’s notice on the part of
the Company and 6 months’ notice on the part of the
employee. Non executives do not have service contracts
with the Company but rather their appointments are
governed by letters of appointment.
Directors’ remuneration
2018
Executive:
A Jacobs
RA Davies
Neil Newman-Shepherd
Non-Executive:
SG Thomas
RJ Holmes
ETD Luker
CP Peal
Emoluments
£
Bonuses
£
Pension
£
Benefits
£
Sub total
£
Gains on
share options
£
216,487
131,280
75,172
30,000
21,648
27,061
21,648
523,296
26,000
19,222
42,477
–
–
–
–
87,699
–
31,190
2,255
–
–
–
–
33,445
4,272
4,090
1,933
4,009
–
–
–
14,304
246,759
185,782
121,837
34,009
21,648
27,061
21,648
658,744
–
20,415
71,317
–
–
–
–
91,732
Total
£
246,759
206,197
193,154
34,009
21,648
27,061
21,648
750,476
Details of the Directors remuneration is shown above. Key management personnel are defined as the Directors of the
Group and the additional participants in the Long Term Partnership Performance Plan (LTPPP).
The following table shows a summary of the options
held by Directors under all schemes. Refer notes 20
to 23 for details.
A Jacobs
SG Thomas
RA Davies
N Newman-Shepherd
Total
Total at
31 July 2018
206,087
25,217
254,719
183,082
669,105
The grant of options to Executive Directors and senior
management is recommended by the Remuneration
Committee on the basis of their contribution to the
Group’s success. The options vest after two and a
half or three years.
Unapproved Share Options – Long Term
Partnership Performance Plan (LTPPP)
On 2 July 2018 the Group adopted a Company Long
Term Partnership Performance Plan (LTPPP). The Plan
is a discretionary benefit offered by the Company for the
benefit of selected key employees including Executive
Directors. Its main purpose is to increase the interest of
the employees in the Groups long term business goals
and performance through share ownership. It contains
specific performance criteria. Further details are set out
in note 22(b) of the financial statements.
On behalf of the Board and signed on its behalf by:
Andrew Jacobs
Chief Executive Officer
Ray Davies
Finance Director
43
Strategic ReportOverviewGovernanceFinancial Statements
Statement of Directors’ Responsibilities
The Directors are responsible for preparing the Strategic Report and
Directors’ Report and the financial statements in accordance with applicable
law and regulations.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Group’s and the Company’s transactions
and disclose with reasonable accuracy at any time the
financial position of the Group and the Company and
enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also
responsible for safeguarding the assets of the Group
and the Company and hence for taking reasonable
steps for the prevention and detection of fraud and
other irregularities.
The Directors are responsible for the maintenance and
integrity of the corporate and financial information on the
Lok’nStore Group Plc websites.
Legislation in the United Kingdom governing the
preparation and dissemination of financial statements
may differ from legislation in other jurisdictions.
Company law requires the directors to prepare Group
and Company Financial Statements for each financial
year. The Directors are required by the AIM Rules of
the London Stock Exchange to prepare Group financial
statements in accordance with International Financial
Reporting Standards (“IFRS”) as adopted by the
European Union (“EU”) and have elected under company
law to prepare the Company financial statements in
accordance with IFRS as adopted by the EU.
The financial statements are required by law and IFRS
adopted by the EU to present fairly the financial position
of the Group and the Company and the financial
performance of the Group. The Companies Act 2006
provides in relation to such financial statements that
references in the relevant part of that Act to financial
statements giving a true and fair view are references to
their achieving a fair presentation.
Under company law the Directors must not approve
the financial statements unless they are satisfied that
they give a true and fair view of the state of affairs of the
Group and the Company and of the profit or loss of the
Group for that period.
In preparing the Group and Company financial
statements the directors are required to:
a.
b.
c.
d.
select suitable accounting policies and then apply
them consistently;
make judgements and accounting estimates that
are reasonable and prudent;
state whether they have been prepared in
accordance with IFRSs adopted by the EU; and
prepare the financial statements on the going
concern basis unless it is inappropriate to
presume that the Group and the Company will
continue in business.
44
Lok’nStore Group Plc Annual Report and Accounts 2018 Independent Auditor’s Report
to the Members of Lok’nStore Group Plc
Opinion
We have audited the financial statements of
Lok’nStore Group Plc (the ‘parent company’) and its
subsidiaries (the ‘group’) for the year ended 31 July
2018 which comprises the consolidated statement of
comprehensive income, the consolidated and company
statements of change in equity, the consolidated
and company statements of financial position, the
consolidated statement of cash flows and notes to the
financial statements, including a summary of significant
accounting policies. The financial reporting framework
that has been applied in their preparation is applicable
law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union and, as
regards the parent company financial statements,
as applied in accordance with the provisions of the
Companies Act 2006.
In our opinion:
•
•
•
•
the financial statements give a true and fair view of
the state of the group’s and of the parent company’s
affairs as at 31 July 2018 and of the group’s profit for
the year then ended;
the group financial statements have been properly
prepared in accordance with IFRSs as adopted by the
European Union;
the parent company financial statements have been
properly prepared in accordance with IFRSs as
adopted by the European Union and as applied in
accordance with the Companies Act 2006; and
the financial statements have been prepared in
accordance with the requirements of the Companies
Act 2006.
Basis for opinion
We conducted our audit in accordance with
International Standards on Auditing (UK) (ISAs (UK))
and applicable law. Our responsibilities under those
standards are further described in the Auditor’s
responsibilities for the audit of the financial statements
section of our report. We are independent of the
group and the parent company in accordance with the
ethical requirements that are relevant to our audit of
the financial statements in the UK, including the FRC’s
Ethical Standard as applied to SME listed entities and
we have fulfilled our other ethical responsibilities in
accordance with these requirements. We believe that
the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinion.
Conclusions relating to going concern
We have nothing to report in respect of the following
matters in relation to which the ISAs (UK) require us to
report to you where:
•
•
the directors’ use of the going concern basis
of accounting in the preparation of the financial
statements is not appropriate; or
the directors have not disclosed in the financial
statements any identified material uncertainties that
may cast significant doubt about the group’s or the
parent company’s ability to continue to adopt the
going concern basis of accounting for a period of at
least twelve months from the date when the financial
statements are authorised for issue.
Key audit matters
Key audit matters are those matters that, in our
professional judgment, were of most significance in our
audit of the financial statements of the current period
and include the most significant assessed risks of
material misstatement (whether or not due to fraud) we
identified, including those which had the greatest effect
on the overall audit strategy, the allocation of resources
in the audit and directing the efforts of the engagement
team. These matters were addressed in the context of
our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a
separate opinion on these matters.
The key audit matter identified is the valuation of
properties as set out below:
Property valuation
Risk
Fair values are calculated using actual and forecast
inputs such as: occupancy, capitalisation rates,
maximum lettable area, operating expenses and net
rent per square foot by property as at 31 July 2018.
In addition, the external valuer applies professional
judgement concerning market conditions and factors
impacting individual properties.
We consider property valuation to be a significant and key
risk of material misstatement as the valuation process is
subjective and inherently judgemental in nature.
Refer to note 10(b) to the financial statements for the
disclosures relating to the property valuations.
45
Strategic ReportOverviewGovernanceFinancial Statements Independent Auditor’s Report continued
to the Members of Lok’nStore Group Plc
Other information
The directors are responsible for the other information.
The other information comprises the information
included in the annual report, other than the financial
statements and our auditor’s report thereon. Our
opinion on the financial statements does not cover the
other information and, except to the extent otherwise
explicitly stated in our report, we do not express any
form of assurance conclusion thereon.
In connection with our audit of the financial statements,
our responsibility is to read the other information and,
in doing so, consider whether the other information is
materially inconsistent with the financial statements
or our knowledge obtained in the audit or otherwise
appears to be materially misstated. If we identify
such material inconsistencies or apparent material
misstatements, we are required to determine whether
there is a material misstatement in the financial
statements or a material misstatement of the other
information. If, based on the work we have performed,
we conclude that there is a material misstatement of
this other information, we are required to report that
fact. We have nothing to report in this regard.
Opinions on other matters prescribed
by the Companies Act 2006
In our opinion, based on the work undertaken in the
course of the audit:
•
•
the information given in the Strategic Report and the
Directors’ Report for the financial year for which the
financial statements are prepared is consistent with
the financial statements; and
the Strategic Report and the Directors’ Report have
been prepared in accordance with applicable legal
requirements.
Approach
Our approach to auditing the valuations involved
the following:
• We tested the integrity of the information provided to
the external valuer by management by agreeing key
inputs such as actual occupancy and profitability to
underlying records and source evidence;
• We evaluated the competence, capabilities and
objectivity of external valuation experts;
• We assessed the scope of the work which the
external valuer was requested to perform by
management and the valuation methodology applied;
• We discussed the valuations with the external
valuer and challenged them on the key assumptions
applied and focussed on properties we identified as
having significant or unusual valuation movements
(compared to underlying performance or previous
periods); and
• We challenged management to justify the
assumptions used in the model (particularly in
respect of trading forecasts and comparison of
those forecasts to actual results).
Our application of materiality
When establishing our overall audit strategy, we set
certain thresholds which help us to determine the
nature, timing and extent of our audit procedures and to
evaluate the effects of misstatements, both individually
and on the financial statements as a whole. During
planning we determined a magnitude of uncorrected
misstatements that we judge would be material for
the financial statements as a whole (FSM). During
planning FSM was calculated at £559,500 which was
not changed during the course of our audit. We agreed
with the Audit Committee that we would report to them
all unadjusted differences in excess of £20,000, as well
as differences below those thresholds that, in our view,
warranted reporting on qualitative grounds.
An overview of the scope of our audit
Our audit was scoped by obtaining an understanding of
the Group and its control environment, including Group-
wide controls, and assessing the risks of material
misstatement. The scope of our audit covered 100%
of both consolidated profit before tax and consolidated
net assets. Subsidiaries that were subject to audit
exemption were audited to group materiality as part
of the audit of the consolidated financial statements.
46
Lok’nStore Group Plc Annual Report and Accounts 2018 Matters on which we are required
to report by exception
In the light of the knowledge and understanding of the
group and the parent company and its environment
obtained in the course of the audit, we have not identified
material misstatements in the Strategic Report or the
Directors’ Report.
We have nothing to report in respect of the following
matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
• adequate accounting records have not been kept by
the parent company, or returns adequate for our audit
have not been received from branches not visited by
us; or
•
the parent company financial statements are not in
agreement with the accounting records and returns; or
• certain disclosures of directors’ remuneration
specified by law are not made; or
• we have not received all the information and
explanations we require for our audit.
Responsibilities of directors
As explained more fully in the directors’ responsibilities
statement (set out on page 44), the directors are
responsible for the preparation of the financial
statements and for being satisfied that they give a
true and fair view, and for such internal control as
the directors determine is necessary to enable the
preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors
are responsible for assessing the group’s and the
parent company’s ability to continue as a going
concern, disclosing, as applicable, matters related
to going concern and using the going concern basis
of accounting unless the directors either intend to
liquidate the group or the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditor’s responsibilities for the audit
of the financial statements
Our objectives are to obtain reasonable assurance
about whether the financial statements as a whole
are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that
an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are
considered material if, individually or in the aggregate,
they could reasonably be expected to influence the
economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit
of the financial statements is located on the Financial
Reporting Council’s website at: http://www.frc.org.uk/
auditorsresponsibilities. This description forms part of
our auditor’s report.
Use of our report
This report is made solely to the company’s members,
as a body, in accordance with Chapter 3 of Part 16 of
the Companies Act 2006. Our audit work has been
undertaken so that we might state to the company’s
members those matters we are required to state to
them in an auditor’s report and for no other purpose.
To the fullest extent permitted by law, we do not accept
or assume responsibility to anyone other than the
company and the company’s members as a body, for
our audit work, for this report, or for the opinions we
have formed.
Graham Ricketts
(Senior Statutory Auditor)
For and on behalf of RSM UK Audit LLP,
Statutory Auditor
Chartered Accountants
25 Farringdon Street
EC4A 4AB
26 October 2018
47
Strategic ReportOverviewGovernanceFinancial Statements
48
Lok’nStore Group Plc Annual Report and Accounts 2018 Financial
Statements
50 Consolidated Statement of
Comprehensive Income
51 Consolidated Statement of Changes in Equity
52 Company Statement of Changes in Equity
53 Statements of Financial Position
54 Consolidated Statement of Cash Flows
55 Accounting Policies
64 Notes to the Financial Statements
94 Glossary
95 Our Stores
LANDMARK STORE
Hemel Hempstead
45,000
SQUARE FEET OF MAXIMUM
LETTABLE AREA
NOW
OPEN
Lok’nStore Hemel Hempstead opened in November
2017 and is our tallest storage centre so far.
Located just off junction 8 of the M1 this striking centre, with
its powerful cantilevered façade, is accessible from the main
road off the motorway into the heart of Hemel Hempstead.
Opposite is the soon-to-open Maylands Gateway Retail
Park. With brands such as Aldi, Costa and McDonalds
this will bring excellent footfall to the immediate area. With
over 40% of new customers coming from passing traffic,
this development will bring even more new customers to
the store.
Hemel Hempstead is the 8th store we have opened under
a management contract. Standing an impressive 18 metres
above the ground, the store offers storage spaces of all
sizes from 16sq ft. up to 5,000sq ft. over five floors.
49
Strategic ReportOverviewGovernanceFinancial Statements Consolidated Statement of Comprehensive Income
For the year ended 31 July 2018
Revenue
Total property, staff, distribution and general costs
Adjusted EBITDA1
Amortisation of intangible assets
Depreciation
Equity settled share based payments
Carried interest – fees receivable
Receivables from warranty claims
Property disposal costs
Store relocation costs
Director retirement costs
Operating profit1
Finance income
Finance cost
Profit before taxation
Income tax expense
Profit for the year
Profit attributable to:
Owners of the parent
Other Comprehensive Income
Items that will not be reclassified to profit and loss
Increase in property valuation
Deferred tax relating to change in property valuation
Items that may be subsequently reclassified to profit and loss
Increase in fair value of cash flow hedges
Other comprehensive income
Total comprehensive income for the year
Attributable to owners of the parent
Earnings per share
Basic
Diluted
Group
Year ended
31 July 2018
£’000
Group
Year ended
31 July 2017
£’000
17,754
(10,459)
7,295
(165)
(1,980)
(33)
361
230
–
–
–
(1,587)
5,708
80
(463)
5,325
(1,568)
3,757
16,654
(10,161)
6,493
(165)
(1,856)
(97)
–
–
(15)
(29)
(69)
(2,231)
4,262
309
(606)
3,965
(904)
3,061
Notes
1(a)
2(a)
10(a)
10(b)
21
2(c)
2(c)
2(c)
2(c)
2(c)
3
4
5
7
25
3,757
3,061
15,723
(2,698)
13,025
–
–
13,025
16,782
16,782
13.05p
12.83p
7,772
(932)
6,840
37
37
6,877
9,938
9,938
11.02p
10.64p
9
9
1
Adjusted EBITDA and operating profit are defined in the accounting policies section of the notes to the financial statements.
50
Lok’nStore Group Plc Annual Report and Accounts 2018 Consolidated Statement of Changes in Equity
For the year ended 31 July 2018
1 August 2016
Profit for the year
Other comprehensive income:
Increase in property valuation net of deferred tax
Decrease in fair value of cash flow hedges
net of deferred tax
Total comprehensive income for the year
Transactions with owners:
Dividend paid
Share based payments
Transfers in relation to share based payments
Deferred tax relating to share options
Sale of shares from treasury (net of costs)
Exercise of share options
Total transactions with owners
Transfer additional depreciation
on revaluation net of deferred tax
31 July 2017
Profit for the year
Other comprehensive income:
Increase in property valuation net of deferred tax
Total comprehensive income for the year
Transactions with owners:
Dividend paid
Share based payments
Transfers in relation to share based payments
Deferred tax relating to share options
Exercise of share options
Total transactions with owners
Transfer additional depreciation
on revaluation net of deferred tax
31 July 2018
Attributable to owners of the Parent
Share
capital
£’000
Share
premium
£’000
Other
reserves
£’000
Revaluation
reserve
£’000
Retained
earnings
£’000
291
3,567
8,432
45,602
13,583
–
3,061
Total
equity
£’000
71,475
3,061
–
–
–
–
–
–
–
–
–
2
2
–
–
–
–
–
–
–
–
–
6,150
311
6,461
–
–
–
37
37
–
97
(139)
42
–
–
–
–
–
–
–
–
–
–
–
2
2
–
–
–
–
–
–
–
–
322
322
–
–
–
–
–
33
(109)
(30)
–
(106)
–
6,840
–
–
–
6,840
37
6,840
3,061
9,938
–
–
–
–
–
–
–
(277)
–
(2,637)
(2,637)
–
139
–
3,741
–
1,243
277
97
–
42
9,891
313
7,706
–
18,164
3,757
89,119
3,757
13,025
13,025
–
3,757
13,025
16,782
–
–
–
–
–
–
(2,977)
(2,977)
–
109
–
–
33
–
(30)
324
(2,868)
(2,650)
(291)
291
–
293
10,028
8,469
52,165
295
10,350
8,363
64,899
19,344
103,251
51
Strategic ReportOverviewGovernanceFinancial Statements
Retained
reserves
(deficit)
£’000
Other
reserves
£’000
Total
£’000
5,936
2,195
5,547
97
–
3,741
6,150
313
(2,637)
1,961
1,961
–
97
(139)
–
–
–
–
1,919
15,406
–
33
(109)
–
–
3,572
33
–
324
(2,977)
1,843
16,358
117
(3,624)
5,547
–
139
3,741
–
–
(2,637)
3,166
3,572
–
109
–
(2,977)
3,870
Company Statement of Changes in Equity
For the year ended 31 July 2018
1 August 2016
1 August 2016 – restated
Profit for the year
Share based payments
Transfer in relation to share based payments
Disposal of treasury shares - restated
Sale of shares from treasury (net of costs)
Exercise of share options
Dividends paid
31 July 2017
Profit for the year
Equity settled share based payments
Transfer in relation to share based payments
Exercise of share options
Dividends paid
31 July 2018
Share
capital
£’000
Share
premium
£’000
291
291
3,567
3,567
–
–
–
–
–
2
–
–
–
–
–
6,150
311
–
293
10,028
–
–
–
2
–
–
–
–
322
–
295
10,350
52
Lok’nStore Group Plc Annual Report and Accounts 2018 Consolidated and Company Statements of Financial Position
31 July 2018
Company Registration No. 04007169
Group
Company
Notes
2018
£’000
2017
£’000
2018
£’000
2017
£’000
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Investments
Development loan capital
Financial assets
Current assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Current liabilities
Trade and other payables
Current tax liabilities
Non-current liabilities
Borrowings
Deferred tax
Total liabilities
Net assets
Equity attributable to owners of the parent
Called up share capital
Share premium
Other reserves
Retained earnings
Revaluation reserve
Total equity attributable to owners of the parent
10(a)
10(b)
11
12
3,263
3,428
152,580
116,901
–
–
–
–
–
–
–
2,418
2,385
3,463
–
–
–
–
–
2(c)1
361
156,204
123,792
2,418
2,385
13
14
16
257
4,476
4,990
9,723
203
4,266
11,386
15,855
165,927
139,647
–
–
13,940
13,021
–
–
13,940
16,358
13,021
15,406
15
(5,159)
(5,032)
(612)
(463)
(5,771)
(5,495)
17
18
(37,170)
(28,670)
(19,735)
(16,363)
(56,905)
(45,033)
(62,676)
(50,528)
–
–
–
–
–
–
–
–
–
–
–
–
–
103,251
89,119
16,358
15,406
19
24(a)
25
295
10,350
8,363
19,344
64,899
103,251
293
295
293
10,028
10,350
10,028
8,469
18,164
52,165
89,119
1,843
3,870
–
1,919
3,166
–
16,358
15,406
As permitted by section 408 Companies Act 2006, the parent company's statement of comprehensive income
has not been included in these financial statements. The profit and comprehensive income for the year ended
31 July 2018 was £3.6 million (2017: £5.5 million).
Approved by the Board of Directors and authorised for issue on 26 October 2018 and signed on its behalf by:
Andrew Jacobs
Chief Executive Officer
Ray Davies
Finance Director
53
Strategic ReportOverviewGovernanceFinancial Statements
Consolidated Statement of Cash Flows
For the year ended 31 July 2018
Operating activities
Cash generated from operations
Income tax paid
Net cash generated from operations
Investing activities
Development loan capital repaid / invested
Purchase of property, plant and equipment
Proceeds from warranty claims
Interest received
Notes
27(a)
Group
2018
£’000
Group
2017
£’000
6,982
(775)
6,207
3,463
(21,935)
342
80
5,523
(502)
5,021
(304)
(6,628)
–
25
Net cash outflow from investing activities
(18,050)
(6,907)
Financing activities
Proceeds from new borrowings
Loans repaid from projects under management contracts
Finance costs paid
Equity dividends paid
Proceeds from issue of ordinary shares (net)
Proceeds from sale of shares from treasury (net of expenses)
Net cash inflow from financing activities
Net (decrease) / increase in cash and cash equivalents in the year
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
8,519
–
(419)
–
944
(574)
(2,977)
(2,637)
324
–
5,447
(6,396)
11,386
4,990
313
9,891
7,937
6,051
5,335
11,386
No statement of cash flows is presented for the Company as it had no cash flows in either year.
54
Lok’nStore Group Plc Annual Report and Accounts 2018 Accounting Policies
General Information
Lok’nStore Group Plc is an AIM listed company incorporated and domiciled in England and Wales. The address of
the registered office is One Fleet Place, London, EC4M 7WS, UK. Copies of this Annual Report and Accounts may
be obtained from the Company’s head office at 112 Hawley Lane, Farnborough, Hants, GU14 8JE or the investor
section of the Company’s website at http://www.loknstore.co.uk. The principal activities of the Group are described
in the Strategic Report.
Basis of accounting
The annual financial statements have been prepared in accordance with International Financial Reporting
Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) Interpretations as
adopted by the European Union and comply with those parts of the Companies Act 2006 that are applicable to
companies reporting under IFRS. The Group has applied all accounting standards and interpretations issued by
the International Accounting Standards Board and International Financial Reporting Interpretation Committee
relevant to its operations and effective for accounting periods beginning on or after 1 August 2017.
The financial statements have been prepared on the historic cost basis except that certain trading properties
non-current financial assets are stated at fair value.
Standards adopted in the year
Amendments to IAS 7 Disclosure Initiative (issued in January 2016) requires entities to provide information that
enables users of financial statements to evaluate changes in liabilities arising from the entity’s financing activities.
The effect of the amendments on the Group’s consolidated financial statements has been the inclusion of
additional disclosures where appropriate.
Standards in issue but not yet effective
At the date of approval of these financial statements, the following principal standards and interpretations were in
issue but not yet effective:
Standards, interpretations and amendments
Endorsed
Effective date: Periods
commencing on or after
IFRS 9
IFRS15
IFRS 2
IFRS 16
IFRIC 23
Financial Instruments
Revenue from contracts with customers
Amendments, classification and measurement of share based payment transactions
Leases
Uncertainty over income tax treatments
Standards, interpretations and amendments
Not Yet Endorsed
IFRIC 23
Uncertainty over income tax treatments
1 Jan 2018
1 Jan 2018
1 Jan 2018
1 Jan 2019
1 Jan 2019
Effective date: Periods
commencing on or after
1 Jan 2019
Subject to the adoption in due course of IFRS 16, the Directors do not anticipate that the adoption of these
Standards will have a significant impact on the financial statements of the Group. With regard to IFRS 16, although
the Group will not be adopting the Standard until its year ended 31 July 2020 the Directors consider that this will
have a significant impact on the financial statements of the Group at that time and have provided an initial overview
of the impact on the 2020 financial statements which is set out on page 25.
There were no other Standards or Interpretations issued but not yet effective at the date of authorisation of these
financial statements that the Directors anticipate will have a material impact on the financial statements of the Group.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and entities controlled by
the Company (and its subsidiaries) made up to 31 July each year. Control is achieved where the Company has power
over the investee, exposure or rights to variable returns from the investee and the ability to use its power to vary
those returns.
Intra-group transactions, balances, and unrealised gains and losses on transactions between Group companies
are eliminated on consolidation, except to the extent that intra-group losses indicate an impairment.
55
Strategic ReportOverviewGovernanceFinancial Statements Accounting Policies continued
Goodwill
Goodwill arising on consolidation represents the excess of the consideration transferred, the amount of any non-
controlling interest and the fair value of any previous interest in the acquired entity over the fair value of the identifiable
assets and liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as a non-current asset.
Any deficiency of the consideration transferred, the amount of any non-controlling interest and the fair value of any
previous interest in the acquired entity below the fair value of identifiable assets and liabilities of a subsidiary
(i.e. discount on acquisition) is recognised directly in profit or loss.
Goodwill is reviewed for impairment at least annually. For the purposes of impairment testing, assets are grouped at
the lowest levels for which there are separately identifiable cash flows, known as cash generating units, and goodwill
is allocated to these units. If the recoverable amount of the cash generating unit is less than the carrying amount of
the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and
then to the other assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. Impairment
losses in relation to goodwill are recognised immediately in profit or loss and are not reversed in subsequent periods.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current
market assessment of the time value of money and the risks specific to the asset or CGU for which the estimate of
future cash flows have not been adjusted.
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 the
Group have adequate resources and facilities to continue in operational existence for the foreseeable future based on
Group cash balances and cash equivalents of £5.0 million (2017: £11.4 million), undrawn committed bank facilities at
31 July 2018 of £12.7 million (2017: £11.2 million), and cash generated from operations in the year ended 31 July 2018
of £7.0 million (2017: £5.5 million).
Following the agreement last year of a two-year extension to its facilities with Royal Bank of Scotland on equivalent
terms, the Group can continue to operate its £50 million revolving credit facility with RBS plc for a further 5 years.
The facility has been in place since 15 January 2016 and will run until 14 January 2023. The Group is fully compliant
with all bank covenants and undertakings and is not obliged to make any repayments prior to expiration. The
financial statements are therefore prepared on a going concern basis.
Revenue recognition
Revenue comprises the fair value of the consideration received or receivable for goods and services provided in the
ordinary course of the Group’s activities, net of discount, VAT and after eliminating sales within the Group.
The Group recognises revenue when the amount of the revenue can be reliably measured and when goods are
sold and title has passed. Revenue from services provided is recognised evenly over the period in which the
services are provided.
a) Self-storage revenue
Self-storage services are provided on a time basis. The price at which customers store their goods is dependent on
size of unit and store location. Customers are invoiced on a four-weekly cycle in advance and revenue is recognised
based on time stored to date within the cycle. When customers vacate they are rebated the unexpired portion of their
four-weekly advance payment (subject to a seven day notice requirement).
b) Retail sales
The Group operates a packaging shop within each of its storage centres for selling storage related goods such as
boxes, tape and bubble-wrap. Sales include sales to the public at large as well as self-storage customers. Sales of
goods are recognised at point of sale when the product is sold to a customer.
56
Lok’nStore Group Plc Annual Report and Accounts 2018 c) Insurance
Customers may choose to insure their goods in storage. The weekly rate of insurance charged to customers is
calculated based on the tariff per week for each £1,000 worth of goods stored by the customer. This charge is
retained by Lok’nStore and covers the cost of the block policy and other costs. Customers are invoiced on a
four-weekly basis for the insurance cover they use and revenue is recognised based on time stored to date within
the cycle.
The Group provides insurance to customers through a block policy purchased from its insurer. Block policyholders
supply VAT exempt insurance transactions as principals rather than insurance related services as intermediaries and
accordingly insurance income received from the customer is recognised as revenue rather than offset against the
costs of the block policy.
The key characteristics of a block policy are that:
• There is a contract between the block policyholder and the insurer which allows the block policyholder to effect
insurance cover subject to certain conditions
• The Group acting in our own name as the block policyholder procures insurance cover for third parties from
the insurer
• There is a contractual relationship between the block policyholder and third parties under which the insurance is
procured
• The block policyholder stands in place of the insurer in effecting the supply of insurance to the third parties
The Group is not exposed to any insured losses arising from its insurance activity.
d) Management fee income
Management fees earned for managing stores not owned by the Group are recognised over the period for which the
services are provided.
e) Serviced archive and records management
Customers are invoiced typically monthly in advance for the archive storage of their boxes, tapes and files and revenue
is recognised based on time stored to date within the monthly cycle. In respect of the provision of additional services,
such as document box or tape collection and retrieval from archive, customers are invoiced typically monthly in arrears
and revenue is recognised in line with the provision of these services.
Segmental information
In accordance with the requirements of IFRS8 Operating Segments, the Group has reviewed its identifiable business
segments and the information used and provided internally to the Board, which is considered to be the Chief
Operating Decision Maker, in order to make decisions about resource allocation and performance management.
Financial information is reported to the Board with revenue and profit analysed between self-storage activity and
serviced archive and records management activity. All activities arise in the United Kingdom.
Adjusted EBITDA
Earnings before interest, tax, depreciation and amortisation (EBITDA), is defined as defined as EBITDA before losses
or profits on disposal, share-based payments, acquisition costs, and exceptional items, finance income, finance
costs and taxation.
Adjusted Store EBITDA
Adjusted Store EBITDA is defined as adjusted EBITDA (see above) but before central and head office costs.
Operating profit
Operating profit is defined as profit after all costs except finance income, finance costs and taxation.
57
Strategic ReportOverviewGovernanceFinancial Statements Accounting Policies continued
Taxation
Income tax expense represents the sum of the current tax payable and deferred tax.
Current tax payable or recoverable is based on taxable profit for the year. Taxable profit differs from profit as reported
in the statement of comprehensive income because some items of income or expense are taxable or deductible in
different years or may not be taxable or deductible. The Group’s liability for current tax is calculated using tax rates
and laws that have been enacted or substantively enacted by the reporting date.
Deferred tax is the tax which may be payable or recoverable in the future arising from the temporary differences
between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases
used in the computation of taxable profit. It is accounted for using the ‘balance sheet liability method’. Deferred tax is
provided in full on the differences between the revalued amount of trading property assets carried in the Statement
of Financial Position and their corresponding tax bases. Deferred tax liabilities are generally recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will
be available against which deductible temporary differences can be utilised.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is
no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or
the asset realised, based on tax rates that have been enacted or substantively enacted by the reporting date.
Tax is charged or credited to profit or loss, except when it relates to items charged or credited directly to other
comprehensive income, in which case the tax is also recognised directly in other comprehensive income.
Retirement benefits
The amount charged to profit or loss in respect of pension costs is the contributions payable to money purchase
schemes in the year. Differences between contributions payable in the year and contributions actually paid
are shown as either accruals or prepayments in the statement of financial position. There are no defined
benefits schemes.
Equity share-based payments
The cost of providing share-based payments to employees is charged to profit or loss over the vesting period of
the related share options. The cost is based on the fair value of the options determined at grant date using the
Black-Scholes pricing model, which is appropriate given the vesting and other conditions attaching to the options.
The value of the charge may be adjusted to reflect expected and actual levels of vesting.
Property lease premiums
Costs relating to the acquisition of long leases are classified as a non-current asset in the Statement of Financial Position.
Costs may include lease premiums paid on entering such a lease and other related costs. Following the opening of a store
during the year amounts held under lease premiums are transferred to property plant and equipment.
Property, plant and equipment
Freehold properties and long leasehold properties (classified as finance leases) are measured at fair value which
represents the Group’s assessment of the highest and best use of the asset. Gains or losses arising from the
changes in fair value of the trading properties are included in the Consolidated Statement of Changes in Equity
for the period in which they arise. A comprehensive external valuation is performed annually at each reporting
date. Once a store is opened lease premiums are transferred to property, plant and equipment and carried at their
transferred cost less any accumulated depreciation.
Short leasehold improvements, fixtures, fittings and equipment, and motor vehicles are carried at cost less
accumulated depreciation. Expenditure related to the improvement of the buildings is capitalised and depreciated
over the remaining period of the lease term.
Assets in the course of construction and land held for development of new stores (‘development property assets’)
are carried at cost, less any recognised impairment loss. Depreciation of these assets commences when the assets
are ready for their intended use.
58
Lok’nStore Group Plc Annual Report and Accounts 2018 Depreciation is provided on all property, plant and equipment other than freehold land and development property
assets at rates calculated to write each asset down to its estimated residual value evenly over its expected useful life
as follows:
Freehold property
Long leasehold property and lease premium
Short leasehold improvements
Fixtures, fittings and equipment
Computer equipment
Motor vehicles
over 50 years straight line
over unexpired lease period or renewal term
over unexpired lease period or renewal term
5% to 15% reducing balance
over two years straight line
25% reducing balance
The assets’ residual values, useful lives and methods of depreciation are reviewed and adjusted if appropriate on an
annual basis. An item of property, plant and equipment is derecognised upon disposal or when no future economic
benefits are expected from its use or disposal.
The additional depreciation arising from the revaluation of freehold and long leasehold properties of £363,963 (2017:
£346,219) is included within total depreciation on the face of the statement of comprehensive income and transferred
from the revaluation reserve to retained earnings each year.
Intangible assets (other than goodwill)
Customer relationships acquired in a business combination are measured initially at fair value and are subsequently
amortised on a straight-line basis over their estimated useful lives (20 years).
Impairment of property, plant and equipment and intangible assets (other than goodwill)
At each reporting date the Group reviews the carrying amounts of its property, plant and equipment and intangible
assets to determine whether there is any indication that those assets have suffered an impairment loss. If any
such indication exists the recoverable amount of the asset is estimated in order to determine the extent, if any, of
the impairment loss. Where it is not possible to estimate the recoverable amount of an individual asset the Group
estimates the recoverable amount of the cash-generating unit to which the asset belongs. If the recoverable amount
of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset
or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognised immediately in profit
or loss. Where an impairment loss is subsequently reversed, the carrying amount of the assets or cash-generating
unit is increased to the revised estimate of its recoverable amount, not to exceed the carrying amount that would
have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior years.
A reversal of an impairment loss is recognised immediately in profit or loss.
Leased assets and obligations
Annual rentals under ‘operating leases’ are charged to profit or loss on a straight-line basis over the lease term.
Payments made on entering into or acquiring a leasehold that is accounted for as an operating lease are amortised
over the lease term once the property is brought into use. Whenever land and buildings are acquired by the Group
they will not be acquired under finance leases but rather through a combination of operational cash generated by the
Group business supported by bank debt drawn from its revolving credit facility.
Investments
Shares in subsidiary undertakings are considered long-term investments and are classified as non-current assets
in the parent company’s statement of financial position. All investments are stated at cost. Provision is made for any
impairment in the value of non-current asset investments.
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined on a first in, first out basis. Net
realisable value is based upon estimated selling prices less any costs of disposal. Provision is made for obsolete and
slow moving items.
59
Strategic ReportOverviewGovernanceFinancial Statements Accounting Policies continued
Financial instruments
Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provision
of the instrument.
Bank borrowings and finance costs
Interest-bearing bank loans are recorded at the proceeds received net of direct issue costs. Issue costs are
amortised against the carrying value amount of the loan over the period of the loan with the cost recognised in profit
and loss as part of finance costs.
Borrowing costs are recognised in profit or loss in the year in which they are incurred, unless the costs are incurred
as part of the development of a qualifying asset, when they will be capitalised. A qualifying asset is an asset that
necessarily takes a substantial period of time to get ready for its intended use. Commencement of capitalisation
is the date when the Group incurs expenditure for the qualifying asset, incurs borrowing costs and undertakes
activities that are necessary to prepare the assets for their intended use. In the case of suspension of activities during
extended periods, the Group suspends capitalisation. The Group ceases capitalisation of borrowing costs when
substantially all of the activities necessary to prepare the asset for use are complete.
The Group has an active store development programme and in accordance with IAS 23 has material qualifying
assets that take a substantial period of time to develop from acquisition to ultimate store opening. Accordingly
borrowing costs have been capitalised in the current year that are directly attributable to the acquisition, construction
and fit-out of these qualifying store assets. The Group funds these developments from a general bank revolving
credit facility and the capitalisation rate applied is the average cost of these funds. When an individual store
development is complete and the store has opened capitalisation of attributable borrowing costs ceases. In the
current year £197,209 interest was capitalised in respect of nine qualifying development assets.
Derivative financial instruments and hedge accounting
The Group’s activities expose it to interest rate risk. The Group has used interest rate swap contracts to hedge these
exposures. The Group does not use derivative financial instruments for speculative or for any other purposes.
The use of financial derivatives is governed by the Group’s policies as approved by the Board of Directors. The
Group documents its risk management objectives and strategy for undertaking hedging transactions within the
Group’s Risk Register. The Group also documents its assessment both at hedge inception and on an on-going basis
to assess whether the derivatives that are used are effective in offsetting changes in fair value or cash flows of the
hedged items.
There were no financial derivatives held by the Group at 31 July 2017 or 31 July 2018.
Cash flow hedges
Hedges of exposures to variable cash flows attributable to a particular risk associated with a recognised asset or
liability or a highly probable forecast transaction that could affect profit or loss are accounted for as cash flow hedges
when the hedging criteria has been achieved. The Group designates certain derivative instruments as hedges of
the variable rate borrowings. The effective portion of changes in the fair value is recognised in other comprehensive
income whilst the gain or loss on the ineffective portion is recognised immediately in profit or loss.
Amounts accumulated in other comprehensive income are recycled to profit or loss in the periods when the hedged
item affects profit or loss. However when a forecast transaction that is hedged results in the recognition of a non-
financial asset, the gains and losses previously deferred into other comprehensive income are transferred from other
comprehensive income and included in the initial measurement of the cost of the asset.
Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in
an active market are classified as loans and receivables. Loans and receivables are initially recognised at fair value
plus transaction costs and subsequently measured at amortised cost using the effective interest method, less any
impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables
when the recognition of interest would be immaterial.
60
Lok’nStore Group Plc Annual Report and Accounts 2018 Liabilities and equity
Financial liabilities and equity instruments issued by the Group are classified according to the substance of the
contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the
assets of the Group after deducting all of its liabilities and includes no obligation to deliver cash or other financial
assets. Equity instruments issued by the Group are recorded at the proceeds received, net of direct issue costs.
Interest bearing loans and overdrafts are initially measured at fair value net of direct transaction costs and are
subsequently measured at amortised cost, using the effective interest rate method. Any difference between the
proceeds net of transaction costs and the settlement or redemption of borrowings is recognised over the term of
the borrowing.
Trade and other payables are initially recognised at fair value and are subsequently stated at amortised cost using
the effective interest rate method.
Cash and cash equivalents
Cash and cash equivalents comprises cash and short-term deposits and other short term highly liquid investments
that are readily convertible to a known amount of cash. The carrying amounts of these assets approximate to their
fair value and the risk of changes in value is not significant.
Financial assets
Trade, group and other debtors which are receivable within one year and which do not constitute a financing
transaction are initially measured at the transaction price and subsequently measured at amortised cost being the
transaction price less any amounts settled and any impairment losses. Where the Group is entitled to receive cash
under a management services agreement at a future specified date this is recorded as a financial asset at the current
fair value of the cash ultimately receivable. Where this amount is receivable in more than one year hence the financial
asset is presented as a non-current asset.
Impairment of financial assets
Financial assets are assessed for indications of impairment at each reporting date. Financial assets are impaired
where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of
the financial asset, the estimated amount or timing of future cash flows from the asset have been reduced.
The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the
exception of trade receivables, where the carrying amount is reduced through the use of an allowance account.
When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent
recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying
amount of the allowance account are recognised in profit or loss.
Net debt
Net debt comprises the borrowings of the Group less cash and cash equivalents.
Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event which it is probable
will result in an outflow of economic benefits that can be reliably estimated.
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.
Own shares
The cost of own shares held by the employee benefit trust (‘ESOP shares’) and treasury shares is shown as a
deduction from retained earnings. Earnings per share are calculated on the net shares in issue.
61
Strategic ReportOverviewGovernanceFinancial Statements Accounting Policies continued
Critical accounting estimates and judgements
The preparation of financial statements under EU-IFRS requires management to make estimates and assumptions
that may affect the application of accounting policies and the reported amounts of assets and liabilities, income and
expenses. Actual outcomes may differ from these estimates and assumptions. The estimates and assumptions that
have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are discussed below.
a) Estimate of fair value of trading properties
The Group commissions an external valuation of its self-storage stores. This valuation uses a discounted cash flow
methodology which is based on current and projected net operating income. Principal assumptions underlying
management’s estimation of the fair value are those relating to stabilised occupancy levels; expected future growth
in storage rents and operating costs, maintenance requirements, capitalisation rates and discount rates. A more
detailed explanation of the background and methodology adopted in the valuation of the Group’s trading properties
is set out in note 10(b). The carrying value of land and buildings held at valuation at the reporting date was £108.5
million (2017: £87.5 million) as shown in the table in note 10(b).
b) Assets in the course of construction and land held for store development (‘Development
property assets’)
The Group’s development property assets are held in the statement of financial position at historic cost and are not
valued externally. In acquiring sites for redevelopment into self-storage facilities, the Group estimates and makes
judgements on the potential net lettable storage space that it can achieve in its planning negotiations, together with
the time it will take to achieve maturity occupancy level. In addition, assumptions are made on the storage rent that
can be achieved at the store by comparison with other stores within the portfolio and within the local area. These
judgements, taken together with estimates of operating costs and the projected construction cost, allow the Group
to calculate the potential net operating income at maturity, projected returns on capital invested and hence to
support the purchase price of the site at acquisition. Following the acquisition, regular reviews are carried out taking
into account the status of the planning negotiations, and revised construction costs or capacity of the new facility,
for example, to make an assessment of the recoverable amount of the development property. The Group reviews all
development property assets for impairment at each reporting date in the light of the results of these reviews. Once a
store is opened it is valued as a trading store.
The carrying value of development property assets at the reporting date was £16.6 million (2017: £5.1 million). Please
see note 10(b) for more details.
c) Estimate of useful lives of intangible assets acquired in business combination
The relative size of the Group’s intangible assets excluding goodwill make the estimates of useful lives important to the
Group’s financial position and performance. At 31 July 2018 intangible assets, excluding goodwill, amounted to £2.15
million (2017: £2.32 million). The valuation method used and key assumptions are described in note 10(a).
The useful life used to amortise intangible assets relates to the expected future performance of the assets acquired
and management’s judgement of the period over which economic benefit will be derived from the asset. The
estimated useful life of customer relationships principally reflects management’s view of the average economic life of
the customer base and is assessed by reference to customer churn rates. Typically the customer base for a serviced
archive business is relatively inert. Corporate customers do not tend to switch service providers and indeed they
incur charges should they do so. An increase in churn rates may lead to a reduction in the estimated useful life and
an increase in the amortisation charge.
62
Lok’nStore Group Plc Annual Report and Accounts 2018 d) Classification of self-storage facilities as owner occupied properties rather than investment properties
The Directors consider that Lok’nStore Group Plc is the parent company of a “Trading business” and is not wholly or
mainly engaged in making investments. The holding of land is not a core activity.
The Group is an integrated storage solutions business offering a range of services to its customers. We provide
services to our customers under contracts for the provision of storage services which do not give them any
property or tenancy rights and a large number of the stores we operate are from properties where we do not own
the land or the buildings. The assets we do own are valued on the basis of the trading cash flows that the operating
businesses generate.
The range of services provided to customers has increased progressively with significant revenue earned from records
management and serviced archive activities. Additionally, the Group has developed its managed stores business where
it uses its operational and logistic expertise to manage stores for third party owners. In recent years the Group has
developed new managed stores in Aldershot, Broadstairs, Chichester, Crawley and Hemel Hempstead all of which are
owned by third-party investors and managed by Lok’nStore. There is a further pipeline of 4 managed stores which will
open next year.
Previously owned sites at Woking, Ashford and Swindon have been the subject of sale and manage-back transactions
by which Lok’nStore has retained the management of the business when a third party owner acquired the business,
land and buildings. All of this trading activity as well as the self-storage income earned from our leasehold stores activity
demonstrate that the holding of land is not a core activity because the trading operation is not dependent on
the ownership of land. See the chart on page 18 for the changing ownership structure of the stores.
Furthermore the Group has always and continues to comply with all of the usual accounting and tax protocols
consistent with a trading business. Lok'nStore operates 29 stores and 2 serviced document stores in Southern
England. Of the 29 stores, Lok'nStore owns the freehold or long leasehold interest in 14 stores, 7 of the stores are
held under commercial leases, with the remaining 8 managed stores operating under management contracts for
third party owners. One of the features of Lok’nStore’s strategy is to increase the number of stores we manage
for third parties selling our expertise in storage solutions management, operating systems and marketing, through
management fees rather than retaining a proprietary interest in land and buildings.
The classification of self-storage facilities as owner occupied properties rather than investment properties has
resulted in the recognition of fair value gains in 2018 (net deferred of tax) of £13.0 million (2017: £6.84 million) in
Other Comprehensive Income rather than the Income Statement.
63
Strategic ReportOverviewGovernanceFinancial Statements
Notes to the Financial Statements
For the year ended 31 July 2018
1(a) Revenue
Analysis of the Group’s revenue is shown below:
Self-storage
Self-storage revenue
Other storage related revenue
Total self-storage revenue
Ancillary revenue
Management fees
Sub-total
Serviced archive & records management revenue
Total revenue per statement of comprehensive income
Group
2018
£’000
13,094
1,585
14,679
159
534
15,372
2,382
17,754
Group
2017
£’000
12,343
1,550
13,893
14
420
14,327
2,327
16,654
1(b) Segmental information
IFRS 8 Operating Segments requires operating segments to be identified on the basis of internal reports about
components of the Group that are regularly reviewed by the Board to allocate resources to the segments and to
assess their performance. All of the Group’s activities occur in the United Kingdom.
Financial information is reported to the Board with revenue and profit analysed between self-storage activity and
serviced document storage activity. Segment revenue comprises of sales to external customers and excludes
gains arising on the disposal of assets and finance income. Segment profit reported to the Board represents the
profit earned by each segment before acquisition costs and other non-recurring set-up costs, finance income,
finance costs and tax. For the purposes of assessing segment performance and for determining the allocation of
resources between segments, the Board uses a measure of adjusted EBITDA (as defined in the accounting policies)
and reviews the non-current assets attributable to each segment as well as the financial resources available. All
assets are allocated to reportable segments. Assets that are used jointly by segments are allocated to the individual
segments on a basis of revenues earned. All liabilities are allocated to individual segments other than borrowings and
tax. Information is reported to the Board of Directors on a product basis as management believe that the activity of
self-storage and the activity of serviced document storage expose the Group to differing levels of risk and rewards
due to the length, nature, seasonality and customer base of their respective operating cycles.
64
Lok’nStore Group Plc Annual Report and Accounts 2018 The segment information for the year ended 31 July 2018 is as follows:
Serviced archive
& records
management
2018
£’000
Self-storage
2018
£’000
15,372
6,608
25
6,633
(1,880)
–
(33)
361
–
5,081
2,382
687
(25)
662
(100)
(165)
–
–
230
627
2018
Revenue from external customers
Adjusted EBITDA
Management charges
Segment Adjusted EBITDA
Depreciation
Amortisation of intangible assets
Equity settled share based payments
Carried interest - fees receivable
Receipts from warranty claims
Segment operating profit per the income statement
Central costs not allocated to segments:
Finance income
Finance costs
Profit before taxation
Income tax expense
Consolidated profit for the financial year
The segment information for the year ended 31 July 2017 is as follows:
Serviced archive
& records
management
2017
£’000
2,327
560
(25)
535
(96)
(165)
–
–
(15)
–
259
Self-storage
2017
£’000
14,327
5,933
25
5,958
(1,760)
–
(97)
(29)
–
(69)
4,003
2017
Revenue from external customers
Adjusted EBITDA
Management charges
Segment Adjusted EBITDA
Depreciation
Amortisation of intangible assets
Equity settled share based payments
Store relocation costs
Property disposal costs
Director retirement costs
Segment operating profit per the income statement
Central costs not allocated to segments:
Finance income
Finance costs
Profit before taxation
Income tax expense
Consolidated profit for the financial year
Total
2018
£’000
17,754
7,295
–
7,295
(1,980)
(165)
(33)
361
230
5,708
80
(463)
5,325
(1,568)
3,757
Total
2017
£’000
16,654
6,493
–
6,493
(1,856)
(165)
(97)
(29)
(15)
(69)
4,262
309
(606)
3,965
(904)
3,061
65
Strategic ReportOverviewGovernanceFinancial Statements 1(b) Segmental information continued
Corporate transactions and the treasury function are managed centrally and therefore are not allocated to segments.
Sales between segments are carried out at arm’s length. The serviced archive segment with over 500 customers
has a greater customer concentration with its ten largest corporate customers accounting for 33.6% (2017: 34.4%) of
revenue, its top 50 customers accounting for 60.0% (2017: 61.1%) and its top 100 customers accounting for 74.5 %
(2017: 76.2%) of revenue. The self-storage segment with over 10,600 (2017: 9,670) customers has no individual self-
storage customer accounting for more than 1% of total revenue and no group of entities under common control (e.g.
Government) accounts for more than 10% of total revenues.
2018
Segment assets
Segment liabilities
Borrowings
Total liabilities
Serviced archive
& records
management
2018
£’000
5,978
(620)
Self-storage
2018
£’000
158,843
(23,780)
Capital expenditure (note 10(b)).
21,906
29
2017
Segment assets
Segment liabilities
Borrowings
Total liabilities
Serviced archive
& records
management
2017
£’000
6,190
(669)
Self-storage
2017
£’000
133,457
(21,189)
Capital expenditure (note 10(b)).
6,459
169
Total
2018
£’000
164,821
(24,400)
(37,170)
(61,570)
21,935
Total
2017
£’000
139,647
(21,858)
(28,670)
(50,528)
6,628
The amounts presented to the Board with respect to total assets and total liabilities are measured in a manner
consistent with the financial statements and are allocated based on the operations of the segment. Borrowings
are managed centrally on a Group basis and are therefore not allocated to segments.
2(a) Property, staff, distribution and general costs
Group
2018
£’000
4,043
4,681
1,214
166
355
Group
2017
£’000
4,179
4,389
1,098
171
324
10,459
10,161
Property and premises costs
Staff costs
General overheads
Distribution costs
Retail products cost of sales (see note 2(b))
66
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 2(b) Cost of sales of retail products
Cost of sales represents the direct costs associated with the sale of retail products (boxes, packaging etc.), and the
ancillary sales of insurance cover for customer goods, all of which fall within the Group’s ordinary activities.
Retail
Insurance
Other
Serviced archive consumables and direct costs
2(c) Other Income and costs
Carried interest - fees receivable1
Receipts from warranty claims2
Property disposal costs3
Store relocation costs4
Director retirement costs5
2018:
1 Carried interest fees receivable:
Group
2018
£’000
Group
2017
£’000
116
45
20
181
174
355
Group
2018
£’000
(361)
(230)
–
–
–
(591)
128
37
2
167
157
324
Group
2017
£’000
–
–
15
29
69
113
Upon the sale of one of the ‘Managed stores’ Lok’nStore will be entitled to receive a fee of 5% of the proceeds of the sale (less reasonable selling
costs). Due to the uncertainty of the property market and the timing of the ultimate sale the directors have in previous years believed that it would
not yet be appropriate to recognise this as an asset, on the basis that it could not be reliably measured. However there is a backstop date of 2022 at
which time a realisation (or a payment based on an independent valuation) must be made to Lok’nStore. Accordingly, the directors have given due
consideration as to the current fair value of the Carried interest - fee receivable and have recognised £361,460 as a non-current financial asset in the
financial statements.
2
Receipts from warranty claims relates to receipts due and payable under a mediated settlement agreement.
2017:
3
4
Property disposal costs relate to the closure and surrender of the lease on Unit 4 Leatherhead site and the consolidation of its warehouse capacity into
Unit 6 Leatherhead.
Store relocation costs relate to the closure and surrender of the lease on the Staines store and the relocation of customers to alternative stores within
the store portfolio.
5
Directors retirement costs relate to the retirement of CM Jacobs on 4 July 2017.
67
Strategic ReportOverviewGovernanceFinancial Statements
3 Finance income
Bank interest
Other interest
Group
2018
£’000
7
73
80
Group
2017
£’000
25
284
309
Interest receivable arises on cash and cash equivalents (see note 16) and on development loan capital deployed
(see note 12).
4 Finance costs
Bank interest
Non-utilisation fees and amortisation of bank loan arrangement fees
Other interest
5 Profit before taxation
Profit before taxation is stated after charging:
Depreciation and amounts written off property, plant and equipment:
Owned assets
Amortisation of intangible assets
Operating lease rentals – land and buildings
Amounts payable to RSM UK Audit LLP and their associates for audit and non-audit services:
Audit services
– UK statutory audit of the Company and consolidated accounts
Other services
– the auditing of accounts of subsidiaries of the Company pursuant to legislation
Other services supplied pursuant to such legislation
– interim review
– other services
Tax services
– compliance services
– advisory services
Comprising:
Audit services
Non-audit services
68
Group
2018
£’000
342
116
5
463
Group
2017
£’000
520
86
–
606
Group
2018
£’000
Group
2017
£’000
1,980
165
1,436
1,856
165
1,488
52
15
11
7
29
10
124
67
57
124
50
14
10
–
28
18
120
64
56
120
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 6 Employees
The average monthly number of persons (including Directors) employed
by the Group during the year was:
Store management
Administration
Costs for the above persons:
Wages and salaries
Social security costs
Pension costs
Share based remuneration (options)
Group
2018
No.
Group
2017
No.
143
31
174
Group
2018
£’000
3,808
456
100
4,364
33
4,397
131
31
162
Group
2017
£’000
3,724
453
96
4,273
97
4,370
Share based remuneration is separately disclosed in the statement of comprehensive income. Wages and salaries of
£149,492, (2017: £138,137) have been capitalised as additions to property, plant and equipment as they are directly
attributable to the acquisition of these assets. All other employee costs are included in staff costs in the Statement of
Comprehensive Income.
In relation to pension contributions, there was £13,894 (2017: £11,949) outstanding at the year-end.
There were no employees employed by the Company in the year (2017: nil).
69
Strategic ReportOverviewGovernanceFinancial Statements 6 Employees continued
Directors’ remuneration
2018
Executive:
A Jacobs
RA Davies
N Newman-Shepherd
Non-Executive:
SG Thomas
RJ Holmes
ETD Luker
CP Peal
2017
Executive:
A Jacobs
RA Davies
N Newman-Shepherd
CM Jacobs
Non-Executive:
SG Thomas
RJ Holmes
ETD Luker
CP Peal
Emoluments
Bonuses
Pension
Benefits
Sub total
£
£
216,487
26,000
131,280
75,172
19,222
42,477
£
–
31,190
2,255
Gains
on share
options
£
–
Total
£
246,759
£
£
4,272
246,759
4,090
185,782
20,415
206,197
1,933
121,837
71,317
193,154
30,000
21,648
27,061
21,648
–
–
–
–
–
–
–
–
4,009
34,009
–
–
–
21,648
27,061
21,648
–
–
–
–
34,009
21,648
27,061
21,648
523,296
87,699
33,445
14,304
658,744
91,732
750,476
Emoluments
Bonuses
Pension
Benefits
Sub total
£
£
212,242
123,838
71,592
115,284
53,060
21,224
26,530
21,224
14,000
12,000
29,704
–
–
–
–
–
£
–
30,977
2,148
–
–
–
–
–
Gains
on share
options
£
–
Total
£
229,645
78,503
248,869
27,296
35,250
132,566
153,127
£
£
3,403
3,551
1,826
2,593
229,645
170,366
105,270
117,877
3,228
56,288
143,437
199,725
–
–
–
21,224
26,530
21,224
–
–
–
21,224
26,530
21,224
644,994
55,704
33,125
14,601
748,424
284,486 1,032,910
Details of the Directors remuneration is shown above. Key management personnel are defined as the Directors of the
Group and the additional participants in the Long Term Partnership Performance Plan (LTPPP).
The highest paid Director did not accrue any pension rights during the year. The benefits in kind all relate to medical
insurance premiums paid on behalf of the Directors. The number of Directors to whom retirement benefits are
accruing under money purchase pension schemes in respect of qualifying service is two (2017: two).
70
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 7 Taxation
Current tax:
UK corporation tax at 17.4% (2017: 20%)
Deferred tax:
Origination and reversal of temporary differences
Adjustments in respect of prior periods
Impact of change in tax rate on closing balance
Total deferred tax
Income tax expense for the year
The charge for the year can be reconciled to the profit for the year as follows:
Profit before tax
Tax on ordinary activities at the effective standard rate of
corporation tax in the UK of 19% (2017: 20 /19%)
Expenses not deductible for tax purposes
Depreciation of non-qualifying assets
Share based payment charges in excess of corresponding tax deduction
Impact of change in tax rate on closing deferred tax balance
Adjustments in respect of prior periods – deferred tax
Other
Small companies relief
Share option scheme
Income tax expense for the year
Effective tax rate
Group
2018
£’000
Group
2017
£’000
924
311
333
–
644
1,568
2018
£’000
5,325
985
–
322
6
–
333
(48)
(30)
–
1,568
29 %
792
204
173
(265)
112
904
2017
£’000
3,965
793
2
104
19
(264)
173
72
–
5
904
23 %
In addition to the amount charged to profit or loss for the year, deferred tax relating to the revaluation of the Group’s
properties of £2.7 million (2017: £932,089) has been recognised as a debit/credit directly in other comprehensive
income (see note 18 on deferred tax).
71
Strategic ReportOverviewGovernanceFinancial Statements 8 Dividends
Amounts recognised as distributions to equity holders in the year:
Final dividend for the year ended 31 July 2016 (6.33 pence per share)
Interim dividend for the six months to 31 January 2017 (3 pence per share)
Final dividend for the year ended 31 July 2017 (7.00 pence per share)
Interim dividend for the six months to 31 January 2018 (3.33 pence per share)
2018
£’000
2017
£’000
–
–
2,016
961
2,977
1,777
860
–
–
2,637
In respect of the current year the Directors propose that a final dividend of 7.67 pence per share will be paid to
the shareholders. The total estimated dividend to be paid is £2.22 million based on the number of shares in issue
at 17 October 2018 as adjusted for shares held in the Employee Benefits Trust. This is subject to approval by
shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
The ex-dividend date will be 29 November 2018; the record date 30 November 2018; with an intended payment
date of 11 January 2019. The final deadline for Dividend Reinvestment Election (DRIP) is 14 December 2018.
9 Earnings per share
The calculations of earnings per share are based on the following profits and numbers of shares.
Profit for the financial year attributable to owners of the parent
Weighted average number of shares
For basic earnings per share
Dilutive effect of share options1
For diluted earnings per share
Group
2018
£’000
3,757
Group
2017
£’000
3,061
2018
2017
No. of shares
No. of shares
28,792,029
27,780,676
490,064
999,657
29,282,093
28,780,333
1
Further options that could potentially dilute EPS in the future are excluded from the above because they are not dilutive in the period presented.
Full details of share options are included in notes 20 to 23
623,212 (2017: 623,212) shares are held in the Employee Benefit Trust (see note 26).
Group
2018
Group
2017
13.05p
12.83p
11.02p
10.64p
Earnings per share
Basic
Diluted
72
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 10(a) Intangible assets
Group
Cost at 1 August 2016
Amortisation at 1 August 2016
Amortisation charge
Amortisation at 31 July 2017
Net book value at 31 July 2017
Cost at 1 August 2017
Amortisation at 1 August 2017
Amortisation charge
Amortisation at 31 July 2018
Net book value at 31 July 2018
Contractual
customer
relationships
£’000
3,309
(826)
(165)
(991)
2,318
3,309
(991)
(165)
(1,156)
2,153
Goodwill
£’000
1,110
–
–
–
1,110
1,110
–
–
–
1,110
Total
£’000
4,419
(826)
(165)
(991)
3,428
4,419
(991)
(165)
(1,156)
3,263
All goodwill and customer relationships are allocated to the serviced document storage cash-generating unit (CGU)
identified as a separate business segment.
The remaining amortisation period of the contractual customer relationships at 31 July 2018 is 12 years and 11 months
(2017: 13 years 11 months).
The values for impairment testing purposes are based on past and current experience of trading, recognising the
long term stability and retention of the customer base, estimated future cash flows and external information where
relevant and derived from the following key assumptions:
• a discount rate of 11% (2017: 11%)
• estimated useful lives of customer relationships (20 years) (2017: 20 years)
• medium term sustainable growth rates of 3% (next 10 years) (2017: 3%)
•
thereafter long term sustainable growth rates of 2.0% (2017: 2%)
• cost increases of 2.75% – 3.0% pa (2017: 2.75% – 3.0% pa)
The Group has conducted a sensitivity analysis on the impairment test of each CGU’s carrying value. A cut in
projected sales growth by around 13.5% (2017: 7%) would result in the carrying value of goodwill being reduced to
its recoverable amount.
On the basis of the assumptions and corresponding calculations made it is estimated that the recoverable amount
exceeds the carrying amount of the CGU by over £3 million.
73
Strategic ReportOverviewGovernanceFinancial Statements 10(b) Property, plant and equipment
Development
property
assets
at cost
£’000
Land and
buildings at
valuation
£’000
Long
leasehold
land and
buildings
at valuation
£’000
Short
leasehold
improvements
at cost
£’000
Fixtures,
fittings and
equipment at
cost
£’000
Motor
vehicles
at cost
£’000
Total
£’000
458
4,666
80,953
685
–
–
–
5,124
–
–
–
–
–
–
–
–
5,910
87,548
–
705
–
–
(705)
–
9,263
–
–
–
1,030
10,293
–
125
–
–
(125)
–
2,563
36
–
–
–
22,758
1,241
(15)
–
–
17 116,012
–
–
–
–
6,628
(15)
–
6,940
2,599
23,984
17
129,565
1,781
99
–
–
–
9,856
12
11,649
926
(11)
–
–
1
–
–
–
1,856
(11)
–
(830)
1,880
10,771
13
12,664
5,124
87,548
10,293
719
13,213
4
116,901
10,293
2,599
5,124
18,513
(7,067)
–
87,548
183
7,055
13,700
16,570
108,486
–
–
–
–
–
753
(753)
–
–
–
1,145
11,438
–
126
(126)
–
49
–
–
23,984
3,190
12
–
17
129,565
–
–
–
21,935
–
14,845
2,648
27,186
17 166,345
1,880
99
–
10,771
1,001
–
13
12,664
1
–
1,980
(879)
1,979
11,772
14
13,765
16,570
108,486
11,438
669
15,414
3
152,580
Group
Cost or valuation
1 August 2016
Additions
Disposals
Reclassification
Revaluations
31 July 2017
Depreciation
1 August 2016
Depreciation
Disposals
Reclassification
Revaluations
31 July 2017
Net book value at
31 July 2017
Cost or valuation
1 August 2017
Additions
Reclassification
Revaluations
31 July 2018
Depreciation
1 August 2017
Depreciation
Revaluations
31 July 2018
Net book value at
31 July 2018
The Group has an active store development programme and in accordance with IAS 23 has material qualifying
assets that take a substantial period of time to develop from acquisition to ultimate store opening. Accordingly
borrowing costs of £197,209 (2017: nil) have been capitalised in the current year that are directly attributable to
the acquisition, construction and fit-out of these qualifying store assets. £114,507 of the total amount is carried in
development property assets and £82,702 is carried in land and buildings following the opening of the Gillingham
and Wellingborough stores.
If all property, plant and equipment were stated at historic cost the carrying value would be £74.1 million
(2017: £53.9 million).
Capital expenditure during the year totalled £21.9 million (2017: £6.6 million). This was primarily the completion of
construction works at our development sites in Gillingham and Wellingborough which are now open and trading as
well as completing the acquisition of our Bournemouth, Bedford, Cardiff and Cheshunt sites.
Property, plant and equipment (non-current assets) with a carrying value of £152.6 million (2017: £116.9 million) are
pledged as security for bank loans.
74
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 Market Valuation of Freehold, Long Leasehold and Operating Leasehold Land and Buildings
On 31 July 2018 a professional valuation was prepared by Jones Lang LaSalle Limited (JLL) in respect of eleven
freehold, one long leasehold and seven operating leasehold properties. The valuation was prepared in accordance
with the RICS Valuation – Global Standards 2017, published by The Royal Institution of Chartered Surveyors (“the
RICS Red Book”) and the valuation methodology is explained in more detail below. The valuations were prepared
on the basis of Fair Value as a fully equipped operational entity having regard to trading potential. The valuation
was provided for accounts purposes and as such, is a Regulated Purpose Valuation as defined in the Red Book.
In compliance with the disclosure requirements of the RICS Red Book JLL have confirmed that:
• This is the third year that JLL has been appointed to value the properties
• The valuers who prepared the valuation have the necessary skills and experience having been significantly
involved in the sector
• JLL do not provide other significant professional or agency services to the Company
•
In relation to the preceding financial year of JLL the proportion of the total fees payable by the Company to the
total fee income of the firm is less than 5% and is minimal
The valuation report indicates a total valuation for all properties valued of £146.2 million (2017: £119.6 million) of which
£128.0 million (2017: £102.9 million) relates to freehold and long leasehold properties, and £18.2 million (2017: £16.7
million) relates to properties held under operating leases.
Freehold and long leasehold land and buildings are carried at valuation in the statement of financial position. Short
leasehold improvements at properties held under operating leases are carried at cost rather than valuation in
accordance with IFRS.
For the trading properties the valuation methodology explained in more detail below is based on fair value as fully
equipped operational entities, having regard to trading potential. Of the £128.0 million valuation of the freehold
and long leasehold properties £11.7 million (2017: £9.3 million) relates to the net book value of fixtures, fittings and
equipment, and the remaining £116.3 million (2017: £93.6 million) relates to freehold and long leasehold properties.
The 2018 valuation includes and reflects movements in value which have resulted from the operational performance
of the stores and movements in the investment environment.
Valuation Methodology
Jones Lang LaSalle Limited (JLL) have adopted the profits method of valuation, and cross checked with the direct
comparison method based on recent transactions in the sector, which is the main method of pricing adopted by
purchasers of self storage properties.
JLL have valued the assets on an individual basis and have disregarded any portfolio effect.
The profits method of valuation considers the cash flow generated by the trading potential of the self storage facility.
Due to the specialised design and use of the buildings, the value is typically based on their ability to generate a net
income from operating as self storage facilities.
JLL have constructed a discounted cash flow model. This sets out their explicit assumptions on the underlying cash
flow that they believe could be generated by a Reasonably Efficient Operator at each of the properties, both at the
valuation date and in the near future as the properties increase their occupancy and rates charged to customers.
Judgements are made as to the trading potential and likely long term sustainable occupancy.
Stable occupancy depends upon the nature of demand, size of property and nearby competition, and allows for
a reasonable vacancy rate to enable the operator to sell units to new customers. In the valuation the assumed
stabilised occupancy level for the 21 trading stores (both freeholds and leaseholds) averages 84.1% (2017: 81.2%).
Expenditure is deducted (such as business rates, staff costs, repair and maintenance, utilities, marketing and bad
debts) as well as an operator’s charge which takes account of central costs. JLL also make an allowance for long
term capex requirements where applicable.
75
Strategic ReportOverviewGovernanceFinancial Statements 10(b) Property, plant and equipment continued
Valuation Methodology continued
• The cash flow for freeholds runs for an explicit period of 10 years, after which it is capitalised at an all risks yield
which reflects the implicit future growth of the business, or a hypothetical sale
• The cash flow for leaseholds continues for the unexpired term of the lease
• The discount rate applied has had regard to recent transactions, weighted average costs of capital and target
return in other asset types with adjustments made to reflect differences in the risk and liquidity profile
• The weighted average annual discount rate adopted (for both freeholds and leaseholds) is 10.58% (2017: 11.09%).
The yield arising from the first year of the projected cash flow is 6.35% (2017: 7.19%), rising to 9.39% (2017:
10.49%) in year five
• JLL have assumed purchasers costs of 6.8% (2017: 6.8%)
• The average stabilised occupancy is 84.1% (2017: 81.2%)
• The average exit yield assumed is 7.42% (2017: 7.67%)
The comparison method considers recent transactions where self storage properties have sold, and then adjusts
them based on a multiple of current earnings, and a capital value per square foot. They are adjusted to reflect
differences in location, physical characteristics, local supply and demand, tenure and trading levels.
JLL reported that the Lok’nStore portfolio has generally performed very well in terms of increasing occupancy over
the course of the year which has driven the assumed stabilised occupancy higher.
For leaseholds the same methodology has been used as for freehold property, except that no sale of the assets in
the 10th year is assumed, but the discounted cash flow is extended to the expiry of the lease. The average unexpired
term of the Group’s operating leaseholds is approximately 11 years and 1 month as at 31 July 2018 (10 years and 8
months: 31 July 2017). Valuations for stores held under operating leases are not reflected in the statement of financial
position and the assets in relation to these stores are carried at cost less accumulated depreciation.
In 2011, one of the Group store’s leases was renegotiated and includes a ten year option to renew the leases from
March 2026 to March 2036. The option to extend is only operable in the event that all four of the leases applicable
to this store are extended and this option is personal to Lok’nStore or another “major self-storage operator”, to be
approved by the landlord (approval not to be unreasonably withheld). The JLL valuation on this store is based on this
Special Assumption that the option to extend the lease for 10 years is exercised. This is consistent with the approach
taken in previous years.
On 22 February 2018, the Group completed the Deed of Variation, Reversionary Lease and Rent Review
Memorandum extending the lease term of the Fareham Store by ten years to 2036.
The fair value hierarchy within which the Fair Value measurements are categorised is level 3, in accordance with
IFRS 13 fair value measurements.
Directors’ valuation of land and property
The old Southampton store: Following the opening of the new Southampton store with the corresponding transfer
of all customers from the old Southampton store, the vacant building was redeveloped for cruise parking. Market
evidence suggested that there is a substantial market in Southampton for car parking for cruise liner passengers and
that this property was appropriate to this use. The Directors have placed a valuation on the site at the 2018 year-
end at £2.0 million. The building was converted to this use costing £1.195 million (£1.103 million net of depreciation)
and started trading as “ParknCruise” in May 2017. Accordingly the Directors placed their valuation on the current
developed site at the 2018 year-end at £3.103 million.
The new Southampton store: Following the development and opening of the new Southampton store there
remains surplus land to the rear of the building which may be ultimately utilised for an expansion of the store or could
be sold or used for alternative use. The Directors have considered the advice given and recommendations of value
obtained by local agents and in weighing this with their own view are satisfied to continue to place a value at year-
end on this land of £0.5 million.
The total value of land and property carried at Director Valuation at 31 July 2018 is £3.603 million (2017: £4.195 million).
76
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 11 Investments
Company Investments in subsidiary undertakings
31 July 2013
Capital contributions arising from share-based payments
31 July 2014
Capital contributions arising from share-based payments
31 July 2015
Capital contributions arising from share-based payments
31 July 2016
Capital contributions arising from share-based payments
31 July 2017
Capital contributions arising from share-based payments
31 July 2018
£’000
1,776
119
1,895
211
2,106
182
2,288
97
2,385
33
2,418
The Company holds more than 20% of the share capital of the following companies, all of which are incorporated in
England and Wales:
Lok’nStore Limited*#
Lok’nStore Trustee Limited1*†
Southern Engineering and
Machinery Company Limited1*#
Semco Machine Tools Limited2*#
Semco Engineering Limited2*#
Saracen Datastore Limited1#
ParknCruise Limited1†
Class of
shareholding
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
Ordinary
% of shares and voting rights held
Directly
Indirectly
Nature of entity
100
–
–
–
–
–
–
–
100
100
100
100
Self-storage
Trustee
Self-storage
Dormant
Dormant
100 Serviced Document Storage
100
Dormant
1
2
*
†
#
These companies are subsidiaries of Lok’nStore Limited.
These companies are subsidiaries of Southern Engineering and Machinery Company Limited and did not trade during the year.
These companies have taken the exemption from audit under Section 479A of the Companies Act 2006.
The address of these companies is 112, Hawley Lane, Farnborough, Hants, GU14 8JE.
The address of these companies is 1, Fleet Place London EC4M 7WS.
12 Development loan capital
In May 2015 Lok’nStore opened a new store in Aldershot, Hampshire on behalf of outside investors, to which it
provided development loan capital. The store is managed under the Lok'nStore brand. The Group has managed the
building and subsequent operation of the store and has generated a return on £2.5 million of the total development
capital committed to the project, as well as management fees for the construction, operation and branding of the
store. On 31 October 2017 the entire development loan was repaid to Lok’nStore together with all accrued interest.
Lok'nStore continues to manage the operation of the store.
Development loan capital
Group
2018
£’000
–
Group
2017
£’000
3,463
77
Strategic ReportOverviewGovernanceFinancial Statements 13 Inventories
Consumables and goods for resale
Group
2018
£’000
257
Group
2017
£’000
203
The amount of inventories recognised in cost of sales as an expense during the year was £160,177 (2017: £164,225).
(See note 2(b)).
14 Trade and other receivables
Trade receivables
Other receivables
Prepayments and accrued income
Group
2018
£’000
1,969
1,927
580
4,476
Group
2017
£’000
1,693
1,822
751
4,266
The Directors consider that the carrying amount of trade and other receivables approximates their fair value.
The following balances existed between the Company and its subsidiaries at 31 July:
Net amount due from Lok’nStore Limited
Company
2018
£’000
Company
2017
£’000
13,940
13,021
The amount due from Lok’nStore Limited is interest free. The balance is repayable on demand.
Trade receivables
In respect of its self-storage business the Group does not typically offer credit terms to its customers and hence the
Group is not exposed to significant credit risk. All customers are required to pay in advance of the storage period.
Late charges are applied to a customer’s account if they are more than 10 days overdue in their payment. The
Group provides for receivables based upon sales levels and estimated recoverability. There is a right of lien over the
customers’ goods, so if they have not paid within a certain time frame the Company has the right to sell the items
they store to cover the debt owed by the customer. Trade receivables that are overdue are provided for based on
estimated irrecoverable amounts, determined by reference to past default experience.
For individual self-storage customers the Group does not perform credit checks. However this is mitigated by the
fact that all customers are required to pay in advance, and also to pay a deposit of four weeks’ storage income.
Before accepting a new business customer who wishes to use a number of the Group’s stores, the Group uses an
external credit rating to assess the potential customer’s credit quality and defines credit limits by customer. There are
no customers who represent more than 5% of the total balance of trade receivables.
In respect of its document storage business, customers are invoiced typically monthly in advance for the storage
of their boxes, tapes and files. The provision of additional services, such as document boxes or tape collection
and retrieval from archive, typically are invoiced monthly in arrears. The serviced archive segment with over 450
customers has a greater customer concentration – refer note 1(b) segmental analysis.
Included in the Group’s trade receivables balance are receivables with a carrying amount of £223,092 (2017: £268,252)
which are past due at the reporting date for which the Group has not provided as there has not been a significant change
in credit quality and the amounts are still considered recoverable. The Group holds a right of lien over its self-storage
customers’ goods if these debts are not paid. The average age of these receivables is 41 days past due (2017: 43 days
past due).
78
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 Ageing of past due but not impaired receivables
0–30 days
30–60 days
60+ days
Total
Movement in the allowance for bad debts
Balance at the beginning of the year
Impairment losses recognised
Amounts written off as uncollectible
Balance at the end of the year
Group
2018
£’000
100
85
38
223
Group
2018
£’000
188
40
(36)
192
Group
2017
£’000
97
121
50
268
Group
2017
£’000
186
34
(32)
188
The concentration of credit risk is limited due to the customer base being large and unrelated. Accordingly, the
Directors believe that there is no further provision required.
Ageing of impaired trade receivables
0–30 days
30–60 days
60+ days
Total
15 Trade and other payables
Trade payables
Taxation and social security costs
Other payables
Accruals and deferred income
Group
2018
£’000
–
–
192
192
Group
2018
£’000
1,102
313
1,340
2,404
5,159
Group
2017
£’000
–
–
188
188
Group
2017
£’000
818
288
1,692
2,234
5,032
The Directors consider that the carrying amount of trade and other payables approximates fair value.
79
Strategic ReportOverviewGovernanceFinancial Statements 16 Financial instruments
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while
maximising the return to shareholders through the optimisation of the debt and equity balance. The capital structure of
the Group consists of debts, which include the borrowings disclosed in note 17, cash and cash equivalents and equity
attributable to the owners of the parent, comprising issued capital, reserves and retained earnings as disclosed in the
Consolidated Statement of Changes in Equity. The Group’s banking facilities require that management give regular
consideration to interest rate hedging strategy. The Group has complied with this during the year.
The Group’s Board reviews the capital structure on an on-going basis. As part of this review, the Board considers the
cost of capital and the risks associated with each class of capital. The Group seeks to have a relatively conservative
gearing ratio (the proportion of net debt to equity) balancing the overall level with the opportunities for the growth of
the business. The Board considers at each review the appropriateness of the current ratio in light of the above. The
Board is currently satisfied with the Group’s gearing ratio.
The gearing ratio at the year-end is as follows:
Capital Management
Gross borrowings
Cash and cash equivalents
Net debt
Total equity
Net debt to equity ratio
Group
2018
£’000
(37,335)
4,990
(32,345)
103,251
31.3 %
Group
2017
£’000
(28,816)
11,386
(17,430)
89,119
19.6 %
The increase in the Group’s gearing ratio arises principally through the acquisition of our Bournemouth, Bedford,
Cardiff, Cheshunt and Leicester sites funded by bank borrowings, mitigated by the combined effect of an increase in
the value of its properties, and the cash generated from operations.
Exposure to credit and interest rate risk arises in the normal course of the Group’s business.
A Derivative financial instruments and hedge accounting
The Group’s activities expose it primarily to the financial risks of interest rates. Historically the Group has hedged
through the deployment of interest rate swaps although the Group had no such instruments in place at 31 July 2017
or 31 July 2018. The Board continues to keep its hedging policy under periodic review.
B Debt management
Debt is defined as non-current and current borrowings, as detailed in note 17. Equity includes all capital and reserves
of the Group. The Group is not subject to externally imposed capital requirements.
The Group borrows through a revolving credit facility with Royal Bank of Scotland plc secured on its store portfolio
and other Group assets, excluding intangibles, with a net book value of £161.6 million (2017: £136.2 million).
Borrowings are arranged to ensure the Group fulfils its strategy of growth and development of its stores and to
maintain short-term liquidity. As at the reporting date the Group has a committed revolving credit facility of £50
million (2017: £40 million). This facility expires on 15 January 2023. Undrawn committed facilities at the year-end
amounted to £12.7 million (2017: £11.2 million).
C Interest rate risk management
The Group’s policy on interest rate management is agreed at Board level and is reviewed on an on-going basis. All
borrowings are denominated in Sterling and are detailed in note 17. The Group has a number of revolving loans within
its overall revolving credit facility and as such is exposed to interest rate risks at the time of renewal arising from any
upward movement in the LIBOR rate.
80
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 Cash balances held in current accounts attract no interest but surplus cash is transferred daily to a treasury deposit
account which earns interest at the prevailing money market rates1. All amounts are denominated in Sterling. The
balances at 31 July 2018 are as follows:
Variable rate treasury deposits1
SIP trustee deposits
Cash in operating current accounts
Other cash and cash equivalents
Total cash and cash equivalents
Group
2018
£’000
4,337
40
582
31
Group
2017
£’000
11,048
5
285
48
4,990
11,386
1
Money market rates for the Group’s variable rate treasury deposit track Royal Bank of Scotland plc base rate. The rate attributable to the variable rate
deposits at 31 July 2018 was 0.1% (2017: 0.1%).
The Group reviews the current and forecast projections of cash flow, borrowing and interest cover as part of its
monthly management accounts review. In addition, an analysis of the impact of significant transactions is carried out
regularly, as well as a sensitivity analysis of the impact of movements in interest rates on gearing and interest cover.
D Interest rate sensitivity analysis
Over the longer term, significant changes in interest rates may have an impact on consolidated earnings.
At 31 July 2018, it is estimated that an increase of one percentage point in interest rates would have reduced the
Group’s annual profit before tax by £373,345 (2017: £288,156) and conversely a decrease of one percentage point in
interest rates would have increased the Group’s annual profit before tax by £373,345 (2017: £288,156). There would
have been no effect on amounts recognised directly in other comprehensive income. The sensitivity has been calculated
by increasing by 1% the average variable interest rate of 1.85% applying to the variable rate borrowings of £37.3 million in
the year (2017: £28.8 million / 1.66%).
E Cash management and liquidity
Ultimate responsibility for liquidity risk management rests with the Board of Directors, which has built an appropriate
liquidity risk management framework for the management of the Group’s short, medium and long-term funding and
liquidity management requirements. The Group manages liquidity risk by maintaining adequate reserves, banking
facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching
the maturity profiles of financial assets and liabilities. Included in note B above is a description of additional undrawn
facilities that the Group has at its disposal to further reduce liquidity risk.
Short-term money market deposits are used to manage liquidity whilst maximising the rate of return on cash
resources, giving due consideration to risk.
F Foreign currency management
The Group operates solely in the United Kingdom and as such all of the Group’s financial assets and liabilities are
denominated in Sterling and there is no exposure to exchange risk.
G Credit risk
The credit risk management policies of the Group with respect to trade receivables are discussed in note 14.
The credit risk on liquid funds is limited because the counterparty is a bank with high credit ratings assigned by
international credit-rating agencies, in line with the Group’s policy which is to borrow from major institutional banks
when arranging finance.
The Group’s maximum exposure to credit risk at 31 July 2018 was £3.06 million (2017: £2.34 million) on receivables
and £4.99 million (2017: £11.39 million) on cash and cash equivalents.
81
Strategic ReportOverviewGovernanceFinancial Statements 16 Financial instruments continued
H Maturity analysis of financial liabilities
The undiscounted contractual cash flow maturities are as follows:
2018 - Group
Over five years
From two to five years
From one to two years
Due after more than one year
Due within one year
Total contractual undiscounted cash flows
2017 - Group
Over five years
From two to five years
From one to two years
Due after more than one year
Due within one year
Total contractual undiscounted cash flows
I Fair values of financial instruments
Categories of financial assets and financial liabilities
Financial assets – loans and receivables
Trade and other receivables1
Cash and cash equivalents
Development loan capital
Financial liabilities – other financial liabilities at amortised cost
Trade and other payables
Bank loans
Trade and
other payables
£’000
Borrowings
£’000
Interest on
borrowings
£’000
–
–
–
–
2,728
2,728
Trade and
other payables
£’000
–
–
–
–
2,934
2,934
–
37,335
–
37,335
–
37,335
Borrowings
£’000
28,816
–
–
28,816
–
28,816
–
1,307
532
1,839
532
2,371
Interest on
borrowings
£’000
219
1,438
479
2,136
479
2,615
Group
2018
£’000
Group
2017
£’000
4,616
4,990
–
3,967
11,386
3,463
(2,728)
(37,170)
(2,934)
(28,670)
1
Includes £361,460 relating to fees receivable in 2022 from the Aldershot managed store currently classified as a non-current asset (measured at fair value).
The fair values of the Group’s cash and short-term deposits and those of other financial assets equate to their
carrying amounts. The Group’s receivables and cash and cash equivalents are all classified as loans and receivables
and carried at amortised cost. The amounts are presented net of provisions for doubtful receivables and allowances
for impairment are made where appropriate. Trade and other payables and bank borrowings are all classified as
financial liabilities measured at amortised cost.
82
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 J Company’s financial instruments
The Company’s financial assets are amounts owed by subsidiary undertakings amounting to £13.9 million (2017:
£13.0 million) which are classified as loans and receivables, and the investment in its subsidiary undertaking of £0.1
million (excluding capital contributions). These amounts are denominated in Sterling, are non-interest bearing, are
unsecured and fall due for repayment within one year. No amounts are past due or impaired. The Company has no
financial liabilities.
17 Borrowings
Non-current
Bank loans repayable in more than five years (Gross)
Bank loans repayable in more than two years but not more than five years (Gross)
Deferred financing costs
Net bank borrowings
Non-current borrowings
Group
2018
£’000
–
37,335
(165)
37,170
37,170
Group
2017
£’000
28,816
–
(146)
28,670
28,670
The Group has an existing banking facility with Royal Bank of Scotland plc (RBS). The facility runs until January 2023
providing funding for more site acquisitions and working capital. The Group is not obliged to make any repayments
prior to its expiration in January 2023.
In February 2018 the Group executed its £10 million accordion increasing its £40 million Banking Facility to £50
million. The increased facility will provide funding for site acquisitions and working capital to support the Group’s
ambitious growth plans for more landmark site acquisitions and working capital.
Bank covenants and margin are unaffected following the increased facility with the interest rate margin at the London
Inter-Bank Offer Rate (LIBOR) plus 1.40%–1.65% based on a loan to value covenant test. This rate is 1.40% currently
and the all in debt cost on £37.3 million drawn averaged 1.85% in the year.
The Group currently has £37.3 million drawn against its existing £50 million facility. The £50 million revolving credit
facility with RBS is secured by legal charges and debentures over the freehold and leasehold properties and other
tangible assets of the business with a net book value of £152.6 million (2017: £120.4) million together with cross-
company guarantees from Group companies.
83
Strategic ReportOverviewGovernanceFinancial Statements 18 Deferred tax
Deferred tax liability
Liability at start of year
Credited to income for the year
Tax credited directly to other comprehensive income
Debit / (credit) to share based payment reserve
Liability at end of year
Group
2018
£’000
16,363
644
2,698
30
19,735
Group
2017
£’000
15,361
112
932
(42)
16,363
The following are the major deferred tax liabilities and assets recognised by the Group and the movements during
the year:
Accelerated
Capital
Allowances
£’000
Intangible
assets
£’000
Other
temporary
differences
£’000
At 1 August 2016
Charge/(credit) to income for
the year
Charge to other comprehensive
income
Charge to share based
payment reserve
At 31 July 2017
Charge/(credit) to income for
the year
Charge to other comprehensive
income
Charge to share based
payment reserve
1,855
341
–
–
2,196
683
–
–
447
(53)
–
–
394
(28)
–
–
24
(7)
–
–
17
–
–
–
Revaluation
of properties
£’000
10,961
–
920
–
11,881
–
2,687
–
Rolled over
gain on
disposal
£’000
Share
options
£’000
Total
£’000
2,323
(189)
(249)
15,361
20
112
12
–
2,146
(11)
11
–
–
932
(42)
(42)
(271)
16,363
–
–
644
2,698
30
30
At 31 July 2018
2,879
366
17
14,568
2,146
(241)
19,735
19 Share capital
Authorised:
35,000,000 ordinary shares of 1 pence each (2017: 35,000,000)
2018
£’000
350
2017
£’000
350
Allotted, issued and fully paid ordinary shares
£’000
£’000
Balance 1 August
Options exercised 193,692 (2017: 193,601)
Balance 31 July
Number of shares at 31 July
The Company has one class of ordinary shares which carry no right to fixed income.
84
293
2
295
291
2
293
Called up,
allotted and
fully paid
Number
Called up,
allotted and
fully paid
Number
29,498,615
29,302,923
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 20 Equity settled share-based payment plans
The Group operates two equity-settled share-based payment plans, an approved and an unapproved share option
scheme, the rules of which are similar in all material respects.
The Company has the following share options:
2018 Summary
As at
31 July 2017
No of options
Unapproved Share Options (refer note 22(a))
964,108
Unapproved Share Options (LTPRP Scheme
– refer note 22(b))
Approved CSOP Share Options (refer note 23)
Total
2017 Summary
Unapproved Share Options
Approved CSOP Share Options
Total
135,378
1,099,486
As at
31 July 2016
No of options
1,094,482
166,011
1,260,493
Granted
Exercised
4,343
140,000
21,493
165,836
(145,095)
–
(55,814)
(200,909)
Granted
Exercised
44,031
20,486
64,517
(150,408)
(43,193)
(193,601)
Lapsed/
surrendered
As at
31 July 2018
No of options
(5,805)
–
817,551
140,000
(8,858)
(14,663)
92,199
1,049,750
Lapsed/
surrendered
As at
31 July 2017
No of options
(23,997)
(7,926)
(31,923)
964,108
135,378
1,099,486
The following table shows options held by Directors under all schemes:
Total at
31 July
2017
Options
granted
Options
Exercised/
lapsed
Unapproved
Scheme
Approved
CSOP share
options
Total at
31 July
2018
2018
Executive Directors
A Jacobs – Unapproved
RA Davies – Unapproved
RA Davies – CSOP
RA Davies total
N Newman-Shepherd – Unapproved
N Newman-Shepherd – CSOP
N Newman-Shepherd total
Non-Executive Directors
SG Thomas – Unapproved
ETD Luker – Unapproved
All Directors total
206,087
256,977
7,742
264,719
197,421
13,661
211,082
25,217
15,000
722,105
–
–
–
–
–
–
–
–
–
–
(10,000)
–
(10,000)
(25,000)
(3,000)
(28,000)
206,087
246,977
–
246,977
172,421
–
172,421
–
25,217
–
(15,000)
(53,000)
–
–
7,742
7,742
–
10,661
10,661
206,087
246,977
7,742
254,719
172,421
10,661
183,082
–
–
25,217
–
650,702
18,403
669,105
The grant of options to Executive Directors and senior management is recommended by the Remuneration Committee
on the basis of their contribution to the Group’s success. The options vest after two and a half or three years.
The exercise price of the options is equal to the closing mid-market price of the shares on the trading day previous to
the date of the grant. Exercise of an option is subject to continued employment or in the case of unapproved options
at the discretion of the Board. The life of each option granted is six and a half to seven years. There are no cash
settlement alternatives.
The expected volatility is based on a historical review of share price movements over a period of time, prior to the
date of grant, commensurate with the expected term of each award. The expected term is assumed to be six years
which is part way between vesting (two and a half to three years after grant) and lapse (10 years after grant). The risk
free rate of return is the UK gilt rate at date of grant commensurate with the expected term (i.e. six years).
The total charge for the year relating to employer share-based payment schemes was £33,339 (2017: £96,985), all of
which relates to equity-settled share-based payment transactions.
85
Strategic ReportOverviewGovernanceFinancial Statements 21 Enterprise Management Initiative Scheme
The Company operated a share option scheme under the Enterprise Management Initiative (EMI).
The Group has for some years no longer met the EMI Scheme qualifying criteria. Accordingly, there were no options
issued under this scheme during the year, and no options remained at the year end. The scheme is now closed.
22(a) Unapproved Share Options
The Company issues unapproved share options, the vesting conditions of which have been met.
Movements in the year are shown below:
Outstanding at 1 August
Granted during the year
Forfeited during the year
Exercised during the year
Outstanding at 31 July
Exercisable at 31 July
Options
2018
number
964,108
4,343
(5,805)
(145,095)
817,551
718,453
Weighted average
exercise price
2018
pence
167.57
402.50
387.50
126.23
174.59
150.79
Options
2017
number
1,094,482
44,031
(23,997)
(150,408)
964,108
758,366
Weighted average
exercise price
2017
pence
159.85
387.50
223.37
166.92
167.57
146.63
The options outstanding at 31 July 2018 had a weighted average remaining contractual life of 6.6 years (2017: 6.3 years).
The exercise prices for shares exercisable at 31 July 2018 ranged from 56.0 pence per share to 287.5 pence per share.
The following sets out the movements in the year in respect of unapproved share options held by the Directors
of the Company.
As at
31 July
2017 Granted
Exercised/
lapsed
As at
31 July
2018
Exercise
price (pence)
Date
from which
exercisable
Expiry
date
A Jacobs
S Thomas
R Davies
206,087
25,217
256,977
N Newman-Shepherd
197,421
ETD Luker
Total
15,000
700,702
–
–
–
–
–
–
–
206,087
1.085 – 2.855
31/7/15 – 6/8/18
31/7/22 – 6/8/25
25,217
2.070 – 2.855
31/7/17 – 6/8/18
31/1/24 – 6/8/25
(10,000)
246,977
0.850 – 2.135 31/7/10 – 31/7/17 31/7/17 – 31/7/27
(25,000)
172,421
1.070 – 3.875 31/7/11 – 31/7/20 31/7/18 – 31/7/27
(15,000)
–
0.565
31/7/12
31/7/19
(50,000)
650,702
22(b) Unapproved Share Options – Long Term Partnership Performance Plan (LTPPP)
On 2 July 2018 the Group adopted a Company Long Term Partnership Performance Plan (LTPPP).
The Plan is a discretionary benefit offered by the Company for the benefit of selected key employees. Its main
purpose is to increase the interest of the employees in the Group’s long term business goals and performance
through share ownership.
Shares purchased or received under the Plan, any cash received under the Plan and any gains obtained under the
Plan are not part of salary for any purpose except to any extent required by statute. The Remuneration Committee of
the Board of the Company shall have the right to decide, in its sole discretion, whether or not awards will be granted
and to which employees those awards will be granted.
86
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 A summary of the structure and rules of the Plan are set out below:
Structure
• Options are granted on Lok’nStore Group Plc shares
• The exercise price is at £6 is well above the current price to allow the issuance of more options increasing
member returns if ambitious targets are hit
• Options are to be issued to participants in 5 annual tranches from July 2018 to July 2022
• Participants will have 10 years to exercise from vesting dates
• Performance criteria are geared to achievement of ambitious long term plan
• Twin performance targets of share price and CAD thresholds for each award. CAD thresholds to be determined
each year by the Remuneration Committee
• Alternative exercise methods can be considered by the Group:
–
–
–
Participants may exercise and hold – paying tax arising
Participants may exercise and sell – paying tax arising
Group delivers net profit to participants in cash or shares
Main Rules & Conditions
• Conditional on participants remaining in employment with the Group
• Replaces LTPRP for participating members
• Existing cash bonus schemes remain in place
• All options vest if there is a change of control
•
Includes Good / Bad Leaver clauses
• The Scheme is entirely at the discretion of the Remuneration Committee who act on behalf of the Board
Movements in the year are shown below:
Outstanding at 1 August
Granted during the year
Outstanding at 31 July
Exercisable at 31 July
Options 2018
number
Weighted average
exercise price
2018 pence
–
140,000
140,000
–
–
600.00
600.00
–
Post Balance Sheet: The following unapproved share options have been granted to Directors of the Company on
7 August 2018.
A Jacobs
R Davies
N Newman-Shepherd
Total
As at
31 July
2018
–
–
–
–
As at
7 August
2018
40,000
40,000
60,000
Exercise
price (pence)
Date
from which
exercisable
Expiry
date
600.00
600.00
600.00
31/07/2023
31/07/2033
31/07/2023
31/07/2033
31/07/2023
31/07/2033
Granted
40,000
40,000
60,000
140,000
140,000
87
Strategic ReportOverviewGovernanceFinancial Statements 23 CSOP Approved Share Options
On 2 June 2010 the Group adopted a Company Share Option Plan (CSOP). The CSOP achieved HMRC approval on
28 June 2010. There are no performance conditions attached to share options issued under CSOP.
Movements in the year are shown below:
Outstanding at 1 August
Granted during the year
Forfeited/surrendered during the year
Exercised during the year
Outstanding at 31 July
Exercisable at 31 July
Options
2018
number
135,378
21,493
(8,858)
(55,814)
92,199
39,537
Weighted average
exercise price
2018
pence
250.22
402.50
338.65
193.46
311.59
222.27
Options
2017
number
166,009
20,488
(7,926)
(43,193)
135,378
81,880
Weighted average
exercise price
2017
pence
206.05
387.50
260.51
143.66
250.22
191.90
The options outstanding at 31 July 2018 had a weighted average remaining contractual life of 9.9 years (2017: 8.7 years).
The exercise prices for shares exercisable at 31 July 2018 ranged from 107.00 pence per share to 287.50 pence per share.
The inputs into the Black-Scholes model used to value the options granted during the year are as follows:
Date of grant
31 July 2018
Expected
life
(years)
Share price at
date of grant
(pence)
Exercise
price
Expected
volatility
(pence)
6.50
402.50
402.50
Expected
dividend
yield
(%)
Risk free
interest
rate
(%)
Fair value
charge per
award
(pence)
2.57
1.15
72.0
(%)
24.59
The following CSOP approved share options have been granted to Directors of the Company.
As at
31 July
2017 Granted
Exercised/
lapsed
As at
31 July
2018
Exercise
price
(pence)
Date
from which
exercisable
Expiry Date
R Davies
7,742
N Newman-Shepherd
13,661
21,403
–
–
–
–
7,742
3.875
31/7/20
31/7/27
(3,000)
(3,000)
10,661
1.070 – 3.875
31/7/14 – 31/7/20 31/7/21 – 31/7/27
18,403
24(a) Other reserves
Group
1 August 2016
Share based remuneration (options)
IFRS 2 – transfer (to)/ from retained earnings
Cash flow hedge reserve net of tax
Tax charge relating to share options
31 July 2017
Share based remuneration (options)
IFRS 2 – transfer (to)/ from retained earnings
Cash flow hedge reserve net of tax
Tax charge relating to share options
31 July 2018
Cash flow
hedge
reserve
£’000
Merger
reserve
£’000
Other
reserve
£’000
Capital
redemption
reserve
£’000
Share-based
payment
reserve
£’000
(37)
6,295
1,294
–
–
37
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
6,295
1,294
–
–
–
–
–
–
–
–
6,295
1,294
34
–
–
–
–
34
–
–
–
–
34
846
97
(139)
–
42
846
33
(109)
–
(30)
740
Total
£’000
8,432
97
(139)
37
42
8,469
33
(109)
–
(30)
8,363
88
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 The merger reserve represents the excess of the nominal value of the shares issued by Lok’nStore Group Plc over
the nominal value of the share capital and share premium of Lok’nStore Limited as at 31 July 2001.
The other distributable reserve and the capital redemption reserve arose in the year ended 31 July 2004 from the
purchase of the Company’s own shares and a cancellation of share premium.
Share based payment reserve
Under IFRS2 there is the option to make transfers from the share based payment reserve to retained earnings
in respect of accumulated share option charges where the options have either been exercised or have lapsed
post-vesting. The total amounts calculated and accordingly transferred to retained earnings amounted to
£109,218 (2017: £138,755).
24(b) Other reserves
Company
1 August 2016
Share based remuneration (options)
IFRS 2 – transfer to retained earnings
31 July 2017
Share based remuneration (options)
IFRS 2 – transfer to/from retained earnings
31 July 2018
25(a) Retained earnings
Group
1 August 2016
Profit attributable to owners of Parent for the financial year
Transfer from revaluation reserve
(Additional depreciation on revaluation)
Transfer from share based payment reserve (note 24(a))
Transfer realised gain on asset disposal
Dividend paid
31 July 2017
Profit attributable to owners of Parent for the financial year
Transfer from revaluation reserve
(Additional depreciation on revaluation)
Transfer from share based payment reserve (note 24(a))
Dividend paid
31 July 2018
Other
reserve
£’000
1,114
–
–
1,114
–
–
1,114
Share-based
payment reserve
£’000
847
97
(139)
805
33
(109)
729
Total
£’000
1,961
97
(139)
1,919
33
(109)
1,843
Retained
earnings before
deduction of
own shares
£’000
17,824
3,061
277
139
–
(2,637)
18,664
3,757
291
109
(2,977)
19,844
Own shares
(note 26)
£’000
(4,241)
–
–
–
3,741
–
(500)
–
–
–
–
(500)
Retained
earnings Total
£’000
13,583
3,061
277
139
3,741
(2,637)
18,164
3,757
291
109
(2,977)
19,344
The transfer from revaluation reserve represents the additional depreciation charged on revalued assets net of
deferred tax.
The Own Shares Reserve represents the cost of shares in Lok’nStore Group Plc purchased in the market and held
in the Employee Benefit Trust to satisfy awards made under the Group’s share incentive plan and shares purchased
separately by Lok’nStore Limited for Treasury Account. These treasury shares were not cancelled and have been
released back into the market to assist liquidity of the Company’s stock and to provide availability of a reasonable
line of stock to satisfy investor demand.
89
Strategic ReportOverviewGovernanceFinancial Statements 25(b) Retained earnings
Company
1 August 2016
1 August 2016 – As restated
Profit attributable to owners of Company for the financial year
Transfer from share based payment reserve (note 24(a))
Disposal of treasury shares – restated
Dividend paid
31 July 2017
Profit attributable to owners of Company for the financial year
Transfer from share based payment reserve (note 24(a))
Dividend paid
31 July 2018
Retained
earnings before
deduction of
own shares
£’000
Own shares
(note 26)
£’000
Retained
earnings Total
£’000
117
117
5,547
139
–
(2,637)
3,166
3,572
109
(2,977)
3,870
–
(3,741)
–
–
3,741
–
–
–
–
–
–
117
(3,624)
5,547
139
3,741
(2,637)
3,166
3,572
109
(2,977)
3,870
Restatement of 2016 Retained Earnings
At the start of the 2017 financial year a total of 2,466,869 of Lok’nStore Group Plc ordinary shares of 1p each were
held for treasury with an aggregate nominal value of £24,669 purchased for an aggregate cost of £3,741,036 at an
average price of £1.503 per share (excluding broker’s commission and stamp duty costs). These shares were sold in
November 2016 and April 2017 to a range of institutional investors, as described in the 2017 Annual Report.
The treasury shares amount of £3,741,000 was previously reported as an investment by Lok’nStore Limited (the
subsidiary) but should have been recognised in Lok’nStore Group Plc’s accounts since they were registered in the
name of the parent company.
The impact of the prior period adjustment in plc is to change the amounts shown as the intercompany balance
with Lok’nStore Limited and the amount shown as own shares at 1 August 2016, which is included within Retained
Earnings on the Statement of Financial Position and disclosed separately in the notes to the accounts.
Accordingly, the comparative 2016 amounts have been restated in the parent company’s accounts. The directors
do not believe that this adjustment would cause the reader of the financial statements to form a different view of the
Statement of Financial Position of the parent company and therefore have not presented a restated balance sheet at
31 July 2016 as they do not believe it is material in the context of the financial statements as a whole.
Review of distributable reserves and rectification of prior dividends (the Relevant Dividends)
The Board has become aware of certain technical issues relating to the levels of distributable reserves within the
Lok’nStore Group and the payment of interim and final dividends by Lok’nStore Group Plc to our shareholders during
the period from 2013 to 2016 ('the Relevant Dividends').
Lok’nStore’s Group structure is that almost all of the self-storage operations and assets and cash sit within the
principal operating subsidiary Lok’nStore Limited. Lok’nStore Group Plc is of itself a non-trading holding company.
Throughout this period at all relevant times, the Group had adequate distributable reserves in subsidiary companies
to enable payment of the Relevant Dividends, and each year payment of the final dividends was approved by the
Company's shareholders at its annual general meeting.
90
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 However, a review of historical intra-group transactions revealed that dividends were not paid up from Lok’nStore
Limited to Lok’nStore Group Plc in the period from 2013 to 2016 and thereby did not create distributable reserves
in Lok’nStore Group Plc in the manner that had been intended. As a consequence, the Relevant Dividends paid by
Lok’nStore Group Plc were not paid out of distributable reserves and were therefore not paid in accordance with the
Companies Act 2006.
We are undertaking a series of procedural steps in order to rectify this issue and put the Company and its subsidiaries,
in the position that was originally intended with respect to the creation of distributable reserves in Lok’nStore Group Plc.
We will put a resolution to shareholders at the forthcoming Annual General meeting to be held on 11 December 2018
which, if passed, would put all potentially affected parties, in so far as possible, in the position they would be had the
Relevant Dividends been paid in accordance with the requirements of the Companies Act 2006.
Full details will be included in the circular and notice of general meeting to be sent to shareholders.
26 Own shares
31 July 2017 and 31 July 2018
EBT
shares
Number
623,212
EBT
shares
£
499,910
Treasury
shares
Number
–
Treasury
shares
£
Own shares
total
£
–
499,910
Employee Benefit Trust (EBT): The Group operates an Employee Benefit Trust (EBT) under a settlement dated 8 July
1999 between Lok’nStore Limited and Lok’nStore Trustee Limited, constituting an employees’ share scheme.
Funds are placed in the trust by way of deduction from employees’ salaries on a monthly basis as they so instruct
for purchase of shares in the Company. Shares are allocated to employees at the prevailing market price when the
salary deductions are made.
As at 31 July 2018, the Trust held 623,212 (2017: 623,212) ordinary shares of 1 pence each with a market value of
£2,508,428 (2017: £2,414,947). No shares were transferred out of the scheme during the year (2017: nil).
No options have been granted under the EBT. The EBT waived its dividends in full. No other dividends were waived
during the year.
27 Cash flows
(a) Reconciliation of profit before tax to cash generated from operations
Profit before tax
Depreciation
Amortisation of intangible assets
Equity settled share based payments
Warranty Claims
Carried interest – fees receivable
Property disposal costs
Store relocation costs
Director retirement costs
Finance income
Finance cost
Increase in inventories
Increase in receivables
Increase/decrease in payables
Cash generated from operations
Group
2018
£’000
5,325
1,980
165
33
(230)
(361)
–
–
–
(80)
463
(54)
(571)
312
6,982
Group
2017
£’000
3,965
1,856
165
97
–
–
15
29
69
(309)
606
(38)
(284)
(648)
5,523
91
Strategic ReportOverviewGovernanceFinancial Statements 27 Cash flows continued
(b) Reconciliation of net cash flow to movement in net debt
Net debt is defined as non-current and current borrowings, as detailed in note 17 less cash and cash equivalents.
(Decrease) / increase in cash in the year
Change in net debt resulting from cash flows
Movement in net debt in year
Net debt brought forward
Net debt carried forward
Group
2018
£’000
(6,396)
(8,519)
(14,915)
(17,430)
(32,345)
Group
2017
£’000
6,051
–
6,051
(23,481)
(17,430)
28 Commitments under operating leases
At 31 July 2018 the total future minimum lease payments as a lessee under non-cancellable operating leases were
as follows:
Land and buildings
Amounts due:
Within one year
Between two and five years
After five years
Total
Group
2018
£’000
1,467
5,868
7,036
14,371
Group
2017
£’000
1,469
5,868
6,600
13,937
Operating lease payments represent rentals payable by the Group for certain of its properties. Typically leases are
negotiated for a term of 20 years and rentals are fixed for an average of five years.
29 Related party transactions
The Company provides share options for the employees of Lok’nStore Limited. The capital contributions arising from
these share-based payments are separately disclosed under investments in note 11.
The aggregate remuneration of the Directors, and the other key management personnel of the Group, is set out
below. Further information on the remuneration of individual Directors is found in note 6.
Short term employee benefits – Directors
Short term employee benefits – Other key management
Post-employment benefits – Directors
Post-employment benefits – Other key management
Share-based payments
Total
Group
2018
£’000
717
320
33
6
33
Group
2017
£’000
1,000
312
33
6
97
1,109
1,448
As part of a review of its management personnel the Group recognised a number of management personnel that it
felt were important to retain within the business in order for it to achieve its strategic plan. Accordingly these were
recognised as key personnel and are participants in the new Long Term Performance Plan (see note 22(b)). They are
included in the table above. For consistency the 2017 figures include their comparative figures.
92
Notes to the Financial Statements continuedFor the year ended 31 July 2018Lok’nStore Group Plc Annual Report and Accounts 2018 Group Director shareholdings – dividends received
In respect of the total dividends paid during the year of £2,976,689, the Group directors received the amounts set out
in the table below:
Director's Dividend Income
Holding No.
Final 2017
7.67 pence
per share
£
Interim 2017
3.33 pence
per share
Executive:
A Jacobs
RA Davies
N Newman-Shepherd
Non-Executive:
SG Thomas
RJ Holmes
ETD Luker
CP Peal
Total
5,204,600
364,392
62,934
9,300
1,780,000
273,674
28,800
513,561
7,872,869
4,325
231
126,000
19,157
966
35,949
551,020
171,752
2,064
307
58,740
9,031
455
16,948
259,297
Managed Stores – Group Director shareholdings.
Although the director holdings in Managed Stores falls outside of the definition of related party transactions they are
disclosed here for transparency and are set out in the table below:
Director
Andrew Jacobs
Charles Peal
Simon Thomas
Total shareholding
Issued Share Capital
% of Issued Share Capital
Chichester
No of shares
Broadstairs
No of shares
Exeter
No of shares
36,800
38,160
–
–
36,800
189,341
19.4%
–
–
38,160
189,690
20.1%
240,000
500,000
160,000
900,000
3,970,000
22.7%
30a Capital commitments and guarantees
The Group has capital expenditure contracted but not provided for in the financial statements of £3.38 million (2017:
£2.60 million) relating to building contracts on its Cardiff development site as well as building retentions outstanding
on the completed Bristol, Southampton, Gillingham and Wellingborough stores.
30b Bank borrowings
The Company has guaranteed the bank borrowings of Lok’nStore Limited, a subsidiary company. As at the year-end,
that company had gross bank borrowings of £37.3 million (2017: £28.8 million).
31 Events after the reporting date
a) Planning permission obtained on the Leicester site
On 17 August 2018, planning permission was granted for the construction of a self-storage centre.
b) Planning permission obtained on the Cardiff site
On 22 August 2018, planning permission was granted for the change of use of the trading site to B8 Self Storage use.
c) Planning permission obtained on the Gloucester site
On 5 September 2018, planning permission was granted for the construction of a self-storage centre.
d) Sale of surplus land at rear of Southampton store
Following the development and opening of the new Southampton store there remained surplus land to the rear of
the building which could be sold or used for alternative use. On 25 October 2018, the surplus land was sold for
£800,000. The Directors have placed a value at the year-end in the financial statements on this land of £0.5 million.
93
Strategic ReportOverviewGovernanceFinancial Statements Glossary
Abbreviation
Adjusted EBITDA
Earnings before all depreciation and amortisation charges, losses or profits on disposal,
share-based payments, acquisition costs, and non-recurring professional costs, finance
income, finance costs and taxation
Adjusted Store EBITDA
Adjusted EBITDA (see above) but before central and head office costs
AGM
APD
Bps
CAC
CAD
Capex
CGU
CO e
CSOP
EBT
EMI
ESOP
EU
GHG
HMRC
IAS
IFRIC
IFRS
JLL
LIBOR
LFL
LTV
MWh
NAV
NBV
Annual General Meeting
Auditing Practices
Basis Points
Contributory asset charges
Cash available for Distribution
Capital Expenditure
Cash generating units
Carbon Dioxide Emissions
Company Share Option Plan
Employee Benefit Trust
Enterprise Management Incentive Scheme
Employee Share Option Plan
European Union
Greenhouse gas
Her Majesty’s Revenue & Customs
International Accounting Standard
International Financial Reporting Interpretations Committee
International Financial Reporting Standards
Jones Lang LaSalle Limited
London Interbank Offered Rate
Like for like
Loan to Value Ratio
Megawatt Hour
Net Asset Value
Net book value
Operating Profit
Earnings before interest and tax (EBIT)
Photovoltaic
Royal Institution of Chartered Surveyors
Square Feet
Total voting rights
Value Added Tax
PV
RICS
sq. ft.
TVR
VAT
94
Lok’nStore Group Plc Annual Report and Accounts 2018 Our Stores
Head Office
Lok’nStore Plc
112 Hawley Lane
Farnborough
Hampshire
GU14 8JE
Tel 01252 521010
www.loknstore.co.uk
www.loknstore.com
Central Enquiries
0800 587 3322
info@loknstore.co.uk
www.loknstore.co.uk
Owned Stores – Trading
Basingstoke
Crockford Lane
Chineham
Basingstoke
Hampshire
RG24 8NA
Tel 01256 474700
basingstoke@loknstore.co.uk
Bristol
Longwell Green Trade Park
Aldermoor Way
Bristol
BS30 7ET
Tel 01179 677055
Bristol@loknstore.co.uk
Crayford
Block B
Optima Park
Thames Road
Crayford
Kent
DA1 4QX
Tel 01322 525292
crayford@loknstore.co.uk
Eastbourne
Unit 4, Hawthorn Road
Eastbourne
East Sussex
BN23 6QA
Tel 01323 749222
eastbourne@loknstore.co.uk
Fareham
26 + 27 Standard Way
Fareham Industrial Park
Fareham
Hampshire
PO16 8XJ
Tel 01329 283300
fareham@loknstore.co.uk
Farnborough
112 Hawley Lane
Farnborough
Hampshire
GU14 8JE
Tel 01252 511112
farnborough@loknstore.co.uk
Gillingham
Courtney Road
Gillingham
Kent
ME8 0RT
Luton
27 Brunswick Street
Luton
Bedfordshire
LU2 0HG
Tel 01582 721177
luton@loknstore.co.uk
Maidenhead
Stafferton Way
Maidenhead
Berkshire
SL6 1AY
Tel 01628 878870
maidenhead@loknstore.co.uk
Milton Keynes
Etheridge Avenue
Brinklow
Milton Keynes
Buckinghamshire
MK10 0BB
Tel 01634 366044
gillingham@loknstore.co.uk
Tel 01908 281900
miltonkeynes@loknstore.co.uk
Harlow
Edinburgh Way
Temple Fields
Harlow
Essex
CM20 2GF
Tel 01279 882366
harlow@loknstore.co.uk
Horsham
Blatchford Road
Redkiln Estate
Horsham
West Sussex
RH13 5QR
Tel 01403 272001
horsham@loknstore.co.uk
Northampton Central
16 Quorn Way
Grafton Street Industrial Estate
Northampton
NN1 2PN
Tel 01604 629928
nncentral@loknstore.co.uk
Northampton Riverside
Units 1–4, Carousel Way
Northampton
Northamptonshire
NN3 9HG
Tel 01604 785522
northampton@loknstore.co.uk
95
Strategic ReportOverviewGovernanceFinancial Statements Tonbridge
Unit 6 Deacon Trading Estate
Vale Road
Tonbridge
Kent
TN9 1SW
Tel 01732 771007
tonbridge@loknstore.co.uk
Wellingborough
19/21 Whitworth Way
Wellingborough
NN8 2EF
Tel: 01634 366044
gillingham@loknstore.co.uk
Owned Stores –
Under Development
Bedford
69 Cardington Road
Bedford
NK42 0BQ
Bournemouth
Land at Wessex Field
Deansleigh Road
Bournemouth
BH7 7DU
Cardiff
234, Penarth Road
Cardiff
CF11 8LR
Cheshunt
Land lying on the South
Side of Halfhide Lane
Turnford
Hertfordshire
Leicester
Part of land forming part of
Freemens Common Road,
Leicester
LE2 7SL
Our Stores continued
Owned Stores – Trading
continued
ParknCruise
Manor House Avenue
Millbrook
Southampton
Hampshire
SO15 0LF
Tel 02380 789966
southampton@parkncruise.co.uk
Poole
50 Willis Way
Fleetsbridge
Poole
Dorset
BH15 3SY
Tel 01202 666160
poole@loknstore.co.uk
Portsmouth
Rudmore Square
Portsmouth
Hampshire
PO2 8RT
Tel 02392 876783
portsmouth@loknstore.co.uk
Reading
251 A33 Relief Road
Reading
Berkshire
RG2 0RR
Tel 01189 58999
reading@loknstore.co.uk
Southampton
Third Avenue
Southampton
Hampshire
SO15 0JX
Tel 02380 783388
southampton@loknstore.co.uk
Sunbury
Unit C, The Sunbury Centre
Hanworth Road
Sunbury on Thames
Middlesex
TW16 5DA
Tel 01932 808466
sunbury@loknstore.co.uk
96
Managed Stores – Trading
Aldershot
251, Ash Road
Aldershot
Hampshire
GU12 4DD
Tel 0845 4856415
aldershot@loknstore.co.uk
Ashford
Wotton Road
Ashford
Kent
TN23 6LL
Tel 01233 645500
ashford@loknstore.co.uk
Broadstairs
Unit 2, Pyramid Business Park
Poorhole Lane
Broadstairs
Kent
CT10 2PT
Tel 01843 863253
broadstairs@loknstore.co.uk
Chichester
17, Terminus Road
Chichester
West Sussex
PO19 8TX
Tel 01243 771840
chichester@loknstore.co.uk
Crawley
Sussex Manor Business Park
Gatwick Road
Crawley
RH10 9NH
Tel 01293 738530
crawley@loknstore.co.uk
Hemel Hempstead
Fortius Point
47, Maylands Avenue
Hemel Hempstead
Hertfordshire
HP2 7DE
Tel 01442 240768
hemelhempstead@loknstore.co.uk
Lok’nStore Group Plc Annual Report and Accounts 2018 Swindon
Kembrey Street
Elgin Industrial Estate
Swindon
Wiltshire
SN2 8UY
Tel 01793 421234
swindoneast@loknstore.co.uk
Woking
Marlborough Road
Woking
GU21 5JG
Tel 01483 378323
woking@loknstore.co.uk
Managed Stores –
Under Development
Dover
Honeywood Parkway
Whitfield
Dover
Kent
CT16 3FJ
Exeter
Land on the West Side
of Matford Park Road
Marsh Barton
Exeter
Devon
Gloucester
Land at Triangle Park
Metz Way
Gloucester
Ipswich,
Part of Site 7
Futura Park
Ipswich
P3 9QH
97
Strategic ReportOverviewGovernanceFinancial Statements Head Office
Lok’nStore Plc
112 Hawley Lane
Farnborough
Hampshire
GU14 8JE
T. 01252 521010
www.loknstore.co.uk
www.loknstore.com
Self Storage